Financial Strategy Financial Ratios Case Churchill Company has been in business for 3 years now, and things are going well. Greg Johnson has been able to expand the company onto two other campuses, and the company's sales and earnings have increased quickly. Since Greg's background is not in finance, after interviewing many candidates he recently decided to hire Nora Stanton as Churchill Company's first chief financial officer. Nora has a background in accounting and has quite a bit of experience in budgetary procedures. Nora's first task is to undertake a complete analysis of the firm's financial condition, including strengths and weaknesses, in order to develop sound financial plans for additional future expansion. 1. Using the financial statements and industry standard ratios below, develop a complete time series and cross-sectional analysis of Churchill Company's financial condition including strengths and weaknesses of Churchill Company. Time series is where a company compares the company to it's self over time. Cross-sectional is where we compare the company to the industry (standard industry ratios). 2. Prepare common size income statements for 2020 and 2021 and address changes and concerns. 3. Nora also believes the DuPont method of analysis is also a good way to see how the company is generating returns to its owner. Prepare a DuPont analysis for both Churchill Company and the industry and discuss Churchill Company s performance as compared to its industry. 4. After analyzing the data, what conclusions and recommendations would Nora be justified in making her report to Greg? What areas of Churchill Company's operations are in greatest need of immediate attention? Prepare a planned course of action for the solution of the firm's most pressing problems. Standard Industry Ratios Current ratio Quick ratio Average Collection period Inventory turnover Total asset turnover Debt ratio Times interest earned 3.50 1.50 30 days 5.00 1.00 45.0% 4.10 Gross profit margin 25.0% Net profit margin 8.0% Return on total assets 8.0% Return on equity 14.50% Financial Leverage Multiplier 1.81 I