Calculate corrigans roe as well as the industry average roe


RATIO ANALYSIS:

The Corrigan Corporation's 2007 and 2008 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-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.

Corrigan Corporation: Balance Sheets as of December 31

 

2008

 

2007

Cash

$    72,000

 

$    65,000

Accounts receivable

439,000

 

328,000

Inventories

      894,000

 

      813,000

Total current assets

$1,405,000

 

$1,206,000

Land and building

238,000

 

271,000

Machinery

132,000

 

133,000

Other fixed assets

     61,000

 

     57,000

Total assets

$1,836,000

 

$1,667,000

 

Accounts and notes payable

 

$   432,000

 

 

$   409,500

Accrued liabilities

      170,000

 

      162,000

Total current liabilities

$   602,000

 

$   571,500

Long-term debt

404,290

 

258,898

Common stock

575,000

 

575,000

Retained earnings

      254,710

 

      261,602

Total liabilities and equity

$1,836,000

 

$1,667,000

Corrigan Corporation: Income Statements for Years Ending December  31

 

2008

 

2007

Sales

$4,240,000

 

$3,635,000

Cost of goods sold

  3,680,000

 

  2,980,000

Gross operating profit

$   560,000

 

$   655,000

General administrative and selling expenses

236,320

 

213,550

Depreciation

159,000

 

154,500

Miscellaneous

      134,000

 

      127,000

Earnings before taxes (EBT)

$   30,680

 

$   159,950

Taxes (40%)

     12,272

 

     63,980

Net income

$     18,408

 

$     95,970

 

 

 

Per-Share Data

 

 

 

 

2008

2007

EPS

 

$0.80

$4.17

Cash dividends

 

$1.10

$0.95

Market price (average)

 

$12.34

$23.57

P/E ratio

Number of shares outstanding

 

15.4X

23,000

5.65X

23,000

Industry Financial Ratiosa

 2008

Current ratio                                                               2.7X

Inventory turnoverb                                                                                       7.0X

Days sales outstandingc                                                                                32 days

Fixed assets turnoverb                                                                                   13.0X

Total assets turnoverb                                                                                     2.6X

Return on assets                                                          9.1%

Return on equity                                                        18.2%

Debt ratio                                                                 50.0%

Profit margin                                                              3.5%

P/E ratio                                                                     6.0X

Price/cash flow ratio                                                     3.5X

aIndustry average ratios have been constant for the past 4 years.

bBased on year-end balance sheet figures.

cCalculation is based on a 365-day year.

Solution Preview :

Prepared by a verified Expert
Accounting Basics: Calculate corrigans roe as well as the industry average roe
Reference No:- TGS01277619

Now Priced at $20 (50% Discount)

Recommended (97%)

Rated (4.9/5)