Question

The income statement and balance sheet for GATA, Inc. are provided below. (Note that the reported figures are expressed in thousands of dollars).

GATA, INC. Balance Sheets as of December 31, 2016 and 2017 (in 000s)
	2016		2017				2016		2017
Assets						Liabilities and Owners’ Equity
Current assets						Current liabilities
Cash	$	500	$	1,000		Accounts payable	$	500	$	700
Accounts receivable		500		400		Notes payable		900		700
Inventory		900		600
Total	$	1,900	$	2,000		Total	$	1,400	$	1,400
						Long-term debt	$	400	$	600
						Owners’ equity
						Common stock	$	600	$	600
Fixed assets						Accumulated retained earnings		500		600
Net plant and equipment	$	1,000	$	1,200		Total Equity	$	1,100	$	1,200
Total assets	$	2,900	$	3,200		Total liabilities and owners’ equity	$	2,900	$	3,200

GATA, INC. 2017 Income Statement (in 000s)
Sales			$	1,700
Cost of goods sold				1,030
Depreciation				100
EBIT			$	570
Interest paid				70
Taxable income			$	500
Taxes				200
Net income			$	300
Dividends	$	200
Retained earnings		100

Requirement #1:

Calculate each of the following ratios for GATA Inc. for 2017 only and complete the table below.  (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 0.9173 or 2.1648). Input profit margin, return on assets, and return on equity as percentages (e.g., if the Profit Margin = 0.1576, input your answer as 15.76).

		2017			Industry Average
a.	Current ratio		times		1.2031
b.	Quick ratio		times		0.7814
c.	Total asset turnover		times		0.5875
d.	Inventory turnover		times		2.2791
e.	Total debt ratio		times		0.3654
f.	Equity Multiplier				1.5757
g.	Times interest earned ratio		times		6.9117
h.	Profit margin		%		20.58%
i.	Return on assets		%		12.09%
j.	Return on equity		%		19.05%

Requirement #2:

Use the ratios you calculated in Requirement #1 and the industry averages given in the table above to determine if GATA, Inc. is "above average" or "below average" in each of the following areas of financial performance.

Financial Leverage	(Click to select)above averagebelow average
Asset Use Efficiency	(Click to select)above averagebelow average
Operating Efficiency	(Click to select)above averagebelow average
Liquidity	(Click to select)above averagebelow average
Shareholder Return	(Click to select)above averagebelow average

Requirement #3:

Based on DuPont analysis, how would you explain the difference in the return on equity (ROE) for GATA, Inc. vs. the industry as a whole in 2017 (i.e., why is the ROE for GATA higher/lower than the ROE for the average firm in the industry)?

Answer 1

a]

current ratio = current assets / current liabilities = 2,000 / 1,400 = 1.43 +

b]

Quick Ratio = (Cash equivalents + accounts receivables) / Current Liabilities  

Quick Ratio = (1,000 + 400) / 1400 = 1.00

c]

Total Asset Turnover = Sales / Average Total Assets

Average total assets = (opening total assets + closing total assets) / = (2,900 + 3,200) / 2 = 3,050

Total Asset Turnover = 1,700 / 3,050 = 0.56

d]

Inventory Turnover = COGS / Average Inventory

Average Inventory = (opening Inventory + closing Inventory) / 2 = (900 + 600) / 2 = 750

Inventory Turnover = 1,030 / 750 = 13.73