Tesco Company Key Ratios
Industry Average Actual 2012 Actual 2013
Current Ration 1.3 1.0
Quick Ratio 0.8 0.75
Average Collection Period 23 days 30 days
Inventory Turnover 21.7 19
Debt Ratio 64.7% 50%
Times Interest Earned 4.8 5.5
Gross Profit Margin 13.6% 12.0%
Net Profit Margin 1.0% 0.5%
Return on total assets 2.9% 2.0%
Return on Equity 8.2% 4.0%
Income Statement
Tesco Company
For the Year Ended December 31, 2013
Sales Revenue $100,000
Less: Cost of goods sold 87,000
Gross profits $13,000
Less: Operating expense 11,000
Operating profits $2,000
Less: interest expense 500
Net profit before taxes $1,500
Less: Taxes (40%) 600
Net profit after taxes $900
Balance Sheet, Tesco Company, December 31, 2013
Assets
Cash $1,000
Account receivables 8,900
Inventories 4,350
Total current assets 14,250
Gross fixed assets $35,000
Less: Accumulated deprecation 13,250
Net fixed Assets 21,750
Total Assets $36,000
Liabilities & Stockholder’s Equity
Account payable $9,000
Accruals 6,675
Total current liabilities $15,675
Long-term debt 4,125
Total liabilities $19,800
Common stock 1,000
Retained earnings 15,200
Total Stockholder’s Equity $16,200
Total Liabilities and Stockholder’s Equity $36,000
Additional Information
No Preferred stock dividends were paid.
Given the above Tesco Company key ratios, Income Statement, and Balance Sheet answer the following questions.
1.Calculate and explain the current ratio for Tesco Company in 2013, and analyze the company’s liquidity from both a cross-sectional and time-series viewpoint?
