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    Other Solution Part 1 Ratio Case 1

    Uploaded by

    Carla Román
    Zach Industries' financial condition in 20X7 saw: 1) Decreased liquidity as current and quick ratios fell below industry averages. 2) Slightly slower inventory turnover but longer average collection period. 3) Lower debt ratio indicating less reliance on debt financing. 4) Lower profitability as margins and returns declined from 20X6 levels and industry averages. 5) Higher market to book ratio showing the company was valued more by investors. Overall, Zach Industries' financial condition weakened in 20X7 with lower liquidity and profitability ratios.

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    Other Solution Part 1 Ratio Case 1

    Uploaded by

    Carla Román
    80 views2 pages
    Zach Industries' financial condition in 20X7 saw: 1) Decreased liquidity as current and quick ratios fell below industry averages. 2) Slightly slower inventory turnover but longer average collection period. 3) Lower debt ratio indicating less reliance on debt financing. 4) Lower profitability as margins and returns declined from 20X6 levels and industry averages. 5) Higher market to book ratio showing the company was valued more by investors. Overall, Zach Industries' financial condition weakened in 20X7 with lower liquidity and profitability ratios.

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    Zach Industries' financial condition in 20X7 saw: 1) Decreased liquidity as current and quick ratios fell below industry averages. 2) Slightly slower inventory turnover but longer average collection period. 3) Lower debt ratio indicating less reliance on debt financing. 4) Lower profitability as margins and returns declined from 20X6 levels and industry averages. 5) Higher market to book ratio showing the company was valued more by investors. Overall, Zach Industries' financial condition weakened in 20X7 with lower liquidity and profitability ratios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    80 views2 pages

    Other Solution Part 1 Ratio Case 1

    Uploaded by

    Carla Román
    Zach Industries' financial condition in 20X7 saw: 1) Decreased liquidity as current and quick ratios fell below industry averages. 2) Slightly slower inventory turnover but longer average collection period. 3) Lower debt ratio indicating less reliance on debt financing. 4) Lower profitability as margins and returns declined from 20X6 levels and industry averages. 5) Higher market to book ratio showing the company was valued more by investors. Overall, Zach Industries' financial condition weakened in 20X7 with lower liquidity and profitability ratios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Ratio Case

    Financial Statements Analysis of Zach Industries

    The financial statements of Zach Industries for the year ended December 31, 20X7 are as follows:

    Zach Industries
    Income Statement for the Year Ended December 31, 20X7
    Sales revenue ￥160,000
    Less: Cost of goods sold 106,000
    Gross profits 54,000
    Less: Operating expenses
    Selling expense 16,000
    General and administrative expenses 10,000
    Lease expense 1,000
    Depreciation expense 10,000
    Total operating expense 37,000
    Operating profits 17,000
    Less: Interest expense 6,100
    Net profits before taxes 10,900
    Less: Taxes 4,360
    Net profits after taxes 6,540

    Zach Industries
    Balance Sheet
    December 31, 20X7
    Assets
    Cash ￥ 500
    Marketable securities 1,000
    Accounts receivable 25,000
    Inventories 45,500
    Total current assets 72,000
    Land 26,000
    Buildings and equipment 90,000
    Less: Accumulated depreciation 38,000
    Net fixed assets 78,000
    Total assets 150,000
    Liabilities and Stockholders’ Equity
    Accounts payable 22,000
    Notes payable 47,000
    Total current liabilities 69,000
    Long-term debt 22,950
    Common stock 31,500
    Retained earnings 26,550
    Total liabilities and stockholders’ equity 150,000
    The firm’s 3,000 outstanding shares of common stock closed 20X7 at a price of 25 per share.

    a. Use the preceding financial statements to complete the following table.

    Assume that the industry averages given in the table are applicable for both 20X6 and 20X7.

    Ratio Industry Actual 20X6 Actual 20X7


    average
    Current ratio 1.80 1.84 1.04 =72000/69000
    Quick ratio 0.70 0.78 0.38 =(72000-45500)/69000

    Inventory turnover 2.50 2.59 2.33 =106000/45500


    Average collection period 37.5 days 36.5 days 57.03 =25000/(160000/365)

    Debt ratio 65% 67% 61,3% =91950/150000

    Times interest earned ratio 3.8 4.0 2.79 =17000/6100

    Gross profit margin 38% 40% 33,75% =54000/160000

    Net profit margin 3.5% 3.6% 4,09% =6540/160000

    Return on total assets 4.0% 4.0% 4,36% =6540/150000

    Return on common equity 9.5% 8.0% 11.27% =6540/(31500+26550)

    Market/book ratio 1.1 1.2 1.29 =25/((31500


    +26550)/3000)
    Based on a 365-day year and on end-of-year figures.

    b. Analyze Zach Industries’ financial condition as it is related to (1) liquidity, (2) activity, (3)
    debt, (4) profitability, and (5) market. Summarize the company’s overall financial condition.

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