# Interpreting Financial Results

Review both the Balance Sheet and Income Statement for XYZ Company, Inc.

Calculate the following TEN financial ratios:

• Quick Ratio
• Inventory Turnover
• Accounts Receivable Turnover
• Total Debt Ratio
• Debt to Equity Ratio
• Gross Profit Margin
• Net Profit Margin
• Return on Assets (ROA)
• Return on Equity (ROE)
• Earnings Per Share (EPS)

Write a summary of your analysis to include the following for EACH ratio:

• What does the ratio measure?
• How is it calculated?
• What is considered a “good” or acceptable figure for the ratio?
• What is your calculation for the ratio as it relates to XYZ? Is their result acceptable or not?

Introduction – .50 points

Calculation: Quick Ratio – .25 points

Discussion: Quick Ratio – .50 points

Calculation: Inventory Turnover – .25 points **Use AVERAGE Inventory**

Discussion: Inventory Turnover – .50 points

Calculation: Accounts Receivable Turnover – .25 points ** Average accounts receivable should be used. However, you do not have the beginning accounts receivable figure. So simply use ending accounts receivable on this one.**

Discussion: Accounts Receivable Turnover – .50 points

Calculation: Total Debt Ratio – .25 points

Discussion: Total Debt Ratio – .50 points

Calculation: Debt to Equity Ratio – .25 points

Discussion: Debt to Equity Ratio – .50 points

Calculation: Gross Profit Margin – .25 points

Discussion: Gross Profit Margin – .50 points

Calculation: Net Profit Margin – .25 points

Discussion: Net Profit Margin – .50 points

Calculation: Return on Assets – .25 points

Discussion: Return on Assets – .50 points

Calculation: Return on Equity – .25 points

Discussion: Return on Equity – .50 points

Calculation: Earnings Per Share – .25 points **Assume 1000 Shares**

Discussion: Earnings Per Share – .50 points

Conclusion – .50 points

APA (includes title page, references, spelling, grammar, readability, etc) – 1 point

Required References (make sure to double-space and format into a hanging indent):

Parrino, R., Kidwell, D. S, & Bates, T. W. (2012). Fundamentals of corporate finance (2nd ed). Hoboken, NJ: Wiley.

University of Phoenix. (2014). Sample financial statements. Retrieved from University of Phoenix, FIN571 – Corporate Finance website.

Example: Current Ratio (each ratio discussion should be similar to this)

The current ratio is a measure of a firm’s liquidity. It specifically measures a firm’s ability to fulfill its short-term obligations. The current ratio is calculated by dividing current assets by current liabilities. A ratio that is too low could be an indicator of potential cash issues, while a ratio that is too high could be an indicator of capital inefficiency. While an acceptable ratio will depend on several factors, most firms strive for a current ratio between 1 and 2. XYZ, Inc. has a current ratio of 1.74. This ratio falls within the acceptable range which suggests that this firm should be able to fulfill its short-term obligations at this time.