INSTRUCTIONS

1 Financial statements are attached in sheet 1, including Balance sheet and Income Statements
2 For each ratio identified in sheet 2, write formula against it and calculate that ratio.
 Balance Sheet

Year ending Year ending

12/31/2005 12/31/2006
Assets ($ in thousands of dollars)
Current Assets
Cash $ 2,081 $ 2,540
Marketable Securities 1,625 1,800
Accounts Receivable 16,850 18,320
Inventories 26,470 27,530
Total Current Assets 47,026 50,190

Long-Term Assets
Property & Equipment at cost 39,500 43,100
Less Accumulated Depreciation 9,500 11,400
Net Property & Equipment 30,000 31,700
Total Long-Term Assets 30,000 31,700

TOTAL ASSETS $ 77,026 $ 81,890

Liabilities
Current Liabilities
Accounts Payable $ 8,340 $ 9,721
Notes Payable @ 10% 5,635 8,500
Taxes Payable 3,150 3,200
Other Current Liabilities 1,750 2,102
Current Portion of Longterm Debt 2,000 2,000
Total Current Liabilities 20,875 25,523

Long-Term Liabilities
Mortgage Bonds @ 9.58% 24,000 22,000
Total Long-Term Liabilities 24,000 22,000

TOTAL LIABILITIES $ 44,875 $ 47,523

Equity

Common Stock $ 13,000 $ 13,000

Paid in Capital in excess of par value 10,000 10,000
Retained Earnings 9,151 11,367

TOTAL EQUITY $ 32,151 $ 34,367

 Income Statement
Year ending
12/31/2006
Revenues ($ in thousands of dollars)

Gross Sales Revenues $ 116,900

Allowance for Sales Returned 4,140
Net Sales Revenues 112,760

TOTAL SALES 112,760

Expenses
Cost of Goods Sold 85,300

Gross Profits 27,460

Operating Expenses:
Selling & Marketing 6,540
General Administrative 9,400
Total Operating Expenses 15,940

Operating Income 11,520

Interest Expenses:
Interest on Loans 850
Interest on Mortgage Bonds 2,310
Total Interest Expenses 3,160

Earnings Before Taxes 8,360

Federal & State Taxes @ 40% 3,344

NET INCOME 5,016

 Ratio Analysis
A complete set of ratios is probably the best analytical approach to evaluating the financial strengths and
weaknesses of a company.

Liquidity Ratios Formula

1. Current Ratio = Current assets/Current liabilities

2. Acid Test or Quick Ratio = (Current assets-Inventory)/Current liabilities

3. Operating expenses to Current Liabilities = Operating expenses/Current liabilities

Asset Management Ratios

4. Accounts Receivable Turnover = Net sales revenue/ Average accounts receivable

Average accounts receivable= Opening+Closing receivable/2

5. Accounts Receivable Collection = Average accounts receivable/Netsales revenue*365

6. Inventory Turnover = Cost of goods sold/Average inventory

Average inventory=Opening+Closing inventory/2
7. Days Held in Inventory = Average inventory/Cost of goods sold*365

8. Fixed Asset Turnover = Net sales revenue/Average fixed assets

9. Total Asset Turnover = Net sales revenue/Average Total assets

Leverage Ratios

10. Debt Ratio = Total liabilities/Total assets

11. Debt to Equity Ratio = Total liabilites/Total equity

12. Interest coverage ratio = Operating income/Interest expense

Profitability Ratios

13. Gross Profit or Margin = Gross profit/Sales revenue*100

14. Operating Income Ratio = Operating income/Sales revenue*100

15. Return on Sales = Net income/Sales revenue*100

16. Return on Investment (total assets) = Net income/Total assets*100

17. Return on Equity = Net income/Total equity*100

 strengths and

Year ending
12/31/2006

1.97

0.89

0.62

osing receivable/2 6.41

56.92

3.16

115.53

3.79

1.42

0.58

1.38

3.65

24.35

10.22

4.45
 6.13

14.60