a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other.
(1) Debt ratio
(2) Times interest earned ratio b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other
(1) Operating profit margin
(2) Net profit margin
(3) Return on total assets '
(4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland's investors undertake when they choose to purchase its stock instead of Pelican's?
Ratio proficiency McDougal Printing, Inc., had sales totaling $40,000,000 in fiscal year 2009. Some ratios for the company are listed below. Use this information to determine the dollar values of various income statement and balance sheet accounts as requested.
Year Ended December 31,2009
Gross profit margin 80%
Operating profit margin 35%
Net profit margin 8%
Return on total assets 16 %
Return on common equity 20%
Total asset turnover 2
Average collection period 623. days
Calculate values for the following:
a. Gross profits b. Cost of goods sold c. Operating profits d. Operating expenses e. Earnings available for common stockholders f. Total assets g. Total common stock equity h. Accounts receivable
§P2~22 Cross-sectional ratio analysis Use the financial statements on page 93 for Fox Manufacturing Company for the year ended December 31, 2009, along with the industry average ratios at the top of page 94, to:
a. Prepare and interpret a complete ratio analysis of the firm's 2009 operations.
b. Summarize your findings and make recommendations.
Fox Manufacturing Company '
for the Year Ended December 31,2009
Less: Cost of goods sold 460,000
Gross profits $140,000 Less: Operating expenses
General and administrative expenses $30,000
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 .
| .,■■■.,' 1 ■■■■'; ■■■ '. .■;.■.■..,. Balance Sheet' ''.".'">'i "".'■.
Marketable securities 7,200
Accounts receivable 34,100
Total current assets $138.300
Net fixed assets $270,000
Total assets $408,300
Liabilities and Stockholders' Equity : N^V^/V !■ V.,-"*-'/"i-"""---^"iii""":---:"1ViiV-"-".:
Accounts payable $ 57,000
Notes payable 13,000
Total current liabilities S 75,000
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
Current ratio Quick ratio Inventory turnover" Average collection period3 Total asset turnover Debt ratio
Times interest earned ratio Gross profit margin Operating profit margin Net profit margin Return on total assets (ROA) Return on common equity (ROE) Earnings per share (EPS)
Industry average, 2009
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