1 NOTE: Cells/prompts for calculating ratios are located below the financial statements. 2 Supply answers in the cells that are shaded in pink. 3 4 (Comprehensive Spreadsheet Problem 4-25, page 136) Case Study 1: Financial Ratio Analysis 6 Corrigan Corporation's December 31 Balance Sheets 8 Assets 9 Cash 0 Accounts receivable 1 Inventories 2 Total current assets 3 Land and building 4 Machinery 5 Other fixed assets 6 Total assets 2015 S72,000 S65,000 328,000 813,000 S 1,405,000 S 1,206,000 271,000 133,000 57,000 S 1,836,000 S 1,667,000 2016 439,000 894,000 238,000 132,000 61,000 3 Liabilities and equity 9 Accounts payable Accrued liabilities Notes payable Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity S 80,000 S 72,708 40,880 476,990 457,912 S 602,000 S 571,500 258,898 575,000 254,710261,602 45,010 404,290 575,000 S 1,836,000 S 1,667.000 28 Corrigan Corporation's December 31 Income Statements 29 30 Sales 31 Cost of goods sold 2016 2015 S 4,240,000 3,635,000 3,680,000 2,980,000 S 560,000 S655,000 303,320 297,550 154,500 S 97,680 S 202,950 43,000 S 30,680 S 159,950 63,980 S 18,408 S 95,970 32 Gross operating profit 3 General admin. and selling expenses 4 Depreciation 5 EBIT 6 Interest 7EBT 8 Taxes (40%) 9 Net income 159,000 67,000 12,272 1 Per-Share Data 2 EPS 3 Cash dividends 4 Market price (average) 2016 S0.80 S1.10 $12.34 15.42 23,000 2015 S4.17 $0.95 S23.57 5.65 23,000 5 P/E ratio Number of shares outstanding SHOW YOUR WORK ON THE FOLLOWING CALCULATIONS! (Do not simply enter a number; use formulas, and reference the appropriate numbers from the financial statements.) Ratio Analysis 2016 2015 Industry Avg Liquidit 2.7 Current ratio 3 Asset Management Inventory turnover 7.0 32 13.0 2.6 Days sales outstanding Fixed assets turnover Total assets turnover Profitability 9.1% 18.2% 14.5% 3.596 Return on assets 0 Return on equity Return on invested capital 2 Profit margin 3 Debt Management 4 Debt-to-capital ratio 5 Market Value 6 P/E ratio 50.0% 6.0 8 " Industry average ratios have been constant for the past 4 years. 91b Based on year-end balance sheet figures. 0 'Calculation is based on a 365-day year. 1 "Measured as (Short-term debt + Long-term debt)/(Short-term debt + Long-term debt + Common equity). Assess Corrigan's liquidity position and determine how it compares with peers and how the liquidity 73 a. 74 75 76 sition has changed over time. 78 b. Assess Corrigan's asset management position and determine how it compares with peers and 79 how its asset management efficiency has changed over time. 80 81 82 83 84 85 86 37 C. Assess Corrigan's debt management position and determine how it compares with peers and how its 88 debt management has changed over time. 89 91 93 94 d. Assess Corrigan's profitability ratios and determine how they compare with peers and how its 95 profitability position has changed over time. 96 97 98 99 e. Assess Corrigan's market value ratios and determine how its valuation compares with peers 00 and how it has changed over time. 01 02 03 04 05 6f. Calculate Corrigan's ROE as well as the industry average ROE using the DuPont equation. ROE PM TA Turnover Equity Multiplier 02016 1 2015 Industry Avg. 18.20% 3.50% 2.60 2.00 14 From this analysis, how does Corrigan's financial position compare with the industry average numbers? 17 18 19 23g. What do you think would happen to its ratios if the company initiated cost-cutting measures that 24 allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No 25 calculations are necessary. Think about which ratios would be affected by changes in these 26 two accounts 27 28 2 31 32