6 Corrigan Corporation's December 31 Balance Sheets 7 8 Assets 2021 72,000 $ 9 Cash $ 65,000 10 Accounts receivable 439,000 328,000 11 Inventories 894,000 813,000 12 Total current assets $1,405,000 $ 1,206,000 13 Land and building 238,000 271,000 14 Machinery 132,000 133,000 15 Other fixed assets 61,000 57,000 16 Total assets $ 1,836,000 $1,667,000 17 18 Liabilities and equity 19 Accounts payable $ 80,000 $ 72,708 20 Accrued liabilities 45,010 40,880 21 Notes payable 476,990 457,912 22 Total current liabilities $ 602,000 $ 571,500 23 Long-term debt 399,688 258,898 24 Common stock 575,000 575,000 25 Retained earnings 259,312 261,602 26 Total liabilities and equity $1,836,000 $ 1,667,000 27 28 Corrigan Corporation's December 31 Income Statements 29 2021 2020 30 Sales $ 4,240,000 $3,635,000 31 Cost of goods sold 3,680,000 2,980,000 32 Gross operating profit S 560,000 $ 655,000 33 General admin. and selling expenses 303,320 297,550 34 Depreciation 159,000 154,500 35 EBIT $ 97,680 $ 202,950 36 Interest 67,000 43,000 37 EBT $ 30,680 $ 159,950 38 Taxes (25%) 7,670 39,988 39 Net income $ 23,010 $ 119,963 40 41 Per-Share Data 2021 2020 42 EPS $1.00 $5.22 43 Cash dividends $1.10 $0.95 44 Market price (average) $12.34 $23.57 45 P/E ratio 12.33 4.52 46 Number of shares outstanding 23,000 23,000 47 48 1. Calculate the following ratios, using the data provided above. 49 50 Ratio Analysis 2021 51 Liquidity 52 Current ratio 2.33 53 Asset Management 54 Inventory turnoverb 4.74 55 37.79 Days sales outstanding 56 Fixed assets turnover 9.84 57 Total assets turnover.b 2.31 58 Profitability 59 Return on assets 1.25% 60 Return on equity 2.76% 61 Return on invested capital 62 Profit margin 0.54% 63 Debt Management 64 Debt-to-capital ratio 51.24% 65 Market Value 66 P/E ratio 12.33 67 M/B ratio 1.00 68 EV/EBITDA ratio 69 2020 2020 Industry Avg 2.11 2.7 4.47 7.0 32.94 32 7.89 13.0 2.18 2.6 11.4% 18.2% 14.5% 4.4% 50.0% 6.0 1.5 6.0 7.20% 14.34% 3.30% 46.14% 23.60 1.00 d 73 Measured as (Short-term debt +Long-term debt)/(Short-term debt + Long-term debt + Common equity). 74 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 83 how its asset management efficiency has changed over time. 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 92 debt management has changed over time. 93 94 95 96 97 98 d. Assess Corrigan's profitability ratios and determine how they compare with peers and how its 99 profitability position has changed over time. 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. 135 136 137 138 139 140