The Lee Corporation's forecasted 2012 financial statements follow, along with some industry average ratios.
a. Calculate Lee's 2012 forecasted ratios, compare them with the industry average data, and comment briefly on Lee's projected strengths and weaknesses.
b. What do you think would happen to Lee's ratios if the company initiated cost-cutting measures 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.
Lee Corporation: Forecasted Balance Sheet as at December 31, 2012

Lee Corporation: Forecasted Income Statement for 2012

Industry Financial Ratios (2012)a

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$ 72,000 439,000 694,000 1,205,000 631,000 $1,836,000 5 432,000 170,000 602,000 404,290 575,000 254,710 $1,836,000 Cash Accounts receivable Inventories Total current assets Fixed assets Total assets Accounts and notes payable Accruals Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity Sales Cost of goods sold Selting, general, and administrative expenses Depreciation Earnings before taxes (EBT Taxes (30%) Net income Per-Share Data EPS Cash dividends per share P/E Market price (average) Number of shares outstanding $ 6,350,000 5,270,000 500,000 240,000 340,000 102,000 $ 238,000 $9.52 $1.90 5× $47.60 25,000 Quick ratio Current ratio Inventory turoverb Days sales outstanding Fixed assets turnover Total assets turnover Return on assets Return on equity Debt ratio Profit margin on sales P/E P/cash flow Industry average ratios have been constant for the past 4 years Calculation is based on a 365-day year 1.0x 2.7X 7.0X 32 days 13.0X 2.6X 9.1% 18.2% 50.0% 3.5% 6.0x 3.5X on year-end balance sheet figures.