Data for Unilate Textiles 2008 financial statements are given in Table 2-1 and Table 2-2 in the chapter.

a. Compute the 2008 values of the following ratios:

b. Briefly comment on Unilates 2008 financial position. Can you see any obvious strengths or weaknesses?

c. Compare Unilates 2008 ratios with its 2009 ratios, which is presented in Table 2-6. Comment on whether you believe Unilates financial position improved or deteriorated during 2009.

d. What other information would be useful for projecting whether Unilates financial position is expected to improve or deteriorated during 2009.

(1) Why do you think some of the stocks had so high P/E ratios?

(2) Given the fact that firms with high P/E ratio firms have more growth opportunities than low P/E ratio firms, if other things remain the same, would you buy high P/E ratio firms or low P/E ratio firms, or are you indifferent?

TABLE 2-1 Unilate Textiles: December 31 Balance Sheet ($million)

2009

2008

Amount

Percent of total Assets

Amount

Percent of total assets

Assets

Cash and equivalents

$ 15.0

1.8%

$40.0

5.4%

Accounts receivable

180.0

21.3

160.0

21.3

Inventories

270.0

32.0

200.0

26.7

Total Current Assets

$465.0

55.0%

400.0

53.3%

Net plant and equipment

$ 380.0

45.0

$ 350.0

46.7

Total assets:

$ 845.0

100.0%

$ 750.0

100.0%

Liabilities and Equity

Account payable

$30.0

3.6%

$ 15.0

2.0%

Accruals

60.0

7.1

55.0

7.3

Notes payable

40.0

4.7

35.0

4.7

Total current liabilities

$ 130.0

15.4%

$ 105.0

14.0%

Long-term bonds

300.0

35.5

255.0

34.0

Total liabilities(debt)

$ 430.0

50.9%

360..0

48.0%

Common stock (25 million shares)

130.0

15.4

130.0

17.3

Retained earnings

285.0

33.7

260.0

34.7%

Total common equity

$415.0

49.1%

$390.0

52.0%

Total liabilities and equity

845.0

100.00%

$750.0

100.0%

Book value per share

$16.60

$15.60

=(Common stock)/Shares

Market value per share (stock price)

$23.00

$ 25.00

Additional Information

Net working capital

$355.0

$295.0

=Current assets - Current liabilities

Net worth = Total Assets - Total liabilities

$415.0

$390.0

TABLE 2-2: Unilate Textiles: Income Statement for Years Ending December 31 ($ million, except per-share data)
			2009				2008
			Amount		Percent of total Assets		Amount		Percent of total assets
Net Sales			$1500.0		100.0%		$1435.0		100.0%
Variable operating costs (82% of sales)			(1230.0)		82.0		(1176.7)		82.0
Gross profit			$270.0		18.0		258.3		18.0
Fixed operating expenses except depreciation			(90.0)		6.0		(85.0)		5.9
Earnings before interest, taxes, depreciation and amortization (EBITDA)			$180.0		12.0		$173.3		12.1
Depreciation			(50.0)		3.3		(40.0)		2.8
Net operating income (NOI)
=Earnings before interest and taxes (EBIT)			$130.0		8.8		$133.3		9.3
Interest			(40.0)		2.7		(35.0)		2.4
Earnings before taxes (EBT)			$90.0		6.0		98.3		6.9
Taxes (40%)			(36.0)		2.4		(39.3)		2.7
Net income			$54.0		3.6		$59.0		4.1
Preferred dividends b			0.0			0.0
Earnings available to common shareholders (EAC)			$54.0			$59.0
Common dividends			(29.0)			(27.0)
Addition to retained earnings			$25.0			$32.0
Per-Share Data (11 million shares)
Earnings per share (EPS) = (Net income)/Shares			$2.16			$2.36
Dividends per share (DPS)			$1.16			$1.08
=(Common dividends/Shares

TABLE 2-6: Unilate Textiles: Summary of Financial Ratios ($ million, except per-share dollars)
Ratio	Formula for Calculation		Computation		Ratio Value		Industry Average		Comment
Liquity
Current	= Current assets__ Current liabilities		$465.0 $130.0	=	3.6x		4.1x		Low
Quick, or acid test	= Current assets Inventory Current liabilities		$195.0 $130.0	=	1.5x		2.1x		Low
Asset Management Inventory turnover	= Cost of goods sold Inventory		$1230.0 $270.0	=	4.6x		7.4x		Low
Days sales out- standing (DSO)	= Accounts receivable		$180.0 $4.17	=	43.2 days		32.1 days		Poor
Fixed assets turnover	= ___Sales_______ Net fixed assets		$1500.0 $380.0	=	3.9x		4.0x		OK
Total assets turnover	= Sales Total assets		$1500.0 $845.0	=	1.8x		2.1x		Low
Debt Management Debt-to-total-assets	= Total liabilities Total assets		$430.0 $845.0	=	50.9%		42.0%		Poor
Times interest earned (TIE)	= EBIT________ Interest charges		$130.0 $40.0	=	3.3x		6.5x		Low
Fixed charge coverage	= ____EBIT+ Lease payments Interest Lease Sinking fund payments charges + payments + (1 Tax rate)		140.0 $63.33	=	2.2x		5.8x		Low
Profitability Net profit margin	= Net income Sales		$54.0 $1500.0	=	3.6%		4.9%		Poor
Return on total Assets (ROA)	= Net income Total assets		$54.0 $845.0	=	6.4%		10.3%		Poor
Return of equity (ROE)	=Net income available to common stockholders Common equity		$54.0 $415.0	=	13.0%		$17.7		Poor
Market Value Price/Earnings(P/E)	=Market price per share Earnings per share		$23.00 $2.16	=	10.6x		15.0x		Low
Market/Book (M/B)	=Market price per share Book value per share		$23.0 $16.60	=	1.4x		2.5x		Low