6 Corrigan Corporation's December 31 Balance Sheets 7 8 Assets 9 Cash 10 Accounts receivable 11 Inventories 12 Total current assets 13 Land and building 14 Machinery 15 Other fixed assets 16 Total assets 17 18 Liabilities and equity 19 Accounts payable 20 Accrued liabilities 21 Notes payable 22 Total current liabilities 23 Long-term debt 24 Common stock 25 Retained earnings 26 Total liabilities and equity 27 28 Corrigan Corporation's December 31 Income Statements 29 2021 30 Sales $ 4,240,000 $ 31 Cost of goods sold 3,680,000 32 Gross operating profit S 560,000 $ 33 General admin. and selling expenses 34 Depreciation 303,320 159,000 97,680 $ 35 EBIT 36 Interest 67,000 30,680 $ 37 EBT 38 Taxes (25%) 7,670 39 Net income 23,010 $ 40 41 Per-Share Data 2021 42 EPS $1.00 43 Cash dividends $1.10 44 Market price (average) $12.34 45 P/E ratio 12.33 46 Number of shares outstanding 23,000 2021 $ 72,000 $ 2020 65,000 328,000 $13,000 439,000 894,000 13 $ 1,405,000$ 1,206,000 238,000 132,000 271,000 133,000 57,000 61,000 $ 1,836,000 $ 1,667,000 $ 80,000 $ 72,708 45,010 40,880 457,912 476,990 602,000 $ $ 571,500 399,688 258,898 575,000 575,000 259,312 261,602 $ 1,836,000 $ 1,667,000 2020 3,635,000 2,980,000 655,000 297,550 154,500 202,950 43,000 159,950 39,988 119,963 S SA S 2020 $5.22 $0.95 $23.57 4.52 23,000 48 1. Calculate the following ratios, using the data provided above. 49 50 Ratio Analysis 2021 2020 Industry Avga 51 Liquidity 52 Current ratio 2.7 53 Asset Management 54 Inventory turnoverb 7.0 55 32 56 13.0 57 2.6 58 59 11.4% 60 18.2% 61 14.5% 62 4.4% 63 64 50.0% 65 Market Value 66 P/E ratio 6.0 67 M/B ratio 1.5 68 EV/EBITDA ratio 6.0 69 70 Industry average ratios have been constant for the past 4 years. b 71 Based on year-end balance sheet figures. 72 Calculation is based on a 365-day year. C 73 Measured as (Short-term debt +Long-term debt)/(Short-term debt + Long-term debt + Common equity). Days sales outstanding Fixed assets turnoverb Total assets turnoverb Profitability Return on assets Return on equity Return on invested capital Profit margin Debt Management Debt-to-capital ratio 75 2. Analysis 76 77 a. Assess Corrigan's liquidity position and determine how it compares with peers and how the liquidity position has changed over time. 78 79 80 81 82 b. Assess Corrigan's asset management position and determine how it compares with peers and how its asset management efficiency has changed over time. 83 84 85 86 87 88 89 90 91 c. Assess Corrigan's debt management position and determine how it compares with peers and how its debt management has changed over time. 92 93 94 95 96 97 98 d. Assess Corrigan's profitability ratios and determine how they compare with peers and how its profitability position has changed over time. 99 100 101 102 103 e. Assess Corrigan's market value ratios, and determine how its valuation compares with peers 104 and how it has changed over time. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. 105 106 107 108 109 110 111 112 113 114 f. Calculate Corrigan's ROE as well as the industry average ROE, using the DuPont equation. Note, 115 you should get the same ROE that you derived in the direct calculation, above. 116 117 ROE = PM x TA Turnover x Equity Multiplier 118 2021 119 2020 120 Industry Avg. 18.20% 4.40% 2.60 1.60 121 122 From this analysis, how does Corrigan's financial position compare with the industry average numbers? 123 124 125 126 127 128 129 130 131 g. What do you think would happen to its ratios if the company initiated cost-cutting measures that 132 allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these 133 134 two accounts. 135 136 137 138 139