Ratio Analysis Memo
Ratio Analysis Memo July 9, 2012 Memo To: From: Date: July 9, 2012 RE: Kudler Fine Foods ratio analysis One of the things that we will be going over is some of the ratios for Kudler Fine Foods through Liquidity, Profitability, and solvency ratios. We will look into some of the finding that were found through these ratios and discuss them. One of the things that we found was where Kudler Fine Foods’ position is with these ratios. The first area that we look at is profitability. Profitability Ratios:
When looking through the profits of the company through the balance sheets we will look at a couple of areas. The first area that we will look into is the asset turnover of the company. The beginning assets started in at $1,971,000. When you take that by the total assets of $2,675,250 you get the turnover margin which is 4. 04. Net Sales___ = Asset Turnover $10,796,200 = 4. 04 Total Assets $2,675,250 Next area we see is the profit margin. You see through the balance sheet that Kudler Fine foods over the board did pretty good when you look at it from a profit stand point.
The way we calculated the profit margin was Net Income over sales and this was the information that we got: Net Income = Profit Margin$668,950__ = . 06 Net Sales $10,796,200 Looking into the return on assets it was interesting to see some of the findings when we calculated. Net Income____________ = Return on Assets $668,950 = . 28 (Beginning + Ending total assets)/2 ($1,971,000 +$2,675,250)/2 Return on Common stockholders’ equity: Net Income = Return on Common stockholders’ equity. $668,950 =. 0 Shareholders’ equity $746,290 Solvency Ratios: Solvency ratios measure the company’s ability to meet long-term obligations. This is a ratio that measures the company’s size after tax income. One of the things that you look at with solvency ratios is debt to total assets. Total liabilities = Debt to total assets $746,290 = . 27 Total Assets $2,675,250 The other area that is measured in Solvency ratios is Time interest earned: Earnings before interest & Taxes = Time Interest earned $10,796,200 = $1,376. 8 Interest Expense $7,845 Liquidity Ratios: A company is labeled by how easily it can meet its short term obligations. Something that I think is happening pretty well at Kudler. When you look at the different ratios of the Liquidity you see some good numbers. Let us dive into these ratios so you can see what I am talking about. Current Ratio: Current Assets = Current Ratio$1,971,000 = $16. 94 Current Liabilities $116,290 Receivables Turnover: Sales Revenue = Receivable Turnover $10,804,000 = $12. 60
Average Acct Receivable $86,000 Inventory Turnover: Cost of goods sold = Inventory Turnover$8,974,831 = $10 Average Inventory($467,890 + $429,090)/2 Acid Test: Liquid Assets = Acid Test$1,971,000 = $16. 94 Current Liabilities$116,290 When you look at the overall ratios of Kudler Fine Foods you see that things are going in the right direction. Looking at the profitability margins you see increases in a short amount. Anything with an increase is good news. I would say that Kudler Fine Foods is in good condition and is steadily improving.