Liquidity ratio:

1. Current ratio:
Formula =current assets / current liabilities
=4196727 /4830750
=0.869
Interpretation:
Sonny only has enough current assets to pay off 86.9 percent of his current
liabilities. This shows that Sonny is highly leveraged and highly risky. Banks would
prefer a current ratio of at least 1 or 2, so that all the current liabilities would be
covered by the current assets. Since Sonny’s ratio is so low ( 0.869) , it is unlikely
that it will get approved for his loan.
2. Quick ratio / Acid test ratio:

Formula = Quick Assets /current liabilities

=3099657 / 4830750
= 0.642
Interpretation:
Sonny’s quick ratio is 0.642. The ideal ratio is 1 for quick acid test ratio but Sonny’s
ratio is less than 1. This means that Sonny can’t pay off all of her current liabilities
with quick assets.

Activity Ratios:
Inventory turnover:

Formula =cost of goods sold / Inventory

= 5166894 / 683146

= 7.563 Times

Interpretation:

Sonny’s turnover is 7.563.The higher the ratio, the more frequently the inventory
turned over.
 Average age of inventory :
Formula = 365 / Inventory turnovers
= 365 / 7.563
= 48.2 days
Interpretation:
Average age of the inventory indicates that company can sale inventories
within a minimum of 48.2 days.
Average collection period:
Account receivable turnover = sales / Account receivable
= 6949357 / 926375
= 7.502
Average collection period = 365 / Account receivable turnover
= 365 / 7.502
= 48.6 days

Interpretation :

This situation indicates that Sonny company can collect it all Account
receivables within 48.6 days.

Average payment period :

Account payable turnover = purchases / account payable
= 3616825 / 550964
= 6.56
Average payment period = 365 / Account payable turnover
= 365 / 6.56
= 55.6 days
Interpretation :
This situation indicates that company’s situation will be good if it
make payments less than time it means make payments within 55.6
days.
 Total Assets turnover:
Formula = Sales / Total assets
= 6949357 / 16673390
= 0.417
Interpretation :
Sonny’s ratio is only 0.417. The assets turnover ratio is less which means that
Sonny company is not efficiently utilizing its assets.

Debt ratios :
Debt ratio:

Formula =Total liabilities ÷ Total Assets

= 13541502 ÷ 16673390
= 0.812 × 100
=81.2%
Interpretation:
Sonny has a debt ratio of 0.812. The value indicates that Sonny company has financed
more than 80% of its assets with debt. Higher this ratio, the greater the company’s
degree of indebtedness and more financial leverage it has.
Debt to equity ratio:
Formula = Total liabilities ÷ Total common stock equity
= 13541502 ÷ 3120917
= 4.34
*Common stock equity = common stock +additional paid in capital +retained
earnings =858867+ 1325719+ 93633
=3120917
Interpretation:
Sonny’s ratio is 4.34. It indicates that Sonny company has much debt to finance
its assets relative to the amount of value represented in the shareholders’ equity
 Time interest earned ratio:
Formula = EBIT ÷ Interest
= 294197 ÷ 25286
= 11.63
Interpretation :
Sonny has a ratio of 11.63 . This means that Sonny’s income is 11.63 times
greater than his annual interest expense. In other words, Sonny can afford to pay
additional interest expenses. In this respect, Sonny’s business is less risky and the
bank shouldn’t have a problem accepting its loan.
Fixed payment coverage ratio:
Formula = EBIT + Lease payments ÷ Interest + Lease payments + {(Principal
payments + preferred stock dividends) × [1/ 1-T]}
= 294197 +0 ÷ 25286 +0+ {(0 + 0 ) ×[1 /1-0.4]}
=294197 ÷ 25286 + {( 0)×[1 / 0.6]}
=294197 ÷25286 + {( 0) ×[1.667]}
= 294197 ÷25286 +0
= 294197 ÷ 25286
= 11.6
Interpretation:
Profitability Ratios :
Gross profit margin :
Formula = Sales - CGS ÷ Sales × 100
= 6949357 – 5166894 ÷ 6949357 ×100
= 1782463 ÷ 6949357 × 100
= 25.6 %
Interpretation :
Sonny has a ratio of 25.6 percent. This means that after pays off its inventory
costs, Sonny still has 25.6 percent of his sales revenue to cover his operating
costs.
Operating profit margin:
Formula = Operating profit ÷ Sales × 100
= 294197 ÷ 6949357 × 100
= 4.23 %
Interpretation :
Sonny’s operating margin 4.23%. This means that 95.7cents on every sales is
used to pay for variable costs. Only 4.23 cents remains to cover all non-operating
expenses or fixed costs.
Net profit margin:
Formula = Earning available for common stockholders÷ Sales × 100
= 147791 ÷ 6949357 × 100
= 2.126 %
Interpretation:
Sonny company’s net profit margin is 2.126%.The company, 97.87 cents is used
to pay for buying products, paying operating expenses, and for paying taxes. The
other 2.126 cents remain in the company or is distributed to its owners.

Earning per share:

Basic Earnings per share is 119.40.
Interpretation:
Basic earnings per share provide an estimate of the amount to be distributed to
each share of the outstanding stock from company’s net income. Earnings per
share also help to gauge the profitability of the company.
Return on common equity:
Formula = Earning available for common stockholders ÷ common stock equity ×
100
= 147791 ÷ 3120917
= 0,047× 100
= 4.74%
Interpretation:
Sonny’s ROE is 0.047. This means that every amount of common
shareholder’s equity earned about 0.047 this year. In other words, shareholders
saw a 4.47 percent return on their investment. Sonny’s ratio is most likely
considered low .

Return on total assets:

Formula = Earning available for common stockholders ÷ Total assets × 100

= 147791 ÷ 16673390
=0.00886× 100
= 0.886%
Interpretation:
Sonny’s ratio is 0.886 percent. In other words, every amount that Sonny invested
in assets during the year produced 0.886 % of net income , it means Sonny
faced loss on return rate no matter what the investment is.

Market Ratios:
Price / Earnings ratio:
Formula =market price per share of common stock ÷ Earning per share
= 25.37 ÷ 119.40
= 0.21 or 21.24
Interpretation:
The price-to-earnings ratio or P/E ratio is 0.21 or 21.24 ratio.
Market / Book ratio:
Book value per share of common stock:
Formula= Common stock equity ÷ No. of shares of common stock
outstanding
= 3120917÷ 1262493760
= 0.00247
Market / Book ratio:
Formula= Market price per share of common stock ÷
Book value per share of common stock
= 25.37 ÷ 0.00247
= 10271.2