Cross-sectional ratio analysis
P5. Cross-sectional ratio analysis Use the financial statements that follow for Fox Manufacturing Company for the year ended December 31, 2009, along with the industry average ratios to:
a. Prepare and interpret a complete ratio analysis of the firm’s 2009 operations.
b. Summarize your findings and make recommendations regarding: (1) liquidity; (2) activity; (3) debt; (4) profitability. Only two or three short sentences each, please!
Fox Manufacturing Company
For the year ended December 31, 2009
|Sales revenue||$ 600,000|
|Less: Cost of goods sold||460,000|
|Gross profits||$ 140,000|
|Less: Operating expenses|
|General admin. expenses||$ 30,000|
|Total operating expense||60,000|
|Operating profits||$ 80,000|
|Less: Interest expense||10,000|
|Net profits before taxes||$ 70,000|
|Net profits after taxes (earnings available for stockholders)||$ 42,900|
|Earnings per share (EPS)||$ 2.15|
Fox Manufacturing Company
December 31, 2009
|Total current assets||$ 138,300|
|Net fixed assets||$ 270,000|
|Total assets||$ 408,300|
|Liabilities and Stockholders’ Equity|
|Accounts payable||$ 57,000|
|Total current liabilities||$ 75,000|
|Long-term debt||$ 150,000|
Common stock equity (20,000 shrs outstanding)
|Total stockholders’ equity||$ 183,300|
|Total liabilities and stockholder’s equity||$ 408,300|
(Note: Industry averages and “worksheet” on following page).
(Hint: You must calculate the following Actual 2009 ratios for Fox Mfg. (fill-in the blanks) and include in part a when you set up your table, and consider in part b).
|Ratio||Industry Average, 2009||Actual 2009 for Fox Mfg. Company|
|Average collection period*||35.8 days|
|Total asset turnover||1.09|
|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.
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