Question:
Terri Spiro, an sbudget analyst at Martin Manufacturing Company, has been charged with assessing the firm's financial performance during 2009 and its financial position at year-end 2009. To complete this assignment, she gathered the firm's 2009
financial statements (below and on page 99). In addition, Terri obtained the firm's ratio values for 2007 and 2008, along with the 2009 industry average ratios (also applicable to 2007 and 2008). These are presented in the table on page 100.
a. Calculate the firm's 2009 financial ratios, and then fill in the preceding table. (Assume a 365-day year)
b. Analyze the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market.
c. Summarize the firm's overall financial position on the basis of your findings in part b.
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Martin Manufacturing Company Income Statement for the Year Ended December 31,2009 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders Earnings per share (EPS) $5,075,000 3,704,000 1,371,000 $650,000 416,000 $153,000 93,000 $60,000 24,000 $ 36,000 3,000 $ 33,000 $0.33 Martin Manufacturing Company Balance Sheets December 31 Assets 009 2008 Current assets 25,000 $ 24,100 805,556 763,900 700,625 763,445 $1,531,181$1,551,445 Cash Accounts receivable Total current assets Gross fixed assets (at cost $2,093,819$1,691,707 Less: Accumulated depreciation 500,000 348,000 Net fixed assets Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debt Total liabilities Stockholders' equity Preferred stock (2,500 shares, $1.20 dividend) Common stock (100,000 shares at $4 par) a Paid-in capital in excess of par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity aThe firm's 100,000 outstanding shares of common stock closed 2009 at a price of Si 138 per share. $1,593,81951,343,707 $3,125,000S2,895,152 $230,000 400,500 370,000 100,902 5 871,402 $1,165,250 $700,000 $1,781,250 1,571,402 311,000 75,000 S 616,000 50,000 400,000 593,750 280,000 $1,343,750 1,323,750 53,125,000 $2895,152 S 50,000 400,000 593,750 300,000 Martin Manufacturing Company Historical and Industry Average Ratios Ratio Current ratio Quick ratio Inventory tunover (times) Average collection period Total asset turnover (times) Debt ratio Times interest earned ratio Gross profit margin Net profit margin Return on total assets (ROA) Return on common equity (ROE) Price/eamings (P/E) ratio Market/book (M/B) ratio To Do Actual 2007Actual 2008Actual 2009lndustry average 2009 18 0.9 5.0 55.8 days 15 54.3% 19 280% 10% 1.5% 3.3% 38.7 1.1 1.5 1.2 10.2 46 days 20 24.5% 25 26.0% 1.0 5.2 50.7 days 15 45.8% 275% 11% 1.796 31% 24% 43.4 1.0 1.2