Financial Ratio Worksheet For Financial Statements ✓ Solved

Financial Ratio Worksheet Financial Statements For Moserk

Financial Ratio Worksheet Financial Statements For Moserk

Calculate Moserk Industry Ratios to be calculated (show work):

  • Average Current Ratio
  • Quick Ratio
  • Gross Profit Margin
  • Net Profit Margin
  • Debt Ratio (Debt to assets)
  • Debt Ratio (Debt to equity)
  • Times Interest Earned
  • ROA
  • ROE

After the ratios have been calculated, save it to your hard drive, then attach and submit it as a part of the assignment.

Paper For Above Instructions

The analysis of financial ratios is critical for assessing the financial health of a company. In this case, we are examining Moserk Company using the financial statements provided for the year ending December 31st, 20XX. The key financial statements include the income statement and balance sheet, from which we will derive various ratios including the Average Current Ratio, Quick Ratio, Gross Profit Margin, and others.

Financial Statements Overview

The income statement reveals that Moserk Company had sales of $119,299 and a net income of $11,003 after accounting for costs and expenses. The balance sheet indicates total assets of $45,384, with current assets constituting a sizable portion.

Calculated Financial Ratios

The following financial ratios will be calculated based on Moserk's financial statements:

1. Average Current Ratio

The Average Current Ratio (Current Assets / Current Liabilities) provides insight into the company’s short-term liquidity. Moserk's current assets amount to $19,352 and current liabilities are $14,460. Thus:

Average Current Ratio = Current Assets / Current Liabilities = 19,352 / 14,460 = 1.34

2. Quick Ratio

The Quick Ratio (Current Assets - Inventories) / Current Liabilities assesses short-term liquidity without relying on inventory sales. Using the figures, we have:

Quick Ratio = (Current Assets - Inventories) / Current Liabilities = (19,352 - 16,497) / 14,460 = 0.20

3. Gross Profit Margin

The Gross Profit Margin (Gross Profit / Sales) measures the financial health by indicating the percentage of revenue that exceeds the cost of goods sold. First, we calculate gross profit:

Gross Profit = Sales - Cost of Goods Sold = 119,299 - 93,438 = 25,861

Gross Profit Margin = Gross Profit / Sales = 25,861 / 119,299 = 21.66%

4. Net Profit Margin

The Net Profit Margin (Net Income / Sales) indicates how much profit is made from sales. Thus:

Net Profit Margin = Net Income / Sales = 11,003 / 119,299 = 9.22%

5. Debt Ratio (Debt to Assets)

The Debt Ratio (Total Liabilities / Total Assets) shows the proportion of a company's assets financed by debt. Here, it is:

Debt Ratio = Total Liabilities / Total Assets = 24,943 / 45,384 = 0.55

6. Debt Ratio (Debt to Equity)

The Debt to Equity Ratio (Total Liabilities / Shareholders' Equity) measures financial leverage. It can be calculated as:

Debt to Equity Ratio = Total Liabilities / Shareholders' Equity = 24,943 / 20,441 = 1.22

7. Times Interest Earned

This ratio (Income Before Taxes + Interest Expenses) / Interest Expenses shows the company's ability to meet interest obligations:

Times Interest Earned = (Income Before Income Taxes + Interest Expenses) / Interest Expenses = (15,719 + 555 + 229) / (555 + 229) = 24.73

8. Return on Assets (ROA)

ROA (Net Income / Total Assets) indicates how efficiently a company uses its assets to generate earnings. Thus:

ROA = Net Income / Total Assets = 11,003 / 45,384 = 0.242 = 24.2%

9. Return on Equity (ROE)

ROE (Net Income / Shareholders’ Equity) is a measure of profitability that reveals how much profit a company generates with shareholders' equity:

ROE = Net Income / Shareholders' Equity = 11,003 / 20,441 = 0.539 = 53.9%

Comparison with Industry Averages

Upon calculating the ratios, a comparison with industry averages reveals critical insights. For instance, the Average Current Ratio at 1.34 is below the industry average of 2.10, indicating potential liquidity issues. The Quick Ratio also falls short of the industry average of 0.75, suggesting reliance on inventory for short-term liabilities.

Furthermore, the Gross Profit Margin at 21.66% compared to an industry average of 25.00% emphasizes the need for operational improvements or pricing strategy reevaluation. The Net Profit Margin also lags behind the industry average of 10.00%, illustrating lower profitability.

The Debt to Equity and Debt to Assets ratios signify a heavier reliance on debt compared to industry standards (1.22 vs 1.20 for Debt to Equity). This could raise concerns for investors regarding financial leverage.

Conclusion

The financial analysis of Moserk Company indicates several areas for improvement, particularly in liquidity and profitability measures. Strategic changes, such as improving operational efficiency and reassessing the pricing model, could enhance these ratios to meet or exceed industry averages.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
  • Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2015). Essentials of Corporate Finance. McGraw-Hill Education.
  • White, G. I., Sondhi, A. J., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
  • Palepu, K. G., & Healy, P. M. (2012). Business Analysis & Valuation: Using Financial Statements. Cengage Learning.
  • Helfert, E. A. (2001). Techniques of Financial Analysis: A Guide to Value Creation. McGraw-Hill/Irwin.
  • Brealey, R. A., Myers, S. C., & Allen, F. (2017). Principles of Corporate Finance. McGraw-Hill Education.
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