Given the following balance sheet, income statement, historical ratios and industry averages, calculate the Pulp, Paper, and Paperboard, Inc. financial ratios for the most recent year. Analyze its overall financial situation for the most recent year. Analyze its overall financial situation from both a crosssectional (Industry average) and timeseries viewpoint. Break your analysis into an evaluation of the firm's liquidity, activity, debt, and profitability.

Income Statement

Pulp, Paper and Paperboard, Inc.

For the Year Ended December 31, 2005

Sales Revenue

$2,080,976

Less: Cost of Goods Sold

1,701,000

Gross Profits

$379,976

Less: Operating Expenses

273,846

Operating Profits

$106,130

Less: Interest Expense

19,296

Net Profits Before Taxes

$86,834

Less: Taxes (40%)

34,810

Net Profits After Taxes

$52,024

Balance Sheet

Pulp, Paper and Paperboard, Inc.

December 31, 2005

Assets

Cash

$ 95,000

Accounts receivable

237,000

Inventories

243,000

Total current assets

$ 575,000

Gross fixed assets

500,000

Less: Accumulated depreciation

75,000

Net fixed assets

$ 425,000

Total assets

$1,000,000

Liabilities and stockholders' equity

Current liabilities

Accounts payable

$ 89,000

Notes payable

169,000

Accruals

87,000

Total current liabilities

$ 345,000

Longterm debt

188,000

Total liabilities

$ 533,000

Stockholders' equity

Common stock

255,000

Retained earnings

212,000

Total stockholders' equity

$ 467,000

Total liabilities and stockholders' equity

$1,000,000

Historical and Industry Average Ratios

Pulp, Paper and Paperboard, Inc.

Ratio

2003

2004

2005

Industry

2005

Current Ratio

1.6

1.7

1.6

Quick Ratio

0.9

1.0

0.9

Inventory Turnover

8.1

9.3

8.4

Average Collection Period

33 days

37 days

39 days

Total Asset Turnover

2.3

2.2

2.2

Debt Ratio

60%

56%

58%

Times Interest Earned

2.5

3.5

2.3

Gross Profit Margin

21%

19.7%

20.4%

Operating Profit Margin

4.7%

4.8%

4.7%

Net Profit Margin

1.8%

1.6%

1.4%

Return on total assets

4.1%

3.5%

3.08%

Return on Equity

10.3%

7.9%

7.3%