Scribd Logo
Upload

Welcome to Scribd!

  • 31 views

    FIN Chapter 3

    Uploaded by

    Jack Sikolia
    The document analyzes Zach Industry's financial ratios for 2018 and 2019 compared to industrial averages. Several ratios declined from 2018 to 2019, indicating lower liquidity. Inventory turnover and average collection period also decreased, suggesting excess inventory and slower cash conversion. However, debt ratios remained steady and the times interest earned ratio was above industry average, showing strong interest coverage. Profitability ratios like net profit margin and returns on assets/equity increased from 2018 to 2019 and exceeded industry averages, demonstrating higher profits. The market to book ratio grew from 2018 to 2019 as well, above the industry average and indicating positive investor outlook.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    FIN Chapter 3

    Uploaded by

    Jack Sikolia
    31 views4 pages
    The document analyzes Zach Industry's financial ratios for 2018 and 2019 compared to industrial averages. Several ratios declined from 2018 to 2019, indicating lower liquidity. Inventory turnover and average collection period also decreased, suggesting excess inventory and slower cash conversion. However, debt ratios remained steady and the times interest earned ratio was above industry average, showing strong interest coverage. Profitability ratios like net profit margin and returns on assets/equity increased from 2018 to 2019 and exceeded industry averages, demonstrating higher profits. The market to book ratio grew from 2018 to 2019 as well, above the industry average and indicating positive investor outlook.

    Original Description:

    Original Title

    430056561 FIN Chapter 3

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document analyzes Zach Industry's financial ratios for 2018 and 2019 compared to industrial averages. Several ratios declined from 2018 to 2019, indicating lower liquidity. Inventory turnover and average collection period also decreased, suggesting excess inventory and slower cash conversion. However, debt ratios remained steady and the times interest earned ratio was above industry average, showing strong interest coverage. Profitability ratios like net profit margin and returns on assets/equity increased from 2018 to 2019 and exceeded industry averages, demonstrating higher profits. The market to book ratio grew from 2018 to 2019 as well, above the industry average and indicating positive investor outlook.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views4 pages

    FIN Chapter 3

    Uploaded by

    Jack Sikolia
    The document analyzes Zach Industry's financial ratios for 2018 and 2019 compared to industrial averages. Several ratios declined from 2018 to 2019, indicating lower liquidity. Inventory turnover and average collection period also decreased, suggesting excess inventory and slower cash conversion. However, debt ratios remained steady and the times interest earned ratio was above industry average, showing strong interest coverage. Profitability ratios like net profit margin and returns on assets/equity increased from 2018 to 2019 and exceeded industry averages, demonstrating higher profits. The market to book ratio grew from 2018 to 2019 as well, above the industry average and indicating positive investor outlook.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Surname 1

    Student’s Name

    Professor’s Name

    Course

    Date

    Analysis of Zach Industry’s Financial Ratios

    a. Complete the Table Based on the Preceding Financial Statement Assuming

    Averages are Applicable for both 2018 and 2019

    Calculations:

     Current Assets ÷ Current Liability = Current Ratio

    72000 ÷ 69000

     Current Liability ÷ (Current assets - Inventory) = Quick Ratio

    69000 ÷ (72000 - 45500)

     COGS ÷ Inventory = Inventory Turnover

    106000 ÷ 45500

     365 ÷ 6.6 = Average Collection Period

     Total Liability ÷ Total Assets = Debt Ratio

    69000 ÷ 150000

     Interest Earned Ratio = EBIT ÷ InterestEexpense

    EBIT = 160000 – 106000 – 37000

    = 17 000 ÷ 6100

    Gross Profit ÷ Net Sales = Gross Profit Margin

    (160,000−106,000) ÷ 160,000 = Gross Profit Margin

     Net Profit Margin = Earnings Available to Common Stockholders ÷ Sales


    Surname 2

    6,540 ÷ 160000

     ROA = Earnings Available to Common Stockholders ÷ Total Assets

    6540 ÷ 150000

     ROE = Earnings Available to Common Stockholders ÷ Total Common Equity

    6540 ÷ 58050

     M/B Ratio = Market Price per Share of Common Stock ÷ Book Value Per Share of

    Common Stock

    19.35 ÷ 25

    Ratio Industrial average 2018 Actual 2019

    Current ratio 1.80 1.84 ____1.04_____

    Quick ratio 0.70 0.78 ____0.38______

    Inventory turnover a   2.50 2.59 ____2.33______

    Average collection period a  37.5 days 36.5 days ___57 days____

    Debt ratio 65% 67% ___67%______

    Times interest earned ratio 3.8 4.0 ___2.8________

    Gross profit margin 38% 40% ___33.8%_____

    Net profit margin 3.5% 3.6% ___4.1%______

    Return on total assets 4.0% 4.0% ___4.4%______

    Return on common equity 9.5% 8.0% ___11.3%_____

    Market/book ratio 1.1 1.2 ____1.3_______

    b. Analysis of Zack Industries Financial Conditions based on:

    i. Liquidity- There has been a significant decline in the company from 2014 up to

    2015 based on its liquidity. This aspect reveals that the company is operating
    Surname 3

    below industry average. Therefore, based on its decline rate, there are chances

    that the company may be unable to meet any of its set short-term requirements.

    ii. Activity- Considering the company’s activities in the period of 2014-2015, many

    aspects turn up to be of great concern. For instance, the average collection period

    has been increasing from 36.5 up to 57 days, while there has been a decline in its

    inventory turnover from 2014 to 2015. Thus, such a decline depicts that there

    might be chances that the company might be holding surplus inventory. This

    aspect also depicts the company’s inability to turn its assets into cash, resulting

    from the decrease seen.

    iii. Debt- The industry has seen significant improvement since 2014, while its overall

    times interest-earning ratio since the same year has been decreasing, which, of

    course, is below the industry average. This condition reveals that the company’s

    interest payments can be well covered by its income. Thus, when harmonized

    with its declining long-standing debt, the Zach industry turns into a promising

    firm with high prospects.

    iv. Profitability- Looking at the period of 2014 to 2015, the firm has emerged

    successful since, compared to its industry average, it has realized higher net profit

    without considering that it had a lower gross profit margin. There has been an

    increase in the company’s return on equity besides having a decrease in its

    operating expenses. It is important to note that all of these aspects were lower as

    well as higher compared to the industry average correspondingly.

    v. Market- There has been a market/book ratio increase in the company regarding

    the 2014-2015 period, specifically from 1.2 to 1.3, figures that are, of course,
    Surname 4

    above its set 1.1 industry average. Therefore, such a significant increase reveals

    that there is a positive outlook from the company’s investors due to its successful

    progress. Investors might be ready to give an increased price for its book value, an

    aspect that increases its overall productivity as well.

    You might also like