Question: Balance Sheet and Income Statement for Spectrum, Inc.
[A] Calculate the following 10 financial ratios & provide a one sentence explanation of the analytic use of each ratio test. Demonstrate your formulas and input. Accuracy to two (2) decimal points is sufficient.
[B] Determine how Spectrum's financial performance compares to their Industry for each computed ratio. It is sufficient to rate each ratio as "G"= good, "S" = satisfactory, or "P" = poor.
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1
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Current ratio
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2
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2
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Acid test ratio
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1.06
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3
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Debt Ratio
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0.58
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4
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Total asset turnover
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1.18
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5
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Inventory Turnover
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5.78
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6
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Operating Income Return on Investment
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9.80%
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|
7
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Operating profit margin
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8.30%
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|
8
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Times interest earned
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3.93
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|
9
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Average collection period*
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75 days
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|
10
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Return on Equity
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12%
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Suppose all sales are credit sales
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Spectrum, Inc. BALANCE SHEET (000)
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Cash
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$500
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Accounts receivable
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1,500
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Inventories
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500
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Current assets
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2,500
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Net fixed assets
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5,000
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Total Assets
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$7,500.00
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|
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|
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Accounts payable
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1,200
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Bank note
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300
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Total current liabilities
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1,500
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Long term debt
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4,000
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Common stock
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300
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Retained earnings
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1,700
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Total liabilities and owner's equity
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$7,500
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Spectrum, Inc. INCOME STATEMENT (000)
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Net sales
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$8,500
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Cost of goods sold
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3,400
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Gross profit
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5,100
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Operating expenses
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2,900
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Net operating income
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2,200
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Interest expense
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580
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Earnings before taxes
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1,620
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Income tax (34%)
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551
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Net income
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$1,069
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