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 (contd) Page 4.

Industry

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 firms liquidity position.

What are the inventory turnover, days sales outstanding, fixed asset turnover, and total asset turnover? How do the firms 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.