Homework Answers
a. The ratios have been calculated below:
| Formula | Calculation | Fox company | Industry | |
| Current ratio | = Current asset/Current liabilities | =138300/75000 | 1.84 | 2.35 |
| Quick ratio | = Current asset- inventories/Current liabilities | =(138,300-82,000)/75,000 | 0.75 | 0.87 |
| Inventory turnover | =Total sales/Total inventory | =600,000/82,000 | 7.32 | 4.55 |
| Average collection period | =Av revenue * 365 Days/Sales | = (34,100*365)/600,000 | 20.74 | 35.8 days |
| Total assets turnover | =Total sales/Total assets | =600,000/408,300 | 1.47 | 1.09 |
| Debt ratio | =Total debt/Total assets | = 225,000/408,300 | 0.55 | 0.3 |
| Times interest earned ratio | = Operating Profit/Interest | =80,000/10,000 | 8.00 | 12.3 |
| Gross profit margin | =Gross Profit/Sales | = 140,000/600,000 | 0.23 | 0.202 |
| Operating profit margin | = Operating Profit/Sales | =80,000/600,000 | 0.13 | 0.135 |
| Net profit margin | = Net Profit/Sales | = 43,000/600,000 | 0.07 | 0.091 |
| ROA | =Operating Profit/Total Assets | = 80,000/408,300 | 0.20 | 0.099 |
| ROE | =Net Income/Shareholder's Equity | =43,000/183,300 | 0.23 | 0.167 |
| EPS | $2.15 | $3.10 |
The current & quick ratios are relatively weaker compared to the industry averages
Activity ratios: These ratios show that the turover of assets in case of Fox industries is faster compared to the industry average. However, this doesnt indicate the firm's position (weak/strong) compared to the industry. For example, high inventory turnover ratio could show efficient management of receivables, passionate credit department and also credit terms or policies that prohibit growth in sales.
Debt ratios: Debt ratios indicate that the firm uses more debt than the industry average. This results in high int. obligations which could possibly reduce the firm's ability to meet its financial commitments.
Profitability ratios: Profitability ratios indicate that Fox industries have high gross profit margin compared to the industry, showcasing either higher sales price than industry or lower COGS. The operating profit margin is neutral i.e. at par with the industry, but the net profit margin is on the lower end, showcasing that expenses other than COGS are higher than that of the industry.
b. The company should aim to improve its liquidity ratios by mostly reducing the total liabilities. Currently, the firm is highly leverage than the industry avergage, this exposes the Fox industry to more financial risk. Also, the profitability of the company is lower than the industry average but due to the use of debt in capital structure, the company has higher ROE
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all
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just all the info provided in the book
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