Data for Morton Chip Company and its industry averages follow.
a. Calculate the indicated ratios for Morton.
b. Construct the extended Du Pont equation for both Morton and the industry.
c. Outline Morton’s strengths and weaknesses as revealed by your analysis.

d. Suppose Morton had doubled its sales as well as its inventories, accounts receivable, and common equity during 2007. How would that information affect the validity of your ratio analysis?

 

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Morton Chip Company: Balance Sheet as of December 31, 2007 (In Thousands) $77,500 Accounts payable $129,000 336,000 Notes payable 84,000 241,500 Other current liabilities 117,000 Cash Receivables Inventories $655,000 292,500 Total assets $947,500 Morton Chip Company: Income Statement for Year Ended December 31, 2007 (In Thousands) Total current assets Total current liabilities Long-term debt Common equity Net fixed assets $330,000 256,500 361,000 Total liabilities and equity $947,500 Sales Cost of goods sold Selling, general, and administrative expenses Earnings before interest and taxes (EBIT) Interest expense Earnings before taxes (EBT) Federal and state income taxes (40%) Net income $1,607,500 1,392,500 145,000 $ 70,000 24,500 $ 45,500 18,200 $ 27,300