Case Analysis # 1
FINC 302

Profit Ratios for 2004:
Profit Margin= Net income ÷ Sales 193,200 ÷ 4,269,871 = 4.5%
Return on Assets a. Net income ÷ Total assets
193,200 ÷ 3,170,200 = 6.1% b. (Net income ÷ Sales) x (Sales ÷ Total Assets)
(193,200 ÷ 4,269,871) x (4,269,871 ÷ 3,170,200) = 6.1% Return on Equity a. Net income ÷ Stockholders Equity
193,200 ÷ 1,204,600 = 16% b. Return on Assets (investment) ÷ (1 – Debt/Assets)
.061 ÷ (1 – 1,965,600/3,170,200) = .061 ÷ .38 = 16%

Profit Ratios for 2005:
Profit Margin= Net income ÷ Sales 243,100 ÷ 4,483,360 = 5.4%
Return on Assets a. Net income ÷ Total assets
243,100 ÷ 3,360,650 = 7.2% b. (Net income ÷ Sales) x (Sales ÷ Total Assets)
(243,100 ÷ 4,483,360) x …show more content…

When comparing Harrod’s to the selected industry ratios for 2006 their (Harrod’s) numbers look pretty good. Profit margin for the industry averages around 4.51%, Harrod’s stands at 6.2% showing good cost control. Return on assets for the industry averages around 5.10% for part A and 1.33x for part B, Harrod’s stands at 8.9% for part A and 1.43x for part B showing efficient use of assets. Return on equity for the industry averages around 9.80% for part A and 0.48 for part B, Harrod’s stands at 23.3% for part A and .62 for part b showing higher rewards for Harrod’s stockholders.
Receivables turnover for the industry averages around 5.75x, Harrod’s stands at 6.3x showing that they collect their receivables slower than does the industry. Inventory turnover for the industry averages around 3.01x, Harrod’s stands at 4.8x showing that Harrod’s generates more sales per dollar of inventory; this indicates that they have in place a very strong and efficient inventory-ordering and cost-control methods. Fixed asset turnover for the industry averages around 3.20x, Harrod’s stands at 3x. Harrod’s plant and equipment ratio is low, but because of their rapid movement of inventory and accounts receivable the fixed asset turnover is relatively minor. I think Becky does not have a legitimate complaint. During the last 15 years she and her husband have opened a total of 12 stores which produce $5 million in total sales