Q1) Cross-sectional ratio analysis
Use financial statements below for Fox Manufacturing Company for year ended December 31, 2006, along with industry average ratios also given in what follows, to:
a. Create and interpret complete ratio analysis of firm's 2006 operations.
b. Summarize the findings and make recommendations.
Note: INTERMEDIATE
| Fox Manufacturing Company |
| Income Statement for the Year Ended December 31, 2006 |
| Sales revenue |
$600,000 |
| Less: Cost of goods sold |
460,000 |
| Gross profits |
$140,000 |
| Less: Operating expenses |
| General and administrative expenses |
$30,000 |
| Fox Manufacturing Company |
| Income Statement for the Year Ended December 31, 2006 |
| Depreciation expense |
30,000 |
| Total operating expense |
60,000 |
| Operating profits |
$80,000 |
| Less: Interest expense |
10,000 |
| Net profits before taxes |
$70,000 |
| Less: Taxes |
27,100 |
| Net profits after taxes (earnings available for common stockholders) |
$42,900 |
| Earnings per share (EPS) |
$2.15 |
| Fox Manufacturing Company |
| Balance Sheet December 31, 2006 |
| Assets |
| Cash |
$15,000 |
| Marketable securities |
7,200 |
| Accounts receivable |
34,100 |
| Inventories |
82,000 |
| Total current assets |
$138,300 |
| Net fixed assets |
270,000 |
| Total assets |
$408,300 |
| Liabilities and Stockholders' Equity |
| Accounts payable |
$57,000 |
| Notes payable |
13,000 |
| Accruals |
5,000 |
| Total current liabilities |
$75,000 |
| Fox Manufacturing Company |
| Balance Sheet December 31, 2006 |
| Assets |
| Long-term debt |
$150,000 |
| Stockholders' equity |
| Common stock equity (20,000 shares outstanding) |
$110,200 |
| Retained earnings |
73,100 |
| Total stockholders' equity |
$183,300 |
| Total liabilities and stockholders' equity |
$408,300 |
| Ratio |
Industry average, 2006 |
| Current ratio |
2.35 |
| Quick ratio |
0.87 |
| Inventory turnovera |
4.55 |
| Average collection perioda |
35.8 days |
| Total asset turnover |
1.09 |
| Debt ratio |
0.300 |
| Ratio |
Industry average, 2006 |
| Times interest earned ratio |
12.3 |
| Gross profit margin |
0.202 |
| Operating profit margin |
0.135 |
| Net profit margin |
0.091 |
| Return on total assets (ROA) |
0.099 |
| Return on common equity (ROE) |
0.167 |
| Earnings per share (EPS) |
$3.10 |
Based on a 365-day year and on end-of-year figures.