Case 1: Fundamental Analysis Jerri Money, an experienced budget analyst at Millions Manufacturing Company, has been charged with assessing the firm's financial performance during 2022 and its financial position at year-end 2022. To complete this assignment, she gathered the firm's 2022 financial statements, shown below. In addition, Jerri obtained the firm's ratio values for 2020 and 2021, along with the 2022 industry average ratios (also applicable to 2020 and 2021). These are presented in the "Historical Ratios" table on the next page. Note. There were no preferred dividends in 2022. Income Statement Millions Manufacturing Company Ended December 31, 2022 Sales Revenue $7,000,000 Less: Cost of Goods Sold 5,040,000 Gross margin $1,960,000 Less: Operating Expenses Selling expense $840,000 General and administrative expenses 560,000 Amortization expense 199,400 Total operating expense Operating earnings (EBIT) Less Interest expense Earnings before taxes Less: Taxes (rate = 40%) 1,599.400 $ 360,600 132,270 $ 228,330 91,332 $ 136,998 Required Net income after taxes a. Calculate the firm's 2022 financial ratios, and then complete the ratio table. b. For additional insight develop a common-size analysis for the Income Statement and a percentage change analysis for the Balance Sheet. c. Use the DuPont model to fully analyze why ROE changed over the three-year period and is different than the industry average. Explain. (note: may need to algebraically manipulate to get values for all years) d. Based on your analysis of all the data available, provide a detailed discussion of the firm's overall financial position. Analyze the firm's current financial position from both a trend and comparative ratio viewpoint. In your discussion, be sure to comment on the company's financial strengths and weaknesses. Provide your analysis in five sections: one for each of the four categories of ratios (liquidity, asset management, debt management and profitability), and one for an overall evaluation. e. Add a paragraph to discuss any additional factors or limitations that need to be considered in this fundamental analysis. Assets Current Assets Cash Accounts Receivable Inventories Total Current Assets Balance Sheets Millions Manufacturing Company Gross fixed assets (at cost) Less: Accumulated amortization Net fixed assets Total assets 2021 December 31 2022 $ 24,900 $ 28,000 791,700 791,100 902,300 784,700 $1,607,700 $1,715,000 $1,752,900 $2,345,000 360,600 560,000 $1,392,300 $1,785,000 $3,000,000 $3,500,000 Liabilities and shareholder's equity Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debt Total liabilities Shareholder's equity Preferred shares Common shares $ 414,900 383,100 104,700 $ 902,700 $ 725,400 $1,628,100 $ 56,000 329,000 986,900 $1,315,900 $ 257,600 348,250 84,000 $ 689,850 $1,305,150 $1,995,000 $ 56,000 329,000 1,120,000 Retained earnings Total shareholder's equity Total liabilities and shareholder's equity $1,449,000 $3,000,000 $3,500,000 Historical Ratios Millions Manufacturing Company Actual Actual Actual Industry average Ratio 2020 2021 2022 2022 Current ratio 1.7 1.8 1.5 Quick ratio 0.8 0.9 1.2 Inventory turnover 5.2 5.0 10.3 Days sales outstanding 50 days 55 days 46 days Total asset turnover 1.6 1.8 Total debt to assets 26.9% 27.7% 2.0 27.0% Times-interest-earned 2.2 1.9 2.5 Net profit margin 1.3% 1.5% 1.2% Return on total assets 2.1% 2.7% 2.4% Return on equity 4.7% 6.2% 4.0%