You obtained the following ratios for ABC Co for 2013:
|
ABC Co
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Ratios
|
Industry
|
|
Current Ratio
|
2.1x
|
2.7x
|
|
Inventory Turnover
|
9.7x
|
7x
|
|
Days Sales Outstanding
|
18 days
|
32 days
|
|
Fixed Assets Turnover
|
6.8x
|
13x
|
|
Total Asset Turnover
|
3.3x
|
2.6x
|
|
Profit Margin
|
3.5%
|
3.5%
|
|
Time interest earned
|
5.0x
|
5x
|
Anwer questions (a) to (e)
a) You also understand that ABC Co cost of goods sold is 92% of sales and that it paid a total of $148 (thousand) in interest. The tax rate is 40%. Provide ABC Co income statement for 2013.
b) Complete the Balance Sheet for ABC Co as of December 31, 2013 (in thousands)
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Assets
|
|
|
|
Cash and Equivalents
|
-
|
|
|
Accounts Receivables
|
-
|
|
|
Inventories
|
-
|
|
|
Total Current Assets
|
-
|
|
|
Net plant and equipment
|
-
|
|
|
Total Assets
|
-
|
|
|
Liabilities and Equity
|
|
|
Accounts Payable
|
-
|
|
Notes Payable
|
160
|
|
Accruals
|
480
|
|
Current Liabilities
|
-
|
|
Long term bonds
|
-
|
|
Total Liabilities
|
-
|
|
Common stock
|
240
|
|
Retained earnings
|
520
|
|
Common Equity
|
-
|
|
Total Liabilities and Equity
|
-
|
|
|
|
|
c) Compute ABC Co RoA and RoE. Compare to Industry RoA 11%, RoE 25%
d) Provide the DuPont Analysis with comments. Note that the industry Debt to Asset ratio is 50%. Show your calculations.
e) Finally using c) d) and the table above, comment on the company's:
i. Liquidity (define)
ii. Adequacy of its credit policy
iii. Efficiency of asset usage (should the company increase inventories, fixed assets)
iv. Adequacy of leverage level.