11100-5-5SQP AID: 1150 | 06/01/2014

1)Calculation of current ratio of Company EC:Current ratio can be calculated by using following formula:Current ratio= Current assets/Current liabilities

Substitute:

Current assets for $725,000 and Current liabilities for $475,000Current ratio= Current assets/Current liabilities=$725,000/$475,000=1.53Hence, the current ratio for Company EC is determined as 1.53.

Advice: Current ratio of EC Company for year 2013 is 1.53 which is less than industry average. This ratio gives a sense of a firm’s ability to turn’s it product to cash. EC should increase their current ratio to escape from liquidity problems.

2) Calculation of quick ratio of Company EC:Quick ratio can be calculated by using following formula:Quick ratio= (Current assets-Inventories)/Current liabilities

Substitute:

Current assets for $725,000, Inventories for $325,000 and Current liabilities for $475,000Current ratio= (Current assets-Inventories)/Current liabilities= ($725,000-325,000)/$475,000=.84Hence, the current ratio for Company EC is determined as .84

Advice: Quick ratio of EC Company for year 2013 is .84 which is less than industry average. This ratio shows the EC Company’s ability to turn short-term assets into cash to cover debts. EC should increase their current ratio to escape from liquidity problems.

3)Calculation of average collection period of Company EC:Average collection period can be calculated by using following formula:Average collection period= Net account receivable/average daily sales

Substitute:

Net accounts receivable for $275,000 and average daily sales for 4166.66:Average collection period= Net account receivable/average daily sales=$275,000/$4,166.66=66 dayHence, the average collection period for Company EC is determined as 66 days.

Advice: Current ratio of EC Company for year 2013 is 66 day which is more than industry average. Retaining a lower average collection period is treated as optimal. Actually it means that it does not take a company very long time to turn its receivables into cash. Finally, every company wants cash to pay off its own expense.

4)

Calculation of inventory turnover of Company EC:Inventory turnover can be calculated by using following formula:Inventory turnover ratio= Cost of goods sold/Inventories

Substitute:

Net accounts receivable for $275,000 and average daily sales for 4166.66:Inventory turnover ratio= Cost of goods sold/Inventories=$1,200,000/$325,000=3.69Hence, the Inventory turnover ratio for Company EC is determined as 3.69.

Advice: Inventory turnover ratio of EC Company for year 2013 is 3.69 which is less than industry average. It indicates the inefficiency in controlling inventory levels.

5)

Calculation of Fixed assets turnover of Company EC:Fixed assets turnover can be calculated by using following formula:Fixed assets turnover ratio= Net sales/Fixed assets

Substitute:

Net sales for $1,500,000 and fixed assets for 420,000:

Fixed assets turnover ratio= Net sales/Fixed assets

=$1,500,000/$420,000=3.57Hence, the Inventory turnover ratio for Company EC is determined as 3.57.

Advice: Fixed assets turnover ratio of EC Company for year 2013 is 3.57 which are more than industry average. It indicates that company has been more effective in using the investment in fixed assets to generate revenues.

6)Calculation of Total assets turnover of Company EC:Total assets turnover can be calculated by using following formula:Total assets turnover ratio= Net sales/Total assets

Substitute:

Net sales for $1,500,000 and Total assets for 1,145,000:Total assets turnover ratio= Net sales/Total assets=$1,500,000/$1,145,000=1.31Hence, the Total assets turnover ratio for Company EC is determined as 1.31.

Advice: Total assets turnover ratio of EC Company for year 2013 is 1.31 which is less than industry average. It indicates that company is less efficient for using its assets in generating sales or revenue.

7)Calculation of Debt ratio of Company EC:Debt ratio can be calculated by using following formula:Debt ratio= Total debt/Total assets

Substitute:

Total debt for $875,000 and Total assets for 1,145,000:Debt ratio= Total debt/Total assets=$875,000/$1,145,000=0.76Hence, the Debt ratio for Company EC is determined as 0.76.

Advice: Total debt ratio of EC Company for year 2013 is 0.76 which is more than industry average. It means that more leveraged the company and the greater its financial risk.

8)Calculation of Times interest earned of Company EC:Times interest earned ratio can be calculated by using following formula:Times interest earned ratio= Operating profit/Interest Expenses

Substitute:

Operating profit for $200,000 and Interest expenses for 72,000:Times interest earned ratio= Operating profit/Interest Expenses=$200,000/$72,000=2.78Hence, the Time interest earned ratio for Company EC is determined as 2.78.

Advice: Times earned ratio of EC Company for year 2013 is 2.78 which is less than industry average. It means that less earnings are available for company to pay interest payment and the company is more susceptible to increase its interest rates.

9)Calculation of Gross profit margin for Company EC:Gross profit margin can be calculated by using following formula:Gross profit margin= Gross profit/Net sales

Gross profit for $300,000 and Net sales for $1,500,000Gross profit margin= Gross profit/Net sales=$300,000/$1,500,000=.20 Hence, the Gross profit margin for Company EC is determined as 0.20.

Advice:Gross profit margin of EC Company for year 2013 is 20% which is less than the industry average. It should be increased at least up to the industry average.

10)Calculation of operating profit margin for Company EC:Operating profit margin can be calculated by using following formula:Operating profit margin= Operating profit/Net sales

Operating profit for $200,000 and Net sales for $1,500,000

Operating profit margin= Operating profit/Net sales=$200,000/$1,500,000=.13 Hence, the Operating profit margin for Company EC is determined as 0.13.

Advice:Operating profit margin of EC Company for year 2013 is 13% which is more than the industry average. It is better for the company.

11)Calculation of net profit margin for Company EC:Net profit margin can be calculated by using following formula:Net profit margin= Net profit/Net sales

Net profit for $76,800 and Net sales for $1,500,000Net profit margin= Net profit/Net sales=$76,800/$1,500,000=0.0512 Hence, the Net profit margin for Company EC is determined as 0.05.

Advice:Operating profit margin of EC Company for year 2013 is 5% which is less than the industry average. It should be increased at least up to the industry average.

12)

Calculation of return of total assets for Company EC:Return on total assets can be calculated by using following formula:Return on total assets= Net earnings/total assets

Net earnings for $76,800 and Net sales for $1,145,000Return on total assets= Net earnings/total assets=$76,800/$1,145,000=0.067 Hence, the Return on total assets for Company EC is determined as 0.067.

Advice:Return on total asset of EC Company for year 2013 is 0.067 which is less than the industry average. It should be increased at least up to the industry average.

13)

Calculation of return of equity for Company EC:Return on equity can be calculated by using following formula:Return on equity= Net earnings/stockholder’s equity

Net earnings for $76,800 and Total assets for $270,000Return on total assets= Net earnings/total assets=$76,800/$270,000=28.44Hence, the Return on total assets for Company EC is determined as 28.44

Advice:Return on equity of EC Company for year 2013 is 28.44% which is more than the industry average. It is better for the company.