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You have been given the following data on a competitor: Balance

You have been given the following data on a competitor:

Balance Sheets                                             2014                          2015        

Cash                                                  $      57,600                $      52,000

Accounts receivable                                      351,200                      402,000

Inventory                                                   715,200                      836,000

      Total current assets                         $   1,124,000               $   1,290,000

Gross Fixed assets                                $     491,000               $     527,000

Less:  Accumulated Depreciation                    146,200                      166,200

      Net fixed assets                              $     344,800               $     360,800

Total assets                                         $   1,468,800               $1,650,800

Accounts Payable                                 $     145,600               $     175,200

Notes Payable                                             200,000                      225,000

Accruals                                                     136,000                      140,000

      Total current liabilities                    $     481,600               $     540,200

Long-term debt                                           323,432                      424,612

Common stock                                           460,000                      460,000

Retained earnings                                        203,768                      225,988

      Total equity                                   $     663,768               $     685,988

Total claims                                        $   1,468,800               $   1,650,800

Income Statements

Sales                                                  $   3,432,000               $   3,850,000

Cost of goods sold                                    2,864,000                   3,250,000

Other expenses                                            340,000                      430,300

Depreciation                                                 18,900                        20,000

      EBIT                                            $     209,100               $     149,700

Interest expense                                             62,500                        76,000

      EBIT                                            $     146,600               $       73,700

Taxes (40%)                                                 58,640                        29,480

Net income                                          $       87,960               $       44,220

Other data

December 31 stock price                                   $8.50                         $6.00

Number of share outstanding                         100,000                      100,000

Dividend per share                                          $0.22                         $0.22

Annual lease payment                                   $40,000                      $40,000

Engineering Management 535 (cont?d)                                                                                   Page 4.


                                    Ratio                                                     Average

Current                                                      2.7x

Quick                                                        1.0x

Inventory turnover                                        7.0x

Days sales outstanding (DSO)                      32.0 days

Fixed asset turnover                                    10.7x

Total asset turnover                                      2.6x

Debt ratio                                                 50.0%

TIE                                                           2.5x

Fixed charge coverage                                   2.1x

Profit margin                                              3.5%

Basic earning power                                    19.1%

ROA                                                         9.1%

ROE                                                        18.2%

P/E                                                          14.2x

M/B                                                          1.40x

Define the term ?liquidity? within a financial statement analysis context.  What are the current and quick ratios? Assess the firm?s liquidity position.

What are the inventory turnover, days sales outstanding, fixed asset turnover, and total asset turnover?  How do the firm?s asset utilization ratios stack up against the industry averages?

What are the debt, times-interest-earned, and fixed charge coverage ratios?  How does it compare with the industry with respect to financial leverage?

Calculate the profitability ratios, that is, its profit margin, return on assets (ROA), return on equity (ROE).

What is common size analysis?  Briefly describe how it an be applied to income statements and balance sheets.  Does common size analysis replace ratio analysis, or should it be used to supplement ratio analysis?

Please show all equations, calculations, and procedure so that I understand the process.


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