7-12) Data for Argils Textiles2014 financial statements are given in Tables 7.1 and 7.2 in the chapter.

a) Compute the 2014 values of the following ratios:

2014 Values
Ratio	Argile	Industry
Current ratio		3.9x
Days sales outstanding		33.5 days
Inventory turnover		7.2x
Fixed assets turnover		4.1x
Debt ratio		43.0%
Net profit margin		4.6%
Return on assets		9.9%

b) Briefly comment on Argiles 2014 financial position. Can you see any obvious strengths or weaknesses?

c)Compare Argiles 2014 ratios with its 2015 ratios, which are presented in Table 7-6. Comment on whether you believe Argiles fincial position improved or deriorated ruring 2015.

d) What other information would be useful for projecting whether Argiles financial position is expected to improve or deteriorate in the future?

TABLE 1 Argile Textiles: December 31 Comparative Balance Sheet ($million)

TABLE 1 Argile Textiles: December 31 Comparative Balance Sheet ($million)
			2015				2014
			Amount		Percent of total Assets		Amount		Percent of total assets
Assets
Cash and marketplace securities			$ 10.0		2.40%		$20.00		5.3%
Accounts receivable			90.0		21.2		80.0		21.3
Inventories			135.0		31.7		101.0		26.9
Total Current Assets			$235.00		55.3%		201.0		53.5%
Gross plant and equipment			345.0				300.0
Less: Accumulated depreciation			(155.0)				(125.0)
Net plant and equipment			$ 190.0		44.7		$ 175.0		46.5
Total assets:			$ 425.0		100.0%		$ 376.0		100.0%
Liabilities and Equity
Account payable			$15.00		3.5%		$ 8.0		2.1%
Accruals			30.0		7.1		27.0		7.2
Notes payable			20.0		4.7		18.0		4.8
Total current liabilities			$ 65.0		15.3%		$ 53.0		14.1%
Long-term bonds			152.0		35.8		128.0		34.0
Total liabilities			$ 217.0		51.1%		181.0		48.1%
Common stock (11 million shares)			66.0		15.5		66.0		17.6
Retained earnings			142.0		33.4		129.0		34.3%
Owner's equity			208.0		48.90%		$195.0		51.90%
Total liabilities and equity			425.0		100.00%		$376.0		100.0%
Book value per share			$18.91				$17.73
=(Common stock)/Shares
Market value per share (stock price)			$20.00				$ 20.00
Additional Information
Net working capital			$170.0				$148.0
=Current assets - Current liabilities
Net worth = Total Assets - Total liabilities			$208.0				$195.0

TABLE 2: Argile Textiles: Income Statement for Years Ending December 31 ($ million, except per-share data)
			2015				2014
			Amount		Percent of total Assets		Amount		Percent of total assets
Net Sales			$750.0		100.0%		$700.0		100.0%
Cost of goods sold			(600.0)		80.0		(560.0)		80.0
Gross profit			$150.0		20.0		140.0		20.0
Fixed operating expenses except depreciation			(55.0)a		7.3		(50.0)		7.1
Earnings before interest, taxes, depreciation and amortization (EBITDA)			$95.0		12.7		$90.0		12.9
Depreciation			(30.0)		4.0		(24.0)		3.4
Net operating income (NOI)
=Earnings before interest and taxes (EBIT)			$65.0		8.7		$66.0		9.4
Interest			(20.0)		2.7		(18.0)		2.6
Earnings before taxes (EBT)			$45.0		6.0		48.0		6.9
Taxes (40%)			(18.0)		2.4		(19.2)		2.7
Net income			$27.0		3.6		$28.8		4.1
Preferred dividends b			0.0			0.0
Earnings available to common shareholders (EAC)			$27.0			$28.8
Common dividends			(14.0)			(13.0)
Addition to retained earnings			$13.0			$15.8
Per-Share Data (11 million shares)
Earnings per share (EPS) = (Net income)/Shares			$2.45			$2.62
Dividends per share (DPS)			$1.27			$1.18
=(Common dividends/Shares

^a Here, and throughout the text, parentheses are used to denote negative numbers.

^{b Argile has no preferred stock. The amount of preferred dividends, which is $0, is shown here to indicate that preferred dividends are paid before common dividends.}

TABLE 6: Argile Textiles: Summary of 2015 Financial Ratios ($ million, except per-share dollars)
Ratio	Formula for Calculation		Computation		Ratio Value		Industry Average		Comment
Liquity
Current	= Current assets__ Current liabilities		$235.0 $65.0	=	3.6x		4.1x		Low
Quick, or acid test	= Current assets Inventory Current liabilities		$100.0 $65.0	=	1.5x		2.1x		Low
Asset Management Inventory turnover	= Cost of goods sold Inventory		$600.0 $135.0	=	4.4x		7.4x		Low
Days sales out- standing (DSO)	= Accounts receivable		$90.0 $2.08	=	43.2 days		32.1 days		Poor
Fixed assets turnover	= ___Sales_______ Net fixed assets		$750.0 $190.0	=	3.9x		4.0x		OK
Total assets turnover	= Sales Total assets		$750.0 $425.0	=	1.8x		2.1x		Low
Debt Management Debt-to-total-assets	= Total liabilities Total assets		$217.0 $425.0	=	51.1%		42.0%		Poor
Times interest earned (TIE)	= EBIT________ Interest charges		$65.0 $20.0	=	3.3x		6.5x		Low
Fixed charge coverage	= ____EBIT+ Lease payments Interest Lease Sinking fund payments charges + payments + (1 Tax rate)		$70.0 $31.7	=	2.2x		5.8x		Low
Profitability Net profit margin	= Net income Sales		$27.0 $750.0	=	3.6%		4.9%		Poor
Return on total Assets (ROA)	= Net income Total assets		$27.0 $425.0	=	6.4%		11.5%		Poor
Return of equity (ROE)	=Net income available to common stockholders Common equity		$27.0 $208.0	=	13.0%		$17.7		Poor
Market Value Price/Earnings(P/E)	=Market price per share Earnings per share		$20.00 $2.45	=	8.2x		15.0x		Low
Market/Book (M/B)	=Market price per share Book value per share		$20.00 $18.91	=	1.1x		2.2x		Low