Inf. Business Finance

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Assignment fall 2014 solved 

         Business Finance ACC501

FALL 2014

Assignment 1 solution

Student id: mc140201118

Required:

(A) Based on the above financial statements of Mega Corporation, compute the ratios
mentioned in the below table and interpret the results of ratios thereof.

Current Ratio=          Current Assets                        =   863     =    2.80 Times

                                    Current Liabilities                        308

  Current Assets                     = Cash 225+Account Receivable 310+ Inventory 328

 Current Liabilities      = Accounts payable 308

Quick Ratio                =           Current assets – Inventory         = 207     = 0.67 Times

                                     Current Liabilities                         308

Cash Ratio   =                        Cash                                    = 225      = 0.73 Times

                                    Current Liabilities                             308

Interest coverage ratio =   profit before interest and tax   = 723     =   1.44 Times

            Interest expense                    502

Inventory turnover ratio = Cost of goods sold          =   2,780       = 8.47 Times

                                             Average inventory                328

           

Account Receivable turnover      =   Net credit sale     =     4053     = 12.36   Times

                     Average inventory      328

Days sales in inventory          =     Ending inventory *365 =   328 * 365 =   44 Days

                  Cost of goods sold                2,780

Days sales in receivable           =   Account receivable    * 365 = 310 * 365 =   28 days

                     Credit sales                             4,053

Dividend Payout Ratio           =   Total Dividend      =   47            =   0.32*100= 32 Percent

                                                       Net Income              146

Total Debt Ratio                         = Total liabilities    =    4,093    = 0.55*100 = 55 percent

                        Total assets              7,440

(b)           Compare your computed result with industry averages given below, thereby indicating strong and weak areas of Mega Corporation

Sr.	Ratios	Industry ratio	Answer ratio
1	Current ratio	2 times	2.80 times
2	Quick ratio	1 times	0.67 times
3	Cash ratio	0.50  times	0.73 times
4	Interest coverage ratio	2 times	1.44 times
5	Inventory turnover ratio	7 times	9 times
6	Account receivable ratio	14 times	12 times
7	Days sales inventory	45 days	44 days
8	Days sales receivables	30 days	28 days
9	Total Debt ratio	60 percent	32 percent
10	Dividend payout ratio	30 percent	55 percent