Question
1. What is the EPS, Stock price and M/B of industry? Answer others in own words. Don't use answers already out there. Cary Corporation's forecasted
1. What is the EPS, Stock price and M/B of industry?
Answer others in own words. Don't use answers already out there.
Cary Corporation's forecasted financial statements for next year follow, along with industry average ratios.
a. Compare Cary's forecasted ratios with the industry average data, and comment briefly on Cary's projected strengths and weaknesses.
Cary Corporation: Forecasted Balance Sheet as of December 31
Cash $ 72,000 Accounts and notes payable $ 432,000
Accounts receivable 439,000 Accruals 170,000
Inventories 894,000 Total current liabilities $ 602,000
Total current assets $1,405,000 Long-term debt 404,290
Land and building 238,000 Common stock 575,000
Machinery 132,000 Retained earnings 254,710
Other fixed assets 61,000
Total assets $1,836,000 Total liabilities and equity $1,836,000
Cary Corporation: Forecasted Income Statement
Sales $4,290,000
Cost of goods sold (3,580,000)
Gross operating profit $ 710,000
General administrative and selling expenses ( 236,320)
Depreciation ( 159,000)
Miscellaneous ( 134,000)
Earnings before taxes (EBT) $ 180,680
Taxes (40%) ( 72,272)
Net income $ 108,408
Number of shares outstanding 23,000
Per-Share Data
EPS $ 4.71
Cash dividends per share $ 0.95
P/E ratio 5.0
Market price (average) $23.57
Industry Financial Ratiosa
Quick ratio 1.0
Current ratio 2.7
Inventory turnoverb 5.8
Days sales outstanding 32 days
Fixed assets turnoverb 13.0
Total assets turnoverb 2.6
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin on sales 3.5%
P/E ratio 6.0
aIndustry average ratios have been constant for the past four years.
bBased on year-end balance sheet figures.
b. What do you think would happen to Cary's ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decrease the cost of goods sold? To answer this question, suppose inventories drop to $700,000 and the inventory turnover is 5.0 (HINT: In this case, cost of goods sold will change.).
c. Suppose Cary Corporation is considering installing a new computer system that would provide tighter control of inventories, accounts receivable, and accounts payable. If the new system is installed, the following data are projected (rather than the data given earlier) for the indicated balance sheet and income statement accounts:
Accounts receivable $ 395,000
Inventories $ 700,000
Other fixed assets $ 150,000
Accounts and notes payable $ 275,000
Accruals $ 120,000
Cost of goods sold $3,450,000
Administrative and selling expenses $ 248,775
P/E ratio 6.0
How do these changes affect the projected ratios and the comparison with the industry averages? (Note that any changes to the income statement will change the amount of retained earnings; therefore, the model is set up to calculate next year's retained earnings as this year's retained earnings plus net income minus dividends paid. The model also adjusts the cash balance so that the balance sheet balances.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started