| Course | MT217 Finance |
|---|---|
| Unit | Unit 3 |
| Paper type | Ratio analysis |
| Length | About 850 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT217 Unit 3
Strong Returns on Thin Equity: A Unit 3 Ratio Analysis of a Regional Tire Distributor
[Student Name]
Purdue University Global
MT217: Finance
Unit 3 Ratio Analysis
[Instructor Name]
[Date]
Keystone Tire Supply, its figures and the industry medians are composite and illustrative; the sources cited are real.
The Company and the Data
Keystone Tire Supply is a composite distributor that buys passenger and light truck tires from manufacturers and sells them to about [1,400] independent repair shops and dealers across three states. The figures below come from its most recent year: sales of [$78.4 million], cost of goods sold of about [$60.4 million], net income of about [$2.26 million], total assets of about [$29.8 million], equity of about [$9.22 million], inventory of [$11.4 million], receivables of about [$7.6 million] and current liabilities of about [$13.1 million]. Industry medians are composite figures of the kind published for wholesale distributors. Penman (2013) cautions that ratios mean little without a benchmark and that the most informative benchmarks are the firm's own history and close competitors, which is why each ratio below is read against both.
Liquidity
Keystone's current ratio is 1.52, down from 1.61 a year earlier and slightly below the industry median of 1.60. Keystone has enough short-term assets to cover its short-term bills, but with less room than last year.
The quick ratio removes inventory, which is harder to turn into cash quickly. It is 0.65, against 0.71 last year and a median of 0.70. The gap between the two ratios is large because [$11.4 million] of tires sit in the warehouse, more than half of current assets. If a supplier demanded faster payment, Keystone would need to sell tires or borrow to pay.
Debt and Coverage
Total liabilities are about 2.24 times equity, up from 1.95 and well above the median of 1.50. Keystone relies more on borrowed money and supplier credit than most distributors its size. Interest coverage, at 4.31 times, compares with 5.2 last year and a median of 5.8. Operating income still covers interest more than four times, but the cushion is thinner than the industry's and shrinking.
Brigham and Houston (2019) note that heavier debt magnifies both good and bad years for owners. That effect appears in the profitability ratios below.
Profitability
Gross margin is 23.0 percent, slightly below last year's 23.4 percent and the median of 24.0. Keystone keeps about 23 cents of each sales dollar after paying for the tires, a little less than its peers, which suggests either sharper pricing to win shops or higher purchase costs.
Net margin is 2.88 percent, down from 3.10 but above the median of 2.6. After all expenses, Keystone earns nearly three cents per dollar of sales, which is normal for a distributor.
Return on assets is 7.58 percent, against 8.1 last year and a median of 6.9. Each dollar of assets earns more than the typical distributor's. Asset turnover, sales of about 2.63 dollars per dollar of assets, is the reason: Keystone moves a lot of product through a modest warehouse and fleet, even with its heavy inventory.
Return on equity is 24.5 percent, up from 23.9 and far above the median of 17.3. This is the ratio an owner might celebrate, but it needs explaining. Breaking it into its parts, net margin of 2.88 percent times asset turnover of 2.63 times an equity multiplier of 3.23 gives 24.5 percent. The multiplier, about 3.2 dollars of assets for every dollar the owners put in, is the part that stands out: Keystone's high return on equity comes mostly from how little equity supports its assets, not from unusual profitability.
Keystone's owners earn a high return largely because they have put in so little of the money.
Activity
Inventory turns over 5.30 times a year on a cost basis, against 5.6 last year and a median of 6.1. Tires sit about 69 days on average, compared with about 60 for a typical distributor. Receivables equal about 35 days of sales, close to the thirty-day terms Keystone offers its shops, so collections are not the problem; slow-moving tires are. A review of the inventory by size and brand would likely show a few hundred SKUs, such as older all-season sizes, accounting for much of the excess.
What the Ratios Say Together
The ratios tell one story. Keystone's operations are sound: margins are near the industry's and assets earn more than average. But the company has grown its inventory faster than its sales and paid for it with more debt and supplier credit, which shows up as weaker liquidity, a higher debt load and thinner interest coverage. The high return on equity is real but fragile. Altman (1968) found that a handful of balance sheet and income measures, weighed together, separated firms headed for bankruptcy from healthy ones a year or more ahead, which is why a single strong ratio should never be read alone.
The most useful action would be to bring inventory turns back toward the median. Freeing about [$1.5 million] of inventory would improve the quick ratio, reduce borrowing and raise coverage, without changing the business model.
References
Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609. https://doi.org/10.1111/j.1540-6261.1968.tb00843.x
Brigham, E. F., & Houston, J. F. (2019). Fundamentals of financial management (15th ed.). Cengage.
Penman, S. H. (2013). Financial statement analysis and security valuation (5th ed.). McGraw-Hill.
What the MT217 Unit 3 assignment asks for
The third unit commonly asks for a ratio analysis of a company, often the one reviewed in Unit 2 or one the section supplies. Most prompts expect ratios from several families, usually liquidity, debt or solvency, profitability and activity, each computed and then compared with something: the company's prior year, an industry median or a set of competitors. The comparison is what gets graded, so every ratio needs a sentence on what it means. Many sections also want the ratios read together, for example by breaking return on equity into margin, turnover and the equity multiplier. State whether you use year-end or average balances and apply the choice consistently. Close with a conclusion that names the company's main strength, its main weakness and a likely cause. Expect about three pages, often built around one table, with sources cited in APA 7.
Inside the MT217 Unit 3 example
The analysis opens with the distributor's business and the figures used, then cites Penman on why ratios need a benchmark. Liquidity follows, with the current and quick ratios against last year and the median, and the gap between them traced to inventory. The debt section reports the liabilities-to-equity and coverage figures, and a margin note links them to the profitability results ahead. The profitability section moves from the two margins to the two return measures, and the equity figure is broken into its three parts to show the role of thin equity, which the highlighted line states plainly. Asset turnover explains the strong return on assets. The activity section gives inventory turns and receivable days and points to slow-moving sizes. A closing section ties the families together with Altman's work on distress signals and recommends freeing about $1.5 million of inventory.
Reading the MT217 Unit 3 grading rubric
Ratio analyses in MT 217 are generally graded on interpretation rather than arithmetic. Computing ratios correctly earns the base credit, but most of the marks go to the sentence after each one, explaining what the comparison means for the company. Comparing with both the prior year and an industry benchmark shows direction and position. Graders reward analyses that read ratios together, such as using a return on equity breakdown to show where returns come from. A conclusion that identifies a common cause behind several weak ratios demonstrates judgment beyond the formulas. State once whether balances are year-end or averaged, and stick to it. Benchmarks should be sourced. A short recommendation tied to the cause shows practical use of the analysis. Altman, Penman and Brigham and Houston should be listed in APA 7 with the data sources you used.
MT217 Unit 3 help: mistakes that cost points
Ratio papers most often fall short by presenting a table of numbers with no interpretation. Another frequent issue is comparing ratios with nothing, so a reader cannot tell whether 1.52 is good or bad. Some writers praise a high return on equity without noticing that thin equity drives it. Others mix year-end and average balances across ratios. Benchmarks are sometimes invented or unsourced. Conclusions often list every ratio again instead of naming the common thread. Watch for formula errors in quick ratios and coverage, which are easy to miscalculate. If your section supplies the industry data, use it exactly as given. If you choose your own, a set of three or four comparable public companies averaged together works well. Send us the company and the statements, and our writers can help compute the ratios, choose benchmarks and write the sentence each one needs.
Get an MT217 Unit 3 example written to your instructions
Include the company assigned to you or the one you picked, the Unit 3 instructions, any required ratios and the rubric. Every ratio is computed from that company's statements, set beside an industry benchmark and the prior year, and read for what the comparison means. The opening sample is free of charge, usually back in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT217 Unit 3 questions, answered
Where do industry medians come from?
Library databases such as industry ratio compilations, trade association reports, or a set of comparable public companies you average yourself. Sections differ on which they accept, so the prompt is the first guide. The sample names its benchmark source in a footnote. The custom version uses whichever benchmark source your section specifies or your library can reach.
Should I use year-end or average balances?
Either is acceptable in most sections, provided the choice is stated and applied the same way throughout. Averages smooth out a year-end spike, which matters for inventory at a seasonal business like tires. The sample uses year-end figures for simplicity and says so, and a grader can then follow every calculation without guessing which balance was meant.
Why is a higher debt ratio a concern if return on equity is high?
Because borrowing magnifies returns in both directions. With equity thin, a small fall in earnings produces a large fall in the return to owners and squeezes interest coverage, which is already below the median in the sample. The high return is real, but it reflects risk taken, and the paper says so rather than presenting it as strength alone.
Where can I find a free MT217 Unit 3 sample paper?
The full MT217 Unit 3 ratio analysis is on this page. It computes nine ratios for a tire distributor, compares each with the prior year and an industry median, breaks down return on equity and recommends one action, with margin notes.
Why is the high return on equity a concern in the sample?
Because it comes mostly from thin equity rather than unusual profitability. With about 3.2 dollars of assets per dollar of equity, a small drop in earnings would cut the owners' return sharply and squeeze interest coverage.