Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 3.23P
Learning Goal 6
P3-23 Cross-sectional ratio analysis Use the accompanying financial statements for Fox Manufacturing Company for the year ended December 31, 2019, along with the industry average ratios below, to do the following:
- a. Prepare and interpret a complete ratio analysis of the firm’s 2019 operations.
- b. Summarize your findings and make recommendations.
Fox Manufacturing Company Income Statement for the Year Ended December 31 2019
| Sales revenue | $600,000 |
| Less: Cost of goods sold | 460,000 |
| Gross profits | $140,000 |
| Less: Operating expenses | |
| General and administrative expenses | $ 30,000 |
| Depreciation expense | 30,000 |
| Total operating expense | $60,000 |
| Operating profits | $80,000 |
| Less: Interest expense | 10,000 |
| Net profits before taxes | $70,000 |
| Less: Taxes | 27,100 |
| Net profits after taxes (Hint: Earnings available for common stockholders as there are no preferred stockholders) | $42.900 |
| Earnings per share (EPS) | $2.15 |
| Ratio | Industry average, 2019 |
| Current ratio | 2.35 |
| Quick ratio | 0.87 |
| Inventory turnover | 4.55 |
| Average collection period | 35.8 days |
| Total asset turnover | 1.09 |
| Debt ratio | 0.300 |
| Times interest earned ratio | 12.3 |
| Gross profit margin | 0.202 |
| Operating profit margin | 0.135 |
| Net profit margin | 0.091 |
| 0.099 | |
| 0.167 | |
| Earnings per share (EPS) | $3.10 |
| Based on a 365-day year and on end-of-year figures. |
|
Fox Manufacturing Company Balance Sheet December 31, 2019
| Assets | |
| Cash | $ 15,000 |
| Marketable securities | 7,200 |
| Accounts receivable | 34, 100 |
| Inventories | 82,000 |
| Total current assets | $138,300 |
| Net fixed assets | 270,000 |
| Total assets | $408,300 |
| Liabilities and |
|
| Accounts payable | $ 57,000 |
| Notes payable | 13,000 |
| Accruals | 5,000 |
| Total current liabilities | $ 75,000 |
| Long-term debt | $150,000 |
| Common stock equity (20,000 shares outstanding) | $110,200 |
| Retained earnings | 73,100 |
| Total stockholders’ equity | $183,300 |
| Total liabilities and stockholders’ equity | $408,300 |
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OBJECTIVE: To enable learners to utilize financial ratios as a mechanism to evaluate the firm's financial
performance and identify areas for making decisions for improvement
REQUIREMENT: Financial Statement Analysis
Question
Refer to the following financial statements of Delima Corporation for 2019 and 2020:
Delima Corporation
Income Statements
For the year ended 31 December (in millions)
2020
$13,198
7,750
2019
$12,397
7,108
Net sales
Cost of goods sold
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Income from operations
5,448
5,289
3,472
3,299
1,976
1,990
Interest expense
233
248
Other (income) expense, net
11
1,732
503
1,229
Income before income taxes
1,742
Income tax expense
502
Net income
1,240
Delima Corporation
Balance Sheets
31 December (in millions)
2020
2019
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Current assets
Cash
$460
$444
Accounts receivables (net)
1,188
1,132
1,190
1,056
225
2,915
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Other current assets
247
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Problem 1: Viance Queen Company
Required:
Compute for the company’s profitability and operating efficiency ratios for 2019
Compute for the financial health ratios of the company for 2019
B.Operating Efficiency
Days in Inventory
AR Turnover
Days in AR
Problem 1: Viance Queen Company
Required:
Compute for the company’s profitability and operating efficiency ratios for 2019
Compute for the financial health ratios of the company for 2019
A.Profitability ratio
a.Gross Profit Ratio
b. Operating income margin
c. Net profit margin
d. Return on Assets:
ROA (NI/Total Assets)
ROA (NI/Average Assets)
ROA (EBIT/Total Assets)
ROA (EBIT/Average Assets)
ROE (NI/Capital)
ROE (NI/Average Capital
B.Operating Efficiency
a. Asset Turnover
b. Fixed Asset Turnover
c. Inventory Turnover
d. Days in Inventory
e. AR Turnover
f. Days in AR
C.Financial Health/ (Solvency and Liquidity) Solvency ratio:
a. Debt to equity ratio
b. Debt Ratio
c. Equity Ratio
d. Interest Coverage Ratio
Liquidity ratio:
a. Current Ratio
b. Quick Ratio
Chapter 3 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 3.1 - Prob. 3.1RQCh. 3.1 - Describe the purpose of each of the four major...Ch. 3.1 - Prob. 3.3RQCh. 3.1 - Prob. 3.4RQCh. 3.2 - With regard to financial ratio analysis, how do...Ch. 3.2 - What is the difference between cross-sectional and...Ch. 3.2 - Prob. 3.7RQCh. 3.2 - Prob. 3.8RQCh. 3.3 - Under what circumstances would the current ratio...Ch. 3.3 - In Table 3.5, most of the specific firms listed...
Ch. 3.4 - To assess the firms average collection period and...Ch. 3.5 - What is financial leverage?Ch. 3.5 - What ratio measures the firms degree of...Ch. 3.6 - What three ratios of profitability appear on a...Ch. 3.6 - Prob. 3.15RQCh. 3.6 - Prob. 3.16RQCh. 3.7 - What do the price/earnings (P/E) ratio and the...Ch. 3.8 - Financial ratio analysis is often divided into...Ch. 3.8 - Prob. 3.19RQCh. 3.8 - What three areas of analysis are combined in the...Ch. 3 - For the quarter ended January 28, 2017, Kroger...Ch. 3 - Learning Goals 3, 4, 5 ST3-1 Ratio formulas and...Ch. 3 - Prob. 3.2STPCh. 3 - Prob. 3.1WUECh. 3 - Learning Goal 1 E3-2 Explain why the income...Ch. 3 - Prob. 3.3WUECh. 3 - Learning Goal 3 E3-4 Bluestone Metals Inc. is a...Ch. 3 - Learning Goal 6 E3-5 If we know that a firm has a...Ch. 3 - Financial statement account identification Mark...Ch. 3 - Learning Goal 1 P3-2 1ncome statement preparation...Ch. 3 - Prob. 3.3PCh. 3 - Learning Goal 1 P3-4 Calculation of EPS and...Ch. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Learning Goals 1 P3-7 Initial sale price of common...Ch. 3 - Prob. 3.8PCh. 3 - Learning Goal 1 P3-9 Changes In stockholders...Ch. 3 - Learning Goals 2, 3, 4, 5 P3-10 Ratio comparisons...Ch. 3 - Learning Goal 3 P3-11 Liquidity management Bauman...Ch. 3 - Prob. 3.12PCh. 3 - Inventory management Three companies that compete...Ch. 3 - Accounts receivable management The table below...Ch. 3 - Prob. 3.15PCh. 3 - Learning Goal 4 P3-16 Debt analysis Springfield...Ch. 3 - Prob. 3.17PCh. 3 - Learning Goals 2, 3, 4 P3-18 Using Tables 3.1,...Ch. 3 - Learning Goals 5 P3-19 Common-size statement...Ch. 3 - The relationship between financial leverage and...Ch. 3 - Learning Goal 4 P3-21 Analysis of debt ratios...Ch. 3 - Learning Goal 6 P3-22 Ratio proficiency McDougal...Ch. 3 - Learning Goal 6 P3-23 Cross-sectional ratio...Ch. 3 - Learning Goal 6 P3-24 Financial statement analysis...Ch. 3 - Learning Goals 6 P3- 25 Integrative: Complete...Ch. 3 - Learning Goal 6 P3-26 DuPont system of analysis...Ch. 3 - Learning Goal 6 P3-27 Complete ratio analysis,...Ch. 3 - Spreadsheet Exercise The income statement and...
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