Financial Analysis and Forecasting case study. Please read and provide the Pro Forma in Tables 1-6. I need help!! Cant figure it out. Excel upload please.

( also please disregard the nukbers that are already filled in, I believe they are possibly wrong)

37 Financial Analysis and Forecasting Pennsylvania Box Company e company's patenten under and president Bank. Swindletol Pennsylvania Box Company (Penn Box) marufactures boxes and other containers, primarily for farm products. More than 85 percent of the company's sales come from the northeastern part of the United States, especially Pennsylvania, New Jersey, New York, and Maryland, although the company's patented egg cartons are distributed throughout the United States. Mike Rinegart, the founder and president, recently received a call from Carol Swindle, vice president of Security National Bank. Swindle told him that a negative report had been generated by the bank's computerized analysis system; the report showed that Penn Box's financial position was bad and getting worse. The bank requires quarterly financial statements from each of its major loan customers. Information from these statements is fed into the com- puter, which then calculates key ratios for each customer and charts trends in these ratios. The system also compares the statistics for each company with the average ratios of other firms in the same industry, and against any protective covenants in the loan agreements. If any ratio is significantly worse than the industry average, reflects a marked adverse trend, or fails to meet contractual requirements, the computer highlights the deficiency. The latest report on Penn Box revealed a number of adverse trends, and several potentially serious problems (see Tables 1 through 6 for Penn Box's historical financial statements). Particularly disturbing were the 1989 current, quick, and debt ratios, all of which failed to meet the contrac- tual limits of 2.0, 1.0, and 55 percent, respectively. Legally, the bank had the right to call for immediate repayment of all the loans it had extended 100 Th. dan D ee All richte recorvo Part VIII Financial Analysis and Forecasting to Penn Box, and, if the loans were not repaid within 10 days, to force the company into bankruptcy. Swindle hoped to avoid calling the loans if at all possible, as she knew that this would back Penn Box into a corner from which it might not be able to emerge. Still, her own bank's examiners had recently become highly sensitive to the issue of problem loans the recent spate of bank failures had forced regulators to become more strict in their examination of bank loan portfolios and to demand earlier identification of potential repayment problems. One measure of the quality of a loan is the Altman Z score, which for Penn Box was 3.04 for 1989, just below the 3.20 minimum the bank uses to differentiate strong firms, with little likelihood of bankruptcy in the next 2 years, from those deemed likely to go into default. This will put the bank under increased pressure to reclassify the loans to Penn Box as "problem loans," to set up a reserve to cover potential losses, and to take whatever steps are necessary to reduce the bank's exposure. Setting up the loss reserve would have a negative effect on the bank's profits and would reflect badly on Swindle's performance. To keep Penn Box's loan from being reclassified as a problem loan, the bank's Senior Loan Committee will require strong and convincing evi- dence that the company's present difficulties are only temporary. There fore, it must be shown that appropriate actions to overcome the problems are being taken, and that the chances of reversing the adverse trends are realistically good. Swindle now has the task of collecting the necessary information, evaluating its implications, and preparing a recommenda- tion for action. The recession that has plagued the U.S. farm economy since the early 1980s had caused severe, though probably temporary, problems for com- panies like Penn Box. On top of this, disastrous droughts for two straight summers had devastated vegetable crops in the area, leading to a drastic curtailment of demand for produce shipping containers. In light of the softening demand, Penn Box had aggressively reduced prices and ex- panded its marketing area in order to stimulate sales. Higher sales, the company believed, would allow it to realize greater economies of scale in production and to ride the learning, or experience, curve down to a lower cost position. Penn Box's management had full confidence that normal weather and the current sound national economic policy would revive the ailing farm sector, and that the downturn in demand would only be a short-term problem. Consequently, production continued unabated, and inventories increased sharply. In a further effort to reduce inventory, Penn Box relaxed its credit standards in early 1989, and it eased its already favorable credit terms. As a result, sales growth did remain high by industry standards through the third quarter of 1989, but not high enough to keep inventories from career) if you were asked how you got a particular number and you could not give a meaningful response. 2. Based on the information in the case and on the results of your calculations in Question 1, prepare a list of Penn Box's strengths and weaknesses. In essence, you should look at each group of key ratios (for example, the liquidity ratios) and see what those ratios indicate about the company's operations and financial condition. As a part of your answer, use the extended Du Pont equation to highlight the key relationships. 3. Recognizing that you might want to revise your opinion later, does it appear, based on your analysis to this point, that the bank should be willing to lend the requested money to Penn Box? Explain. 4. Now complete the tables to develop pro forma financial statements for 1990 and 1991. For these calculations, assume that the bank is willing to maintain the present credit lines and to grant an additional $12,750,000 of short-term credit effective January 1, 1990. In the anal ysis, take account of the amounts of inventory and accounts receivable that would be carried if inventory utilization (based on cost of goods sold) and days sales outstanding were set at industry-average levels. Also, assume in your forecast that all of Penn Box's plans and predic tions concerning sales and expenses materialize, and that Penn Box pays no cash dividends during the forecast period. Finally, in your calculations, use the cash and marketable securities account as the residual balancing figure. 5. Assume that Penn Box has determined that its optimal cash balance is 5 percent of sales, and that funds in excess of this amount will be invested in marketable securities which, on average, will earn 7 per- cent interest. Based on your forecasted financial statements, will Penn Box be able to invest in marketable securities in 1990 and 1991? Do your financial forecasts reveal any developing conditions that should be corrected? If you have access to the Lotus model, compute the amount of excess funds Penn Box should invest in marketable securi- ties. Based on the forecasts developed earlier, would Penn Box be able to retire all of the outstanding short-term loans by December 31, 1990? In answering this question, assume that Penn Box will, if possible, repay the loans at a constant rate throughout the year. Therefore, on average, the amount of short-term loans outstanding will be half of the begin- ning-of-year amount Part VIII Financial Analysis and Forecasting (2) 7. If the bank decides to withdraw the entire line of credit and to demand immediate repayment of the two existing loans, what alter natives would be available to Penn Box? 8. Under what circumstances might the validity of any comparative ratio analysis be questionable? Answer this question in general, not just for Penn Box, but use Penn Box data to illustrate your points. 9. Revise your pro forma financial statements for 1990 and 1991 assum- ing both of the following conditions: (1) Short-term loans will be repaid when sufficient cash is available to do so without reducing the liquidity of the firm below the minimum requirements set by the bank, and when the company is able to maintain at least the minimum cash balance (5 per- cent). Penn Box will reinstate a 25 percent cash dividend in the year that all short-term loans and credit lines have been fully cleaned up (paid in full). 10. It is apparent that Penn Box's future and that of the bank loan) is critically dependent on the company's operating conditions in 1990 and 1991. Therefore, it would be useful if you could, as part of your consulting report, inform management-and the bank-as to how sensitive the results are to such things as the sales growth rate, the cost of goods sold percentage, and the administrative expense ratio. If the results would still look fairly good even if those factors were not as favorable as forecasted, the bank would have greater confi- dence in extending the requested credit. On the other hand, if even tiny changes in these variables would lead to a continuation of the past downward trend, then the bank should be leery. If you have access to the Lotus model, do some sensitivity analyses (using data tables) to shed light on this issue. If you do not have access to the model, describe how one would go about a sensitivity (or scenario) analysis, but do not quantify your answer. On the basis of your analysis, do you think Swindle should recom- mend that the bank extend the existing short and long-term loans, and grant the additional $12,750,000 loan, or that the bank demand immediate repayment of all existing loans? If she does recommend continuing to support the company, what conditions (e.g., collateral, guarantees, or other safeguards) might the bank impose to protect itself? Explain. 11. Table 1 Historical and Pro Forma Balance Sheets for Years Ended December 31 Thousands of Dollars) Pro Forma 1990 1991 1987 1988 1989 Assets Cash and marketable securities Accounts receivable Inventory Current assets Land, buildings, plant, and equipment Accumulated deprecia- tion Net fixed assets Total assets $ 9,930 $ 7,363 34,196 36,924 39,76169361 $ 83,887 $113,648 $ 34,634 $ 39,195 (5,992) (9,308) $28,642 $29.887 $112,529 5143,535 $ 6,550 14,154 X 101,184x 58,714 100, 1ZX 41,398 97.984 CL SeoX SEX $163,248 125.826X $207,948 $ 44,604 $ 57,036 $ 58,746 (13,388) (18.234) (21,880) $ 31,216 $ 38,802 $ 36,866 $194.464 $214,629 244.814X Liabilities and Equity Short-term bank loans $ 6,376 $ 10,200 $ 36,466 $ 49,216 49,217 x Accounts payable 13,528 21,012 39,996 31,990 33,590 Accruals . 6886 10,200 14,662 18,602 23,252 Current liabilities $26,790 $ 41,412 $ 91,124 H EX 106.osax Long-term bank loans $ 13,388 $ 20,082 $ 20,082 $ 20.082 S 20.082 Mortgage 5,738 5,202 4,680 4,208 3,788 Long-term debt $ 19.126 $25,284 $ 24.762 $ 24.290 $23,870 Total liabilities $ 45,916 $ 66,696 $115.886 124,098 x 12492X Common stock $ 46,538 $ 46,538 $ 46,538 $ 46,538 $ 46,538 Retained earnings 20.076 30,300 32,040 3493x (2348X Total equity $ 66,614 $ 76,838 $ 78,578 $ 90,531 14,86X Total liabilities and equity $112,530 $143,534 $194.465 214,62x 24.6IS X Notes: a. 7,000,000 shares of common stock were outstanding throughout the period 1987 through 1989. b. Market price of shares: 1987-$17.79; 1988-$9.69; 1989 $3.74. c. Price/earnings (P/E) ratios: 19876.29; 1988 4.98; 1989-11.28. The 1989 P/E ratio is high because of the depressed earnings that year. d. Assume that all changes in interest-bearing loans and gross fixed assets occur at the start of the relevant years. e. The mortgage loan is secured by a first mortgage bond on land and buildings. Table 5 Statement of Cash Flows for Years Ended December 31 (Thousands of Dollars) 1988 1989 Cash Flow from Operations Sales Increase in receivables Cash sales Cost of goods sold Increase in inventories Increase in accounts payable Increase in accruals Cash cost of goods Cash margin Administrative and selling expenses Miscellaneous expenses $378,549 $401,251 (2.728) "21290X $375,821 $379,461 ($311,110) ($342,016) (29,600) (28,623) 7,484 18,984 3314 4462 X ($329,912) (344,193 X $ 45,909 32,268 X (30,690) ($ 33,762) (7,114) (11,450) (9,088) (1,547) $ 983) (14,411 X Taxes ($ 4,561) ($ 5,409) Net cash flow from operations Cash Flow from Fixed Asset Investment Investment in fixed assets Cash Flow from Financing Activities Increase in short-term debt Increase in long-term debt Repayment of mortgage Interest expense Common dividends Net cash flow from financing activities Increase (decrease) in cash and marketable securities 6,695 $ 3,824 $ 26,266 OX (536) (522) (3,598) (6,076) (3,408) (580 $ 2,977 $ 19,088 ($_2,568) (812 Part VIII Financial Analysis and Forecasting Table 6 Historical and Pro Forma Ratio Analysis for Years Ended December 31 Pro Forma Industry 1987 1988 1989 1990 1991 Average Liquidity Ratios Current ratio 3.13 2.74 1.79 1.76 x 1.96% 2.50 Quick ratio 1.65 1.07 0.72 1.141-34X 1.00 Leverage Ratios Debt ratio 40.80% 46.47% 59. St. 53.07% 50.00% Times-interest-earned 14.23 7.31 1.64 3.43% 5.98 7.70 Asset Management Ratios Inventory turnover (cost) 7.10 4.49 3 .49 - 5.70 5.70 5.70 Inventory turnover (sales) 8.82 5.46 4.10 6.10 7.12X 7.00 Fixed assets turnover 12.24 12.67 12.85 10.96 12.63 12.00 Total assets turnover 3.12 2.64 2.00X 1.98 1.99% 3.00 Days sales outstanding 35.12 35.11 52.68 84.7% 32.00 32.00 (ACP) Profitability Ratios Profit margin 5.64% 3.60% 0.58% X X 2.90% Gross profit margin 19.48% 17.82% 14.76% 17.50% 20.00% 18.00% Return on total assets 17.58% 9.50% X 5.57% 9.95% 8.80% Return on equity 29.70% 17.74% 2.95% X X 17.50% Other Ratios Altman Z factor 6.64 4.75 3.11 x 3.70 4.80 4.65 Payout ratio 25.00% 25.00% 25.00% 0.00% X 20.00% Notes: a. Uses cost of goods sold as the numerator. b. Uses net sales as the numerator. c. Assume a 360-day year. d. Altman's function is calculated as Z=0.012X1 +0.014X2 +0.033X3 +0.006X4 +0.999Xs Here X1 = net working capital/total assets. X2 retained earnings/total assets. X3 - EBIT/total assets. X = market value of common and preferred stock/book value of debt. Xs - sales/total assets. The "Altman Zscore" range of 1.81-2.99 represents the so-called "zone of ignorance." Refer to Appendix 20A of Eugene F. Brigham and Louis C. Gapenski, Intermediate Financial Management (Hinsdale, Ill: Dryden Press, 1990), for details. e. Year-end balance sheet values were used throughout in the computation of ratios embody- ing balance sheet items. 1. Assume constant industry average ratios throughout the period 1987 through 1991. 37 Financial Analysis and Forecasting Pennsylvania Box Company e company's patenten under and president Bank. Swindletol Pennsylvania Box Company (Penn Box) marufactures boxes and other containers, primarily for farm products. More than 85 percent of the company's sales come from the northeastern part of the United States, especially Pennsylvania, New Jersey, New York, and Maryland, although the company's patented egg cartons are distributed throughout the United States. Mike Rinegart, the founder and president, recently received a call from Carol Swindle, vice president of Security National Bank. Swindle told him that a negative report had been generated by the bank's computerized analysis system; the report showed that Penn Box's financial position was bad and getting worse. The bank requires quarterly financial statements from each of its major loan customers. Information from these statements is fed into the com- puter, which then calculates key ratios for each customer and charts trends in these ratios. The system also compares the statistics for each company with the average ratios of other firms in the same industry, and against any protective covenants in the loan agreements. If any ratio is significantly worse than the industry average, reflects a marked adverse trend, or fails to meet contractual requirements, the computer highlights the deficiency. The latest report on Penn Box revealed a number of adverse trends, and several potentially serious problems (see Tables 1 through 6 for Penn Box's historical financial statements). Particularly disturbing were the 1989 current, quick, and debt ratios, all of which failed to meet the contrac- tual limits of 2.0, 1.0, and 55 percent, respectively. Legally, the bank had the right to call for immediate repayment of all the loans it had extended 100 Th. dan D ee All richte recorvo Part VIII Financial Analysis and Forecasting to Penn Box, and, if the loans were not repaid within 10 days, to force the company into bankruptcy. Swindle hoped to avoid calling the loans if at all possible, as she knew that this would back Penn Box into a corner from which it might not be able to emerge. Still, her own bank's examiners had recently become highly sensitive to the issue of problem loans the recent spate of bank failures had forced regulators to become more strict in their examination of bank loan portfolios and to demand earlier identification of potential repayment problems. One measure of the quality of a loan is the Altman Z score, which for Penn Box was 3.04 for 1989, just below the 3.20 minimum the bank uses to differentiate strong firms, with little likelihood of bankruptcy in the next 2 years, from those deemed likely to go into default. This will put the bank under increased pressure to reclassify the loans to Penn Box as "problem loans," to set up a reserve to cover potential losses, and to take whatever steps are necessary to reduce the bank's exposure. Setting up the loss reserve would have a negative effect on the bank's profits and would reflect badly on Swindle's performance. To keep Penn Box's loan from being reclassified as a problem loan, the bank's Senior Loan Committee will require strong and convincing evi- dence that the company's present difficulties are only temporary. There fore, it must be shown that appropriate actions to overcome the problems are being taken, and that the chances of reversing the adverse trends are realistically good. Swindle now has the task of collecting the necessary information, evaluating its implications, and preparing a recommenda- tion for action. The recession that has plagued the U.S. farm economy since the early 1980s had caused severe, though probably temporary, problems for com- panies like Penn Box. On top of this, disastrous droughts for two straight summers had devastated vegetable crops in the area, leading to a drastic curtailment of demand for produce shipping containers. In light of the softening demand, Penn Box had aggressively reduced prices and ex- panded its marketing area in order to stimulate sales. Higher sales, the company believed, would allow it to realize greater economies of scale in production and to ride the learning, or experience, curve down to a lower cost position. Penn Box's management had full confidence that normal weather and the current sound national economic policy would revive the ailing farm sector, and that the downturn in demand would only be a short-term problem. Consequently, production continued unabated, and inventories increased sharply. In a further effort to reduce inventory, Penn Box relaxed its credit standards in early 1989, and it eased its already favorable credit terms. As a result, sales growth did remain high by industry standards through the third quarter of 1989, but not high enough to keep inventories from career) if you were asked how you got a particular number and you could not give a meaningful response. 2. Based on the information in the case and on the results of your calculations in Question 1, prepare a list of Penn Box's strengths and weaknesses. In essence, you should look at each group of key ratios (for example, the liquidity ratios) and see what those ratios indicate about the company's operations and financial condition. As a part of your answer, use the extended Du Pont equation to highlight the key relationships. 3. Recognizing that you might want to revise your opinion later, does it appear, based on your analysis to this point, that the bank should be willing to lend the requested money to Penn Box? Explain. 4. Now complete the tables to develop pro forma financial statements for 1990 and 1991. For these calculations, assume that the bank is willing to maintain the present credit lines and to grant an additional $12,750,000 of short-term credit effective January 1, 1990. In the anal ysis, take account of the amounts of inventory and accounts receivable that would be carried if inventory utilization (based on cost of goods sold) and days sales outstanding were set at industry-average levels. Also, assume in your forecast that all of Penn Box's plans and predic tions concerning sales and expenses materialize, and that Penn Box pays no cash dividends during the forecast period. Finally, in your calculations, use the cash and marketable securities account as the residual balancing figure. 5. Assume that Penn Box has determined that its optimal cash balance is 5 percent of sales, and that funds in excess of this amount will be invested in marketable securities which, on average, will earn 7 per- cent interest. Based on your forecasted financial statements, will Penn Box be able to invest in marketable securities in 1990 and 1991? Do your financial forecasts reveal any developing conditions that should be corrected? If you have access to the Lotus model, compute the amount of excess funds Penn Box should invest in marketable securi- ties. Based on the forecasts developed earlier, would Penn Box be able to retire all of the outstanding short-term loans by December 31, 1990? In answering this question, assume that Penn Box will, if possible, repay the loans at a constant rate throughout the year. Therefore, on average, the amount of short-term loans outstanding will be half of the begin- ning-of-year amount Part VIII Financial Analysis and Forecasting (2) 7. If the bank decides to withdraw the entire line of credit and to demand immediate repayment of the two existing loans, what alter natives would be available to Penn Box? 8. Under what circumstances might the validity of any comparative ratio analysis be questionable? Answer this question in general, not just for Penn Box, but use Penn Box data to illustrate your points. 9. Revise your pro forma financial statements for 1990 and 1991 assum- ing both of the following conditions: (1) Short-term loans will be repaid when sufficient cash is available to do so without reducing the liquidity of the firm below the minimum requirements set by the bank, and when the company is able to maintain at least the minimum cash balance (5 per- cent). Penn Box will reinstate a 25 percent cash dividend in the year that all short-term loans and credit lines have been fully cleaned up (paid in full). 10. It is apparent that Penn Box's future and that of the bank loan) is critically dependent on the company's operating conditions in 1990 and 1991. Therefore, it would be useful if you could, as part of your consulting report, inform management-and the bank-as to how sensitive the results are to such things as the sales growth rate, the cost of goods sold percentage, and the administrative expense ratio. If the results would still look fairly good even if those factors were not as favorable as forecasted, the bank would have greater confi- dence in extending the requested credit. On the other hand, if even tiny changes in these variables would lead to a continuation of the past downward trend, then the bank should be leery. If you have access to the Lotus model, do some sensitivity analyses (using data tables) to shed light on this issue. If you do not have access to the model, describe how one would go about a sensitivity (or scenario) analysis, but do not quantify your answer. On the basis of your analysis, do you think Swindle should recom- mend that the bank extend the existing short and long-term loans, and grant the additional $12,750,000 loan, or that the bank demand immediate repayment of all existing loans? If she does recommend continuing to support the company, what conditions (e.g., collateral, guarantees, or other safeguards) might the bank impose to protect itself? Explain. 11. Table 1 Historical and Pro Forma Balance Sheets for Years Ended December 31 Thousands of Dollars) Pro Forma 1990 1991 1987 1988 1989 Assets Cash and marketable securities Accounts receivable Inventory Current assets Land, buildings, plant, and equipment Accumulated deprecia- tion Net fixed assets Total assets $ 9,930 $ 7,363 34,196 36,924 39,76169361 $ 83,887 $113,648 $ 34,634 $ 39,195 (5,992) (9,308) $28,642 $29.887 $112,529 5143,535 $ 6,550 14,154 X 101,184x 58,714 100, 1ZX 41,398 97.984 CL SeoX SEX $163,248 125.826X $207,948 $ 44,604 $ 57,036 $ 58,746 (13,388) (18.234) (21,880) $ 31,216 $ 38,802 $ 36,866 $194.464 $214,629 244.814X Liabilities and Equity Short-term bank loans $ 6,376 $ 10,200 $ 36,466 $ 49,216 49,217 x Accounts payable 13,528 21,012 39,996 31,990 33,590 Accruals . 6886 10,200 14,662 18,602 23,252 Current liabilities $26,790 $ 41,412 $ 91,124 H EX 106.osax Long-term bank loans $ 13,388 $ 20,082 $ 20,082 $ 20.082 S 20.082 Mortgage 5,738 5,202 4,680 4,208 3,788 Long-term debt $ 19.126 $25,284 $ 24.762 $ 24.290 $23,870 Total liabilities $ 45,916 $ 66,696 $115.886 124,098 x 12492X Common stock $ 46,538 $ 46,538 $ 46,538 $ 46,538 $ 46,538 Retained earnings 20.076 30,300 32,040 3493x (2348X Total equity $ 66,614 $ 76,838 $ 78,578 $ 90,531 14,86X Total liabilities and equity $112,530 $143,534 $194.465 214,62x 24.6IS X Notes: a. 7,000,000 shares of common stock were outstanding throughout the period 1987 through 1989. b. Market price of shares: 1987-$17.79; 1988-$9.69; 1989 $3.74. c. Price/earnings (P/E) ratios: 19876.29; 1988 4.98; 1989-11.28. The 1989 P/E ratio is high because of the depressed earnings that year. d. Assume that all changes in interest-bearing loans and gross fixed assets occur at the start of the relevant years. e. The mortgage loan is secured by a first mortgage bond on land and buildings. Table 5 Statement of Cash Flows for Years Ended December 31 (Thousands of Dollars) 1988 1989 Cash Flow from Operations Sales Increase in receivables Cash sales Cost of goods sold Increase in inventories Increase in accounts payable Increase in accruals Cash cost of goods Cash margin Administrative and selling expenses Miscellaneous expenses $378,549 $401,251 (2.728) "21290X $375,821 $379,461 ($311,110) ($342,016) (29,600) (28,623) 7,484 18,984 3314 4462 X ($329,912) (344,193 X $ 45,909 32,268 X (30,690) ($ 33,762) (7,114) (11,450) (9,088) (1,547) $ 983) (14,411 X Taxes ($ 4,561) ($ 5,409) Net cash flow from operations Cash Flow from Fixed Asset Investment Investment in fixed assets Cash Flow from Financing Activities Increase in short-term debt Increase in long-term debt Repayment of mortgage Interest expense Common dividends Net cash flow from financing activities Increase (decrease) in cash and marketable securities 6,695 $ 3,824 $ 26,266 OX (536) (522) (3,598) (6,076) (3,408) (580 $ 2,977 $ 19,088 ($_2,568) (812 Part VIII Financial Analysis and Forecasting Table 6 Historical and Pro Forma Ratio Analysis for Years Ended December 31 Pro Forma Industry 1987 1988 1989 1990 1991 Average Liquidity Ratios Current ratio 3.13 2.74 1.79 1.76 x 1.96% 2.50 Quick ratio 1.65 1.07 0.72 1.141-34X 1.00 Leverage Ratios Debt ratio 40.80% 46.47% 59. St. 53.07% 50.00% Times-interest-earned 14.23 7.31 1.64 3.43% 5.98 7.70 Asset Management Ratios Inventory turnover (cost) 7.10 4.49 3 .49 - 5.70 5.70 5.70 Inventory turnover (sales) 8.82 5.46 4.10 6.10 7.12X 7.00 Fixed assets turnover 12.24 12.67 12.85 10.96 12.63 12.00 Total assets turnover 3.12 2.64 2.00X 1.98 1.99% 3.00 Days sales outstanding 35.12 35.11 52.68 84.7% 32.00 32.00 (ACP) Profitability Ratios Profit margin 5.64% 3.60% 0.58% X X 2.90% Gross profit margin 19.48% 17.82% 14.76% 17.50% 20.00% 18.00% Return on total assets 17.58% 9.50% X 5.57% 9.95% 8.80% Return on equity 29.70% 17.74% 2.95% X X 17.50% Other Ratios Altman Z factor 6.64 4.75 3.11 x 3.70 4.80 4.65 Payout ratio 25.00% 25.00% 25.00% 0.00% X 20.00% Notes: a. Uses cost of goods sold as the numerator. b. Uses net sales as the numerator. c. Assume a 360-day year. d. Altman's function is calculated as Z=0.012X1 +0.014X2 +0.033X3 +0.006X4 +0.999Xs Here X1 = net working capital/total assets. X2 retained earnings/total assets. X3 - EBIT/total assets. X = market value of common and preferred stock/book value of debt. Xs - sales/total assets. The "Altman Zscore" range of 1.81-2.99 represents the so-called "zone of ignorance." Refer to Appendix 20A of Eugene F. Brigham and Louis C. Gapenski, Intermediate Financial Management (Hinsdale, Ill: Dryden Press, 1990), for details. e. Year-end balance sheet values were used throughout in the computation of ratios embody- ing balance sheet items. 1. Assume constant industry average ratios throughout the period 1987 through 1991