The Corrigan Corporation's 2011 and 2012 financial statements follow, along with some industry average ratios.

a. Assess Corrigan's liquidity position and determine how it compares with peers and how the liquidity position has changed over time.

b. Assess Corrigan's asset management position and determine how it compares with peers and how its asset management efficiency has changed over time.

c. Assess Corrigan's debt management position and determine how it compares with peers and how its debt management has changed over time.

d. Assess Corrigan's profitability ratios and determine how they compare with peers and how its profitability position has changed over time.

e. Assess Corrigan's market value ratios and determine how its valuation compares with peers and how it has changed over time.

f. Calculate Corrigan's ROE as well as the industry average ROE using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry average numbers?

g. What do you think would happen to its ratios if the company initiated cost-cuttingmeasures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.

Corrigan Corporation: Balance Sheets as of December 31

Corrigan Corporation: Income Statements for Years Ending December 31

Industry Financial Ratiosa
________________________________________________________2012
Current ratio......................................................................2.7×
Inventory turnoverb.............................................................7.0×
Days sales outstandingc...................................................32.0 days
Fixed assets turnoverb.........................................................13.0×
Total assets turnoverb...........................................................2.6×
Return on assets..................................................................9.1%
Return on equity...............................................................18.2%
Profit margin.....................................................................3.5%
Debt-to-assets ratio............................................................50.0%
P/E ratio............................................................................6.0×
a Industry average ratios have been constant for the past 4 years.
b Based on year-end balance sheet figures.
c Calculation is based on a 365-day year.

Transcribed Image Text:

Accounts receiva ble Inventories Total current assets $1.405,000 $1,206,000 Land and building Other fixed assets $1667,000 Accounts and notes pay able Accrued lia bilities Total current lia bil ities Long-term debt Retained eamings Total liabilities and equity 2012 2011 Sales $4,240,000 $3,635,000 Cost of goods sold Gross operating profit $ 560,000 655,000 General administrative and selling expenses Depreciation Miscellaneous 236,320 213,5so 154,500 134000127,000 $ 30,680 159,950 63.96 59,000 Taxes (40%) Net income 12,272 Per-Share Data 2012 2011 $0.80 S 1.10 $12.34 4.17 0.95 $23.57 EPS Market price (average) P/E ratio Number of shares outs tand ing 15.43x 5.65x