Calculate ratios and compare results with industry

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Reference no: EM13355825

Calculate Ratios and compare results with industry averages.

Calculate a few ratios and compare Reed's results with industry averages. (Some industry averages are shown in Exhibit.) What do these ratios indicate?

Reed's Clothiers Selected Ratios

Liquidity Ratios	Industry
Current ratio	2.7
Quick ratio	1.6
Receivables turnover	7.7
Average collection period	47.4

Efficiency Ratios
Total asset turnover	1.9
Inventory turnover	7.0
Payable turnover	15.1

Profitability Ratios
Gross profit margin	33.0
Net profit margin	7.8
Return on common equity	25.9

Since many ratios may have different meanings the following definitions were used in the above calculations: Receivable turnover = sales/accounts receivable

Average collection period = 365/receivable turnover

Total asset turnover = cost of sales/total assets

Inventory turnover = cost of sales/inventories

Payable turnover = cost of sales/accounts payable

Reference no: EM13355825

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