Calculate a measure of times-interest-earned for the industry. Calculate a measure of times-interest-earned for each company. Calculate the average of the times-interest-earned ratios for the individual companies. Does changing the method of calculation make a significant difference to the end result? Note: Round your answer to 2 decimal places. What is the firm's return on assets? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
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To calculate the times-interest-earned (TIE) ratio and the return on assets (ROA) for the industry and individual companies, we will follow these steps: Show more…
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and also compare with the industry average. b. RATIO INDUSTRY AVERAGE i. Return on equity 8% ii. Profit margin 7% iii. Current ratio 2:1 iv. Debt to total assets 35% v. Average collection period 15 days c. Discuss the results of your ratio calculations performed in part (a) above and the trend in the profitability, liquidity and solvency of the company over the past 2 years compared with the industry average. d. Provide a recommendation to your investor friend whether they should invest in the company or not. Provide reasons for your recommendation. e. As part of your analysis, explain how industry average ratios can be obtained and the drawbacks to using industry averages as a standard for comparison. Your answer should be professionally presented and typed not hand-written and discussion should NOT exceed 1,000 words (include a word count for this section).
Sri K.
Use the attached Income Statement and Balance Sheet to compute the required financial ratios for Seward Inc. and compare them to the industry averages. After that, write a brief summary of what each ratio is measuring and how Seward compares to the industry. For example, you may find that Seward's Inventory Turnover is not as high as the industry average, indicating that they may not be managing their inventories well or experiencing a decrease in sales. You can place the ratios and summary right in Excel and then upload that file here. Seward Industries INCOME STATEMENT Sales: $4,500 COGS: ($2,800) Gross Profit: $1,700 Operating Expenses: S,G,&A: ($1,000) Depreciation Expense: ($200) Total Operating Expenses: ($1,200) Operating Profits: $500 Interest Expense: ($60) EBT: $440 Income Taxes: ($125) Net Income: $315 BALANCE SHEET Cash: $500 Accounts Receivables: $600 Inventories: $900 Total Current Assets: $2,000 Gross Fixed Assets: $2,100 Accumulated Depreciation: ($800) Net Fixed Assets: $1,300 Total Assets: $3,300 Liabilities & Equity Accounts Payable: $500 Short Term Notes: $300 Total Current Liabilities: $800 Long Term Debt: $400 Total Liabilities: $1,200 Common Equity: Common Stock: $500 Retained Earnings: $1,600 Total Common Equity: $2,100 Total Liabilities and Equity: $3,300 a. Compute the ratios listed below for Seward and compare them to the industry averages. Provide an explanation for how well you think Seward is performing compared to others in the industry. Current ratio Days in receivables Days in inventory Net return on assets (ROA) Operating profit margin Total Debt to Assets Times interest earned Return on Equity INDUSTRY AVERAGES Current ratio: 3.0 Days in receivables: 40.0 Days in inventory: 70.2 Net return on assets (ROA): 12.5% Operating profit margin: 8.0% Total Debt to Assets: 33% Times interest earned: 6.0 Return on Equity: 11.0%
Akash M.
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