Reference no: EM132595861

Ratio Analysis

The following information is an extract from MNM Ltd's financial statements for the 2018 financial year:

Average Inventory                    $350,000

Average Net receivables           $400,000

Net credit sales                       $800,000

Current assets                       $600,000

Non-current assets                $650,000

Account payable                  $350,000

Bank Bill (Short term)             $520,000

Long Term debt                       $250,000

Ordinary equity                        $650,000

Net operating income                $300,350

Cost of goods sold                 $150,000

Interest expense                     $ 45,000

Tax rate                                      30%

Current ratio = 2:1

Receivable turnover = 7 to 10 times

Average age of receivables = 39 days

Inventory Turnover = 9 times

Debt -to-equity ratio = 1.5:2

Net working capital = Positive

Return on assets = 7.97%

Return on equity = 9.08%

Required:

Question i) Calculate the following ratios and compare your results with industry benchmark stated above:

a) Current ratio: Current assets/Current liabilities

b) Receivable turnover: Total Credit Sales / Average Accounts Receivable

c) Average age of receivables: (Accounts Receivable * 365) / Sales Revenue

d) Inventory Turnover: Sales / Inventory

e) Debt -to-equity ratio: Total Debts / Total Equity

f) Net working capital: Current Assets - Current Liability

g) Return on assets: Net Income / Average Total Assets

h) Return on equity: Net Income / Average Shareholders' Equity

Question ii) after that the answer of your calculation, compare the result with Industry average and Interpretation of your result.