In 2005 it is 1. 67 less than 2 but more than 1. 5 so it is acceptable current ration. The industry 2005 is 1. 6 it is higher than industry average and more liquid the company is 2. In finance, the quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently fully pay back its current liabilities. But in 2005 it is less than 1, exactly . 6 a quick ratio which is lower than the industry average may suggest that the company is taking too much risk by not maintaining an appropriate buffer of liquid resources. Alternatively, a company may have a lower quick ratio due to better credit terms with suppliers than the competitors. A quick ratio industry average in 2005 is 0. 9 and the company’s quick ratio is 0. 96 so it is higher than industry average so company is not taking too much risk 3. Inventory turnover, a high inventory ratio means that the company is efficiently managing and selling its inventory. The faster the inventory sells, the less funds the company has tied up.

Companies have to be careful if they have a high inventory turnover as they are subject to cookouts. In 2005 for inventory turnover average is 8. 4 while in company inventory turnover is only 7. So it is lower than the average it means the company has bad inventory turnover, the owner needs to look at the company’s investment in inventory and determine what inventory is being most productive. 4. Average collection period: Due to the size of transactions, most businesses allow customers to purchase goods or services via credit, but one of the robbers with extending credit is not knowing when the customer will make cash payments.

Therefore, possessing a lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. Ultimately, every business needs cash to pay off its own expenses (such as operating and administrative expenses). The average industry 2005 is days but in the company it’s days 5. The total asset turnover ratio shows the results of all the asset turnover ratios. If there is a problem with any of the asset turnover ratios, the problem will also show p in the total asset turnover ratio. Average of total asset turnover in 2005 is 2. While the company’s total asset turnover is only 2. 08 which means lower than the average. If the total asset ratio is high, then the company is using its assets efficiently to generate sales. If the total asset ratio is too low, then the company is not using its asset base efficiently and effectively enough to generate adequate sales. So the company should take care of total asset turnover ratio to use its assets efficiently. DEBT: 1 . Debt ratio: The debt ratio quantifies how leveraged a company is, and a company’s agree of leverage is often a measure of risk.

When the debt ratio is high, the company has a lot of debt relative to its assets. It is thus carrying a bigger burden in the sense that principal and interest payments take a significant amount of the company’s cash flows, and a hiccup in financial performance or a rise in interest rates could result in default. The company has 53. 3% in debt ratio while the average in this year is 58%, the company has low amount of debt and has small burden in the sense that principal and interest payments take a significant amount of the company’s cash flow. 2.

The times interest earned ratio is another debt ratio that measures the long-term solvency of a business. It measures how well a company can meet its interest expense obligations. In the given company it has the times interest number, the better the firm can pay its interest expense on debt. If the TIE is less than 1. 0, then the firm cannot meet its total interest expense on its debt. PROFITABILITY: 8. Gross profit margin: looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its inventory. And the manufacturing of its products and subsequently pass on the costs to its customers.

The larger the gross profit margin, the better for the company. The average in 2005 is 20. 4% but the company has only 18. 26 at the same time compare to its previous year the Cedi, Denied, and Phone has lower gross profit margin in 2005. A high gross profit margin ratio indicates that a business can make a reasonable profit on sales, as long as overheads do not increase. Investors pay attention to the gross profit margin ratio because it tells them how efficient business is compared to competitors. It is sensible to track gross profit margin ratios over a number of years to see if company earnings re consistent, growing, or declining.

So the Cedi, Denied, and Phone company needs to take care of the gross profit margin to recover and increase. 9. Operating profit is also known as BIT and is found on the company’s income statement. BIT is earnings before interest and taxes. The operating profit margin looks at BIT as a percentage of sales. The operating profit margin ratio is a measure of overall operating efficiency, incorporating all of the expenses of ordinary, daily business activity. Operating profit margin in average of 2005 is 4. 7% while the Cedi, Denied, and Phone, Inc. Has 5. 1%.

A high operating profit margin means that the company has good cost control and/or that sales are increasing faster than costs, which is the optimal situation for the company. 10. Net profit margin: When doing a simple profitability ratio analysis, net profit margin is the most often margin ratio used. The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. The higher the ratio, the more effective a company is at cost control. Compared with industry average, it tells investors how well the management and operations of a company are performing against its competitors.

Compared with different industries, it tells investors which industries are relatively more profitable than others. Net profit margin analysis is also used among many common methods for business valuation. In average 2005 is 1. 4% while the company has 2. 5% higher than the average. 10. Return on total assets indicates the number of cents earned on each dollar of assets. The average in 2005 is only 3. 08 while the company has 5. 2%. Thus higher values of return on assets show that business is more profitable. 1 1 . Return on Equity is an important measure of the profitability of a company. Narrating income on new investment. The average in 2005 is 7. 3% while the company’s return on equity in 2005 is 1 1 . 14%. OVERALL ANALYSIS: Current ratio and quick ratio are slightly higher than the average, but inventory turnover Is lower than the average. Average collection period takes more days compared to the average period. Total asset turnover is lower than the average. The debt ratio is lower than the average which means the company has low amount of debt and has small burden in the sense that principal and interest payments take a significant amount of the company’s cash flow.

The company has higher Times Interest Earned Ratio than the average, company it has the times interest earned ratio of 4. 68 while the average in 2005 is 2. 3 which means the higher the number, the better the firm can pay its interest expense on debt. Gross profit margin is lower than the average but operating profit margin and net profit margin are higher than the average. The net profit margin is the most often margin ratio used. The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. Return on equity is an important measure of the profitability of a company.

Higher values are generally favorable meaning that the company is efficient in generating income on new investment. Investors should compare the ROE of different companies and also check the trend in ROE over time. However, relying solely on ROE for investment decisions is not safe. It can be artificially influenced by the management, for example, when debt financing is used to reduce share capital there will be an increase in ROE even if income remains constant. Answer sheet for Problem B: Schedule of Cash Receipts ANALYSIS: For the Year Ended December 31, 2011 December 31, 2011 ASSETS