CORRIGAN CORPORATION CASE STUDY

Ratio analysis The Corrigan corporations 2004 and 2005 financially statements follow along with some industry average ratios.

1. Asses Corrigans Liquidity position, and determine how it compares with peers and how the liquidity position has changed over time.
2. Asses Corrigans asset management position, and determine how it compares with peers and how its assets management efficiency has changed over time.
3. Asses Corrigans debt management position and determine how it compares with peers and how its debt management has changed over time.
4. Assets Corrigans profitability ratios, and determine how they compare with peers and how the profitability position has changed over time.
5. Asses Corrigans market value ratios, and determine how their valuation compares with peers and how it has changed over time.
6. Calculate Corrigans ROE, as well as the industry average ROE, using the extended DU PONT equation. From this analysis, how does Corrigans finical position compare with industry average numbers?
7. What do you think would happen to its ratios if the company-initiated cost-cutting measures that 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 two accounts.

Corrigan Corporation: Balance Sheets as of December 31

Year 20052004 $$Cash72,00065,000Accounts receivables439,000328,000Inventories894,000813,000Total current assets1,405,0001,206,000Land and building238,000271,000Machinery 132,000133,000Other fixed assets61,00057,000Total assets1,836,0001,667,000 Accounts and notes payable432,000409,500Accrued liabilities170,000162,000Total current liabilities602,000571,500 Long term debt404,290258,898Common stock575,000575,000Retained earnings254,710261,602Total liabilities and equity1,836,0001,667,000

Corrigan corporation: income statement for the year ending December 31

Year 20052004 $$Sales4,240,0003,635,000Cost of goods sold3,680,0002,980,000Gross operating profit560,000655,000General administrative and selling expenses236,320213,550Depreciation159,000154,500Miscellaneous134,000127,000Earnings before taxes (EBT)30,680159,950Taxes (40%)12,27263,980Net income18,40895,970

Per share data

20052004EPS$0.80$4.17Cash dividends$1.10$0.95Market price (average)$12.34$23.57P/E ratio15.4X5.65xNumber of shares outstanding23,00023,000

Industry financial ratios

2005Current ratio2.7xInventory turnover^b7.0xDays sales outstanding^c32 daysFixed assets turnover^b13.0xTotal assets turnover^b2.6xReturn on assets9.1%Return on equity18.2%Debt ratio50.0%Profit margin on sales3.5%P/E ratio6.0xPrice/cash flow ratio3.5x

^a industry average ratios have been constant for the past 4 years

^bbased on year-end balance sheet figures

^ccalculation is based on a 365-day year