BUSI 320 Corporate Finance Assignment 1: Ratio Analysis Solution

This document presents the complete solution for BUSI 320 Corporate Finance Assignment 1, focusing on comprehensive financial ratio analysis. The assignment requires the computation of various financial ratios, including profit margin, current ratio, quick ratio, return on assets, debt to assets, receivables turnover, average collection period, inventory turnover, return on equity, and times interest earned, for the years 2016 and 2017. The solution includes determining whether each ratio improved or worsened from 2016 to 2017 and whether the 2017 ratios were good or bad compared to the industry average. The assignment utilizes provided financial statements (income statement and balance sheet) to calculate the necessary ratios and interpret the financial performance of the company. This solution demonstrates the application of financial analysis techniques and the ability to assess a company's financial health based on key performance indicators.

BUSI 320 Corporate Finance Textbook Assignment 1
NAME: Jennifer Bean
Compute each of the following ratios for 2016 and 2017 and indicate whether each ratio was getting "better" or "worse"
from 2016 to 2017 and was "good" or "bad" compared to the Industry average for 2017. (round all numbers to 2 digits
past the decimal place. ex: 22.94%)
Type your answers in the table below and submit this document.
Ratios 2016 2017 Enter “Better”
or “Worse”
2017
Industry
Avg
Enter "Good" or
"Bad" compared
to Industry Avg
Profit Margin 1 0.03 11 0.05 21 Better 0.09 31 Worse
Current Ratio 2 1.92 12 1.83 22 Worse 1.80 32 Better
Quick Ratio 3 1.08 13 0.99 23 Worse 1.12 33 Worse
Return on Assets 4 0.05 14 0.09 24 Better 0.18 34 Worse
Debt to Assets 5 0.51 15 0.55 25 Worse 0.60 35 Better
Receivables turnover 6 12.19 16 12.77 26 Better 12.00 36 Better
Avg. collection period* 7 29.54 17 28.20 27 Better 22.10 37 Worse
Inventory Turnover** 8 2.95 18 2.74 28 Worse 8.25 38 Worse
Return on Equity 9 0.11 19 0.19 29 Better 0.16 39 Better
Times Interest Earned 10 3.00 20 3.77 30 Better 8.15 40 Worse
*Assume a 360 day year
**Inventory Turnover can be computed 2 different ways. Use the formula listed in the text
(the one the text indicates many credit reporting agencies generally use)
Use the following information to answer the questions: (Balance Sheet on the next
page)
note: all sales are credit sales
Income Stmt info: 2016 2017
Sales
$
975,000
$
1,072,500
less Cost of Goods Sold: 325,000 346,125
Gross Profit 650,000 726,375
Operating Expenses 575,000 609,500
Earnings before Interest &
Taxes

75,000 116,875
Interest exp 25,000 31,000
earnings before Taxes 50,000 85,875
Taxes 20,000 34,350
Net Income
$
30,000
$
51,525
Balance Sheet info: 12/31/2016 12/31/2017
Cash 60,000
$
63,600
Accounts Receivable 80,000
$
84,000
Inventory 110,000
$
126,500
Total Current Assets
$
250,000
$
274,100
Fixed Assets (Net)
$
300,000
$
312,000
Total Assets
$
550,000
$
586,100
Current Liabilities
$
130,000
$
149,500
Long Term Liabilities
$
150,000
$
170,000
Total Liabilities
$
280,000
$
319,500
Stockholder's Equity
$
270,000
$
266,600
Total Liab & Equity:
$
550,000
$
586,100
INSTRUCTIONS:
You will complete the Textbook Assignment above. The grading guidelines are listed

below. Problems in the assignments will be covered by the textbook, but may also
require outside research.
Electronic Textbook
https://newconnect.mheducation.com/flow/connect.html
User Id: [e-mail]
Password: Gracie12
Click on menu and it will expand
Click on classes and click on 320 Corporate Finance
You will see READ - click the icon below it that says Block, Foundations of Financial
Management, 17e Chapters 1-3 (this is the textbook) and navigate thru the chapters to
help with the answers in addition with the links below.
As finance is an exact science, please remember the instruction assignments
require all numbers to be rounded to 2 digits past the decimal place. (13.5312% =
13.53%, not 14%)
Online financial calculators:
https://www.fncalculator.com/financialcalculator?type=tvmCalculator
https://www.geogebra.org/m/mWpV8Xq3
https://www.calculator.net/finance-calculator.html
Financial Calculator Tutorials:
http://www.tvmcalcs.com
Grading Rubric:
30 Total Points
Each of the computed ratios is worth 1 point (10 ratios * 2 years = 20 points)
Each comparison is worth 1/2 point (10 ratios * 2 comparisons = 10 points)
Comparisons should be evaluated on the basis of the student's computed answers