Solve the problem below, calculate the ratios, interpret the results against the industry average, and fill in the table on the worksheet (attached below). Then, provide an analysis of how those results can be used by the business to improve its performance.
Balance Sheet as of December 31, 2010 

Gary and Company 

Cash 
$45 

Accounts payables 
$45 
Receivables 
66 

Notes payables 
45 
Inventory 
159 

Other current liabilities 
21 
Marketable securities 
33 

Total current liabilities 
$111 
Total current assets 
$303 



Net fixed assets 
147 

Long Term Liabilities 

Total Assets 
$450 

Longterm debt 
24 


Total Liabilities 
$135 








Owners Equity 




Common stock 
$114 



Retained earnings 
201 



Total stockholders’ equity 
315 




Total liabilities and equity 
$450 
Income Statement Year 2010 



Net sales 
$795 
Cost of goods sold 
660 
Gross profit 
135 
Selling expenses 
73.5 
Depreciation 
12 
EBIT 
49.5 
Interest expense 
4.5 
EBT 
45 
Taxes (40%) 
18 
Net income 
27 
1. Calculate the following ratios AND interpret the result against the industry average:
Ratio 
Your Answer 
Industry Average 
Your Interpretation 
Profit margin on sales 

3% 

Return on assets 

9% 

Receivable turnover 

16X 

Inventory turnover 

10X 

Fixed asset turnover 

2X 

Total asset turnover 

3X 

Current ratio 

2X 

Quick ratio 

1.5X 

Times interest earned 

7X 

2. Analysis:
Give your interpretation of what the ratios calculations show and how the business can use this information to improve its performance. Justify all answers.