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 atyear-end 2012. To complete assignment, she gathered thefirm'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 sold3,704,000

Gross profits$1,371,000

Less: Operating expenses

Selling expense $650,000

General and administrative expenses 416,000

Depreciation expense 152,000

Total operating expense1,218,000

Operating profits$153,000

Less: Interest expense93,000

Net profits before taxes$60,000

Less: Taxes (rate = 40%)24,000

Net profits after taxes$36,000

Less: Preferred stock dividends3,000

Earnings available for common stockholders$33,000

Earnings per share (EPS)$0.33

Martin Manufacturing Company Balance SheetsDecember 31December 31Assets:20122011Current Assets:Cash$25,000$24,100Accounts Receivable805,556763,900Inventories700,625763,445Total Current Assets$1,531,181$1,551,445Gross Fixed Assets (at cost)$2,093,819$1,691,707Less: Accumulated Depreciation500,000348,000Net Fixed Assets$1,593,819$1,343,707Total Assets$3,125,000$2,895,152Liabilities and Stockholders' EquityCurrent Liabilities:Accounts Payable$230,000$400,500Notes Payable311,000370,000Accruals75,000100,902Total Current Liabilities$616,000$871,402Long-Term Debt$1,165,250$700,000Total Liabilities$1,781,250$1,571,402Stockholders' Equity:Preferred Stock (2,500 shares, $1.20 dividend)$50,000$50,000Common Stock (100,000 shares at $4.00 par*)400,000400,000Paid-in Capital in Excess of Par Value593,750593,750Retained Earnings300,000300,000Total Stockholders' Equity$1,343,750$1,323,750Total 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:ActualActualActualIndustry AverageRatio2010201120122012Current Ratio1.71.81.5Quick Ratio1.00.91.2Inventory Turnover (times)5.25.010.2Average Collection period50.7 days55.8 days46.0 daysTotal Asset Turnover (times)1.51.52.0Debt Ratio45.854.3%24.5%Times Interest Earned Ratio2.21.92.5Gross Profit Margin27.5%26.0%26.0%Net Profit Margin1.04%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) Ratio33.538.743.4Market/Book (M/B) Ratio1.001.101.20

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 across-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

ActualActualActualIndustry AverageRatio2010201120122012Current Ratio1.71.81.5