1. Using the South Plains Chemical Company figures, compute the following ratios.

2. Compare the company ratios you prepared to the industry figures given in part a. What are the company€™s strengths? What are its weaknesses?
3. What is your overall assessment of South Plains Chemical? Do you think Jack should continue with his evaluation of the stock? Explain.
Jack Arnold is a resident of Lubbock, Texas, where he is a prosperous rancher and businessman. He has also built up a sizable portfolio of common stock, which, he believes, is due to the fact that he thoroughly evaluates each stock he invests in. As Jack says, €œY€™all can€™t be too careful about these things! Anytime I€™m fixin€™ to invest in a stock, you can bet I€™m gonna learn as much as I can about the company.€ Jack prefers to compute his own ratios even though he could easily obtain analytical reports from his broker at no cost. (In fact, Billy Bob Smith, his broker, has been volunteering such services for years.)
Recently Jack has been keeping an eye on a small chemical stock. The firm, South Plains
Chemical Company is big in the fertilizer business€”which is something Jack knows a lot about. Not long ago, he received a copy of the firm€™s latest financial statements (summarized here) and decided to take a closer look at the company.

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Latest Industry Averages Latest Industry Averages Liquidity a. Net working capital b, Current rati Activity c. Receivables turnover d. Inventory turnover e. Total asset turnover Profitability h. Net profit margin i. Return on assets j. ROE Common-Stock Ratios k. Earnings per share I. Price-to-earnings ratio m. Dividends per share n. Dividend yield o. Payout ratio p. Book value per share q. Price-to-book-value NIA 1.95 8.5% 22.5% 322% 5.95 4.50 2.65 $2.00 20.0 $1.00 25% 50.0% $6.25 6.4 Leverage f. Debt-equity ratio g. Times interest earned 0.45 6.75 ratio South Plains Chemical Company Balance Sheet ($ thousands) Cash Accounts receivable Inventory Current assets Fixed and other assets Total assets $1,250 8,000 Current liabilities 12,000 Long-term debt $10,000 8,000 21,250 Stockholders' equity 12,000 8,750 Total liabilities and $30,000 stockholders' equity $30,000 South Plains Chemical Company Income Statement (S thousands) Sales Cost of goods solod Operating expenses Operating profit Interest expense laxes Net profit $50,000 25,000 15,000 10,000 2,500 2,500 $ 5,000 Dividends paid to common stockholders ($ in thousands) Number of common shares outstanding Recent market price of the common stock $ 1,250 5 million $ 25