As the new financial analyst for Peterson's Chemicals, you have been asked to analyze the profitability problems encountered during the last two years. Current financial statements and selected industry averages are as follows:
PETERSON'S CHEMICALS
FINANCIAL STATEMENTS
(dollars in millions)
|
PETERSON'S CHEMICALS
FINANCIAL STATEMENTS
(dollars in millions)
|
|
|
|
|
Income Statement
|
2000
|
1999
|
|
Sales
|
$1,478
|
$1,435
|
|
Cost of goods sold
|
(1,182)
|
(1,076)
|
|
Gross profit
|
296
|
359
|
|
Selling and administrative expenses
|
(443)
|
(445)
|
|
Operating profit
|
(147)
|
(86)
|
|
Interest expense
|
(27)
|
(29)
|
|
Net income
|
$(174)
|
$(115)
|
|
Balance Sheet
|
2000
|
1999
|
|
Cash and equivalent
|
$120
|
$76
|
|
Accounts receivable (net)
|
432
|
437
|
|
Inventory
|
324
|
284
|
|
Other current assets
|
37
|
38
|
|
Total current assets
|
913
|
835
|
|
Plant, property, and equipment
|
300
|
376
|
|
Total assets
|
$1,213
|
$1,210
|
|
Accounts payable
|
$500
|
$412
|
|
Other current liabilities
|
309
|
98
|
|
Total current liabilities
|
809
|
510
|
|
Long-term debt
|
178
|
300
|
|
Total liabilities
|
987
|
810
|
|
Owners' equity
|
226
|
400
|
|
Total liabilities and owners' equity
|
$1,213
|
$1,210
|
Using your analysis of the financial statements, how does Peterson's compare to the following industry averages?
|
CHEMICAL INDUSTRY AVERAGES
|
|
Industry Ratios
|
|
|
|
Current ratio
|
150%
|
|
Acid-test ratio
|
90%
|
|
Receivables collection period
|
65 days
|
|
Payables payment period
|
60 days
|
|
Debt/equity
|
110%
|
|
Return on assets
|
7%
|
|
Return on equity
|
19%
|