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The Ferri Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has been experiencing low profitability in recent years

Finance

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The Ferri Furniture Company, a manufacturer and wholesaler of high-quality home furnishings, has been experiencing low profitability in recent years. As a result, the board of directors has replaced the president of the firm with a new president, Helen Adams, who has asked you to make an analysis of the firm’s financial position using the financial ratios. The most recent industry average ratios, and Ferri’s financial statements, are as follows:

BALANCE SHEET                                       INCOME STATEMENT

Cash                            $             400             Net Sales (all credit                      $   12680

Accounts receivable                  1300               Cost of goods sold                           8930

                                                                        Gross Profit                              $     3,750

Inventories                               2,100             Selling, general and

Current assets                $          3800             Administration expense                     2,230

Net fixed assets                            3320             Interest expense                                   460

Total Assets                 $          7120             Profit before taxes                    $      1060

Accounts payable         $               320              Taxes                                                 390

Accruals                                       260              Net Profit                                   $       670

Short term loans                          1100

Current Liabilities        $             1680

Long-term debt                             2000

Shareholder’s equity                     3440

Total Liabilities and

Shareholder’s Equity                $     7120

Requirements

      On the basis of this information, compute and interpret the results with industry average of (i) Current Ratio, (ii) Quick Ratio (iii) Debt to total assets ratio ( iv) Average Collection Period     (v) Payable Turnover in Days      (vi) Gross Profit Margin                                                

INDUSTRY AVERAGE RATIOS

Current ratio                                 2x Quick ratio                                  1.5x      

Average Collection Period 45 days          Debt to total assets Ratio           30%                     

Payable Turnover in Days 35 days     Gross Profit Margin    45%