Jaclyn Hargrove is the owner of six Pickwick Restaurants. For the past 10 years, she has always relied on her accountant to analyze her financial statements. Jaclyn feels that if she were able to understand her financial statements, she would be able to improve her financial performance. More importantly, she would be able to make better decisions that touch on all aspects of her business, from the management of working capital to making investments.
Jaclyn has just purchased accounting software that can provide her with monthly, quarterly, and yearly financial statements and, more importantly, all types of ratios that would help her improve her analysis and decisions. Jaclyn asks you for some advice in understand the meaning of her financial statements. She shows you her December 31, 2013, statement of financial position and statement of income and asks you to calculate and explain the meaning of the more important financial ratios.
To help Jaclyn understand financial ratios, calculate the financial ratios by using the 2013 statement of financial position and statement of income, and explain to her the meaning and significance of each ratio:
Calculations of the 2013 Pickwick Restaurants’ liquidity ratios, debt/coverage ratios, asset-management ratios, and profitability ratios are as follow:
a. Return on equity ratio
b. Return on total assets ratio
c. Return on revenue ratio
d. Profit margin on revenue ratio
e. Total assets turnover ratio
f. Capital assets turnover ratio
g. Inventory turnover ratio
h. Average collection period
i. Fixed-charges coverage ratio
j. Times-interest-earned ratio
k. Debt-to-equity ratio
l. Debt-to-total-assets ratio
m. Quick ratio
n. Current ratio
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