| Course | BUSI 3016 Finance Essentials Workplace Certificate |
|---|---|
| Week | Week 3 |
| Paper type | Ratio analysis write-up |
| Length | About 890 words, 6 pages |
| Format | APA 7 student paper |
| School | Walden University |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for BUSI 3016 Week 3
Three Ratios Across Two Years for a Family Heating and Air Business: A Current Ratio Down From 1.45 to 1.20, Gross Margin Down a Point to 35.0 Percent and Customers Paying Seven Days Slower
Student Name
Walden University
BUSI 3016: Finance Essentials Workplace Certificate
Instructor Name
Month Day, Year
Three Ratios Across Two Years for a Family Heating and Air Business: A Current Ratio Down From 1.45 to 1.20, Gross Margin Down a Point to 35.0 Percent and Customers Paying Seven Days Slower
Why These Three Ratios
Ozark Comfort's owner, who runs the composite furnace and cooling business used throughout this course, asked a simple question after reading the 2027 income statement: profit fell even though sales grew, so is the business in worse shape? Three ratios answer different parts of that question. The current ratio asks whether the company can pay bills coming due in the next year. Gross margin asks whether prices are keeping up with the cost of the work. Days sales outstanding asks how quickly customers pay. Each is computed for 2027 and 2026 so that the movement, not just the level, can be explained.
The Figures
Table 1
Inputs From the 2027 and 2026 Statements
| Item | 2027 | 2026 | |
|---|---|---|
| Current assets | $660,000 | $640,000 | |
| Current liabilities | $550,000 | $440,000 | |
| Revenue | $3,240,000 | $3,010,000 | |
| Gross profit after job costs | $1,135,000 | $1,084,000 | |
| Accounts receivable at year end | $352,000 | $268,000 | |
Ozark Comfort Heating & Air and its statements are composite.
Current Ratio
Current ratio = current assets ÷ current liabilities.
2027: $660,000 ÷ $550,000 = 1.20. 2026: $640,000 ÷ $440,000 = 1.45.
The company has $1.20 of assets it expects to turn into cash within a year for every dollar it owes within a year, down from $1.45. Current assets barely changed. Current liabilities rose by $110,000, and most of the rise is two items: a $120,000 summer borrowing that was still partly outstanding in December, and a larger balance of prepaid maintenance agreements, which count as a liability until the visits are performed. A ratio of 1.20 is not alarming for a service business that collects cash quickly, but the drop says the company is leaning more on borrowed money to get through the year. Put simply for the owner: we owe more in the short run than we did, mainly because we borrowed this summer.
Gross Margin
Gross margin = gross profit ÷ revenue.
2027: $1,135,000 ÷ $3,240,000 = 35.0 percent. 2026: $1,084,000 ÷ $3,010,000 = 36.0 percent.
Gross margin fell by one percentage point. On 2027 revenue, that point is worth about $32,400 of gross profit. Two causes stand out. Equipment prices rose during the year as manufacturers moved to new refrigerants, and the company raised its replacement prices only in October, so installs for most of the year were priced on old costs. And repair jobs were priced with a markup that the estimator believed was a margin, which held repair margins below target. In the owner's words: we kept less of each sales dollar because our prices lagged our costs.
Days Sales Outstanding
Days sales outstanding = accounts receivable ÷ revenue × 365.
2027: $352,000 ÷ $3,240,000 × 365 = 39.7 days. 2026: $268,000 ÷ $3,010,000 × 365 = 32.5 days.
Customers took about seven days longer to pay. Most homeowners pay when the technician finishes, so the change comes from a new kind of customer: two property management firms, signed in 2027, whose replacement jobs are billed with forty-five days to pay. Receivables grew $84,000, much faster than sales. Deloof (2003), studying Belgian firms, found that companies with longer collection periods tended to be less profitable, and argued that managers could improve profitability by shortening them. For this company, those seven days amount to about $63,000 of cash sitting with customers rather than in the bank. For the owner: our new commercial customers pay slowly, and that is part of why we borrowed.
What the Three Together Say
Read alone, each ratio looks like a modest decline. Read together, they explain the owner's question. The company sold more, but it kept a smaller share of each sale, its new customers paid more slowly, and it borrowed to cover the gap. None of this means the business is in danger. It does mean that growth in 2027 came with weaker pricing and slower cash, two things the owner can act on.
What the Owner Could Do About Each
Each movement points to an action. The current ratio would recover if the line of credit were paid down over the winter, when the company collects more than it spends. Gross margin would recover if equipment prices were reviewed every time a supplier announces an increase, rather than once a year, and if repair prices were set from a target margin rather than a markup. Days sales outstanding would fall if the two property managers moved to thirty-day terms or paid a deposit on jobs over $10,000. The owner does not need to act on all three at once; the pricing change protects the most money, about $32,000 a year, and costs nothing to make.
Limits
Ratios from year-end balance sheets capture one day. December is a quiet month for this company, so the current ratio and receivables may look different in July. Beaver (1966) showed that ratios can signal financial trouble years in advance, which is a reason to track them every year rather than read them once. Higgins et al. (2023) caution that ratios have meaning only in comparison, with the company's own past or with similar firms, and these comparisons use only the company's own past year.
References
Beaver, W. H. (1966). Financial ratios as predictors of failure. Journal of Accounting Research, 4, 71-111. https://doi.org/10.2307/2490171
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3-4), 573-588. https://doi.org/10.1111/1468-5957.00008
Higgins, R. C., Koski, J. L., & Mitton, T. (2023). Analysis for financial management (13th ed.). McGraw Hill.
What the BUSI 3016 Week 3 instructions ask for
The third week asks for a short ratio analysis: a handful of ratios computed for two years and explained. Choose ratios that answer different questions, for example whether the company can pay its near-term bills, whether its prices keep up with its costs and how fast customers pay. Show the inputs in a table and each calculation with its arithmetic. For every ratio, explain the movement from one year to the next in terms of what happened in the business, then add a sentence an owner could repeat. The analysis earns its keep when the ratios are read as a set. Note what year-end ratios cannot capture. Two to four pages with a source on financial analysis is typical.
How this BUSI 3016 Week 3 example is built
The write-up opens with the owner's question about falling profit and explains why three ratios were chosen. A table lists current assets and liabilities, revenue, gross profit and receivables for both years. The current ratio section shows the drop to 1.20 and traces it to a $120,000 credit-line draw and prepaid maintenance plans. The gross margin section prices the one-point drop at about $32,400 and explains equipment price increases and the markup mistake. The collection section computes days sales outstanding, links the rise to forty-five-day commercial terms, cites Deloof and prices the extra days at about $63,000. A section reads the three together. Another proposes an action for each, and the limits section cites Beaver and Higgins and colleagues.
Where the marks sit in the BUSI 3016 Week 3 rubric
A ratio write-up is graded on arithmetic and on explanation. Each ratio needs its formula, inputs and result shown, and the figures must reconcile with the table. The explanation of each movement should point to a business event, such as a new customer type or a borrowing decision, rather than restate that the ratio went up or down. Graders reward a plain-language sentence for each ratio and a section that reads the ratios together to answer the owner's actual question. Turning ratio changes into dollars, such as the cost of a lost margin point or of slower collections, shows practical judgment. Limits, especially that year-end figures capture one day, should be acknowledged. Readings should support interpretation, not just definitions.
BUSI 3016 Week 3 help from the desk
Pick ratios that answer different questions, and gather both years' inputs into one table before calculating anything. Compute each ratio and check it twice. Then, for each movement, ask what happened in the business that year to cause it; the answer is usually a decision or a new customer, not a number. Write one sentence per ratio that the owner could say aloud. Finally, ask what the ratios mean together. Weak write-ups list many ratios with no explanation, compute them incorrectly or describe movements without causes. Others never put a dollar figure on any change. If you would like a model ratio write-up for a company you know, share two years of its statements and anything notable that happened.
Get a BUSI 3016 Week 3 example written to your instructions
Share the ratio prompt, its rubric and the statements handed out with it, and the ratios are computed from those and explained against the prior period, 24 to 48 hours, first one free. Both years of figures belong to a contractor that does not exist, so none describes a real firm's condition.
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BUSI 3016 Week 3 questions, answered
Where can I find a free BUSI 3016 Week 3 sample paper?
The complete three-ratio write-up, inputs table and plain-language explanations included, is posted further down at no cost.
Which ratios does the BUSI 3016 Week 3 example use?
The current ratio, gross margin and days sales outstanding, each computed for 2027 and 2026.
Why did the current ratio fall?
Current liabilities rose $110,000, mainly from a $120,000 draw on the line of credit and a larger balance of prepaid maintenance plans.
What caused customers to pay more slowly?
Two new property management customers on forty-five-day terms, which raised days sales outstanding from 32.5 to 39.7.
What do the three ratios say together?
The company sold more but kept less of each sale, collected more slowly and borrowed to cover the gap.