Assessing Martin Manufacturing's Current Financial Position Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm's financial performance during 2012 and its financial position at year-end 2012. To complete this assignment, she gathered the firm's 2012 financial statements. In addition, Terri obtained the firm's ratio values for 2010 and 2011, along with the 2012 industry average ratios (also applicable to 2010 and 2011). These are presented in the table on historical and industry average ratios here.

Martin Manufacturing Company Income Statement for the Year Ended December 31, 2012: Sales revenue $5,075,000 Less: Cost of goods sold 3,704,000 Gross profits $1,371,000

Less: Operating expenses Selling expense $650,000 General and administrative expenses 416,000 Depreciation expense 152,000 Total operating expense 1,218,000 Operating profits $153,000 Less: Interest expense 93,000 Net profits before taxes $60,000 Less: Taxes (rate = 40%) 24,000 Net profits after taxes $36,000 Less: Preferred stock dividends 3,000 Earnings available for common stockholders $33,000 Earnings per share (EPS) $0.33

Martin Manufacturing Company Balance Sheets	December 31	December 31
Assets:	2012	2011
Current Assets:
Cash	$25,000	$24,100
Accounts Receivable	805,556	763,900
Inventories	700,625	763,445
Total Current Assets	$1,531,181	$1,551,445
Gross Fixed Assets (at cost)	$2,093,819	$1,691,707
Less: Accumulated Depreciation	500,000	348,000
Net Fixed Assets	$1,593,819	$1,343,707
Total Assets	$3,125,000	$2,895,152

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable	$230,000	$400,500
Notes Payable	311,000	370,000
Accruals	75,000	100,902
Total Current Liabilities	$616,000	$871,402
Long-Term Debt	$1,165,250	$700,000
Total Liabilities	$1,781,250	$1,571,402
Stockholders' Equity:
Preferred Stock (2,500 shares, $1.20 dividend)	$50,000	$50,000
Common Stock (100,000 shares at $4.00 par*)	400,000	400,000
Paid-in Capital in Excess of Par Value	593,750	593,750
Retained Earnings	300,000	300,000
Total Stockholders' Equity	$1,343,750	$1,323,750
Total Liabilities and Stockholders' Equity	$3,125,000	$2,895,152
* The firm's 100,000 outstanding shares of common stock closed 2012 at a price of $11.38 per share.

Martin Manufacturing Company Historical and Industry Average Ratios:	Actual	Actual	Actual	Industry Average
Ratio	2010	2011	2012	2012
Current Ratio	1.7	1.8		1.5
Quick Ratio	1.0	0.9		1.2
Inventory Turnover (times)	5.2	5.0		10.2
Average Collection period	50.7 days	55.8 days		46.0 days
Total Asset Turnover (times)	1.5	1.5		2.0
Debt Ratio	45.8	54.3%		24.5%
Times Interest Earned Ratio	2.2	1.9		2.5
Gross Profit Margin	27.5%	26.0%		26.0%
Net Profit Margin	1.04%	0.94%		1.14%
Return on Total Assests (ROA)	1.6%	1.4%		2.3%
Return on Total Equity (ROE)	3.0%	3.2%		3.1%
Price/earnings (P/E) Ratio	33.5	38.7		43.4
Market/Book (M/B) Ratio	1.00	1.10		1.20

To Do:

a. Calculate the firm's 2012 financial ratios, and then fill in the table below. (Assume a 365-day year.)

b. Analyze the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market.

c. Summarize the firm's overall financial position on the basis of your findings in part (b).

Calculate the firm's ratio values for 2012 below:

Martin Manufacturing Company Historical and Industry Average Ratios

	Actual	Actual	Actual	Industry Average
Ratio	2010	2011	2012	2012
Current Ratio	1.7	1.8		1.5

(Round to one decimal place.)