{"id":132320,"date":"2023-08-20T17:11:16","date_gmt":"2023-08-20T17:11:16","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/final-financial-ratio-analysis-assignment\/"},"modified":"2023-08-20T17:11:16","modified_gmt":"2023-08-20T17:11:16","slug":"final-financial-ratio-analysis-assignment","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/final-financial-ratio-analysis-assignment\/","title":{"rendered":"Final financial ratio analysis assignment"},"content":{"rendered":"
\n

\u00a0\u00a0<\/p>\n

This term you have learned to understand a company\u2019s financial story using the language of accounting. The recording and reporting of information is essential to decision makers and other users of financial information; numbers on the various financial statements are used to help further understand the financial condition of the business. This process is known as financial ratio analysis and allows us to analyze the company\u2019s financial position in relation to other organizations in the industry. In this final assignment, you will apply the concepts you have learned throughout the term to perform financial statement analysis and to offer some recommendations.\u00a0<\/p>\n

Assume that you are a health care consultant hired by the Dependable DME Company. DME is Durable Medical Equipment and includes all equipment that benefits patients who have certain medical conditions. The owner of the company, David Smith, is interested in applying for a loan to expand his business; he desires to open a second location in another city. He is preparing to apply to a local bank for a loan.\u00a0<\/p>\n

The bank will base its decision on the following averages for the DME industry:<\/p>\n

\u00a0\u00a0<\/p>\n

Ratio<\/strong><\/p>\n

Industry Average<\/strong><\/p>\n

\u00a0<\/p>\n

Current \u00a0\u00a0ratio<\/p>\n

1.50<\/p>\n

\u00a0<\/p>\n

Quick \u00a0\u00a0ratio<\/p>\n

0.80<\/p>\n

\u00a0<\/p>\n

Receivables \u00a0\u00a0turnover ratio<\/p>\n

18.0<\/p>\n

\u00a0<\/p>\n

Inventory \u00a0\u00a0turnover ratio<\/p>\n

20.0<\/p>\n

\u00a0<\/p>\n

Debt \u00a0\u00a0to assets ratio<\/p>\n

0.56<\/p>\n

\u00a0<\/p>\n

Profit \u00a0\u00a0margin<\/p>\n

10.25%<\/p>\n

The balance sheet data for Dependable DME Company follows:<\/p>\n

\u00a0\u00a0<\/p>\n

December 31, 2017<\/strong><\/p>\n

December 31, 2016<\/strong><\/p>\n

\u00a0<\/p>\n

Cash<\/p>\n

$75,000<\/p>\n

$60,000<\/p>\n

\u00a0<\/p>\n

Accounts \u00a0\u00a0receivable<\/p>\n

40,000<\/p>\n

20,000<\/p>\n

\u00a0<\/p>\n

Inventory<\/p>\n

30,000<\/p>\n

20,000<\/p>\n

\u00a0<\/p>\n

Prepaid \u00a0\u00a0insurance<\/p>\n

5,000<\/p>\n

5,000<\/p>\n

\u00a0<\/p>\n

Total current assets<\/p>\n

140,000<\/p>\n

105,000<\/p>\n

\u00a0<\/p>\n

Property \u00a0\u00a0and equipment<\/p>\n

600,000<\/p>\n

550,000<\/p>\n

\u00a0<\/p>\n

Accumulated \u00a0\u00a0depreciation<\/p>\n

140,000<\/p>\n

110,000<\/p>\n

\u00a0<\/p>\n

Total property and equipment<\/p>\n

460,000<\/p>\n

440,000<\/p>\n

\u00a0<\/p>\n

Total assets<\/p>\n

$600,000<\/p>\n

$545,000<\/p>\n

\u00a0<\/p>\n

Accounts \u00a0\u00a0payable<\/p>\n

$60,000<\/p>\n

$60,000<\/p>\n

\u00a0<\/p>\n

Other \u00a0\u00a0current liabilities<\/p>\n

40,000<\/p>\n

45,000<\/p>\n

\u00a0<\/p>\n

Total current liabilities<\/p>\n

100,000<\/p>\n

105,000<\/p>\n

\u00a0<\/p>\n

Bonds \u00a0\u00a0payable<\/p>\n

150,000<\/p>\n

150,000<\/p>\n

\u00a0<\/p>\n

Total liabilities<\/p>\n

250,000<\/p>\n

255,000<\/p>\n

\u00a0<\/p>\n

Common \u00a0\u00a0stock<\/p>\n

250,000<\/p>\n

250,000<\/p>\n

\u00a0<\/p>\n

Retained \u00a0\u00a0earnings<\/p>\n

100,000<\/p>\n

40,000<\/p>\n

\u00a0<\/p>\n

Total stockholders\u2019 equity<\/p>\n

350,000<\/p>\n

290,000<\/p>\n

\u00a0<\/p>\n

Total liabilities and stockholders\u2019 \u00a0\u00a0equity<\/p>\n

$600,000<\/p>\n

$545,000<\/p>\n

The income statement data for Dependable DME Company follows:<\/p>\n

\u00a0\u00a0<\/p>\n

Sales<\/p>\n

$600,000<\/p>\n

\u00a0<\/p>\n

Cost \u00a0\u00a0of goods sold<\/p>\n

350,000<\/p>\n

\u00a0<\/p>\n

Gross profit<\/p>\n

$250,000<\/p>\n

\u00a0<\/p>\n

Operating \u00a0\u00a0expenses<\/p>\n

100,000<\/p>\n

\u00a0<\/p>\n

Operating income<\/p>\n

$150,000<\/p>\n

\u00a0<\/p>\n

Interest \u00a0\u00a0expense<\/p>\n

25,000<\/p>\n

\u00a0<\/p>\n

Income before taxes<\/p>\n

$125,000<\/p>\n

\u00a0<\/p>\n

Income \u00a0\u00a0tax expense<\/p>\n

65,000<\/p>\n

\u00a0<\/p>\n

Net \u00a0\u00a0income<\/p>\n

$60,000<\/p>\n

Required:\u00a0<\/p>\n

    \n
  1. Calculate the following six (6) ratios: Current Ratio, Quick Ratio, Receivables \u00a0\u00a0\u00a0\u00a0\u00a0Turnover Ratio, Inventory Turnover Ratio, Profit Margin Ratio and Debt to Assets \u00a0\u00a0\u00a0\u00a0\u00a0Ratio. Be sure to show the actual calculation as well as your final \u00a0\u00a0\u00a0\u00a0\u00a0answer.\u00a0<\/li>\n<\/ol>\n

    You are only required to calculate the ratios for 2017; however, for two of the ratios (Receivables Turnover Ratio and Inventory Turnover Ratio), you will need data from 2016 for the formula. When calculating the Quick Ratio, please note that Short-Term Investments are $0 in this scenario. (24 points; 4 points for each ratio calculation)<\/p>\n

      \n
    1. Below each ratio, comment on the interpretation of \u00a0\u00a0\u00a0\u00a0\u00a0the ratio. In other words, what does the result tell you, specifically? (8 \u00a0\u00a0\u00a0\u00a0\u00a0points)<\/li>\n
    2. Based upon the industry averages upon which the bank \u00a0\u00a0\u00a0\u00a0\u00a0relies, should they approve the loan to Mr. Smith? Why or why not? (7 \u00a0\u00a0\u00a0\u00a0\u00a0points)<\/li>\n
    3. In one-half page, comment on what financial aspect \u00a0\u00a0\u00a0\u00a0\u00a0of Dependable DME Company looks good and where can Mr. Smith make some \u00a0\u00a0\u00a0\u00a0\u00a0improvements. Specifically identify at least two recommendations to Mr. \u00a0\u00a0\u00a0\u00a0\u00a0Smith that can be made to improve the financial position of his business. \u00a0\u00a0\u00a0\u00a0\u00a0(8 points)<\/li>\n<\/ol>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

      \u00a0\u00a0 This term you have learned to understand a company\u2019s financial story using the language of accounting. The recording and reporting of information is essential to decision makers and other users of financial information; numbers on the various financial statements are used to help further understand the financial condition of the business. This process is […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-132320","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/132320","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=132320"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/132320\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=132320"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=132320"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=132320"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}