HELP ME TO ANSWER QUESTION 'g'

Comprehensive/Spreadsheet Problem

4-25 RATIO ANALYSIS The Corrigan Corporations 2015 and 2016 financial statements follow,

along with some industry average ratios.

a. Assess Corrigans liquidity position, and determine how it compares with peers and

how the liquidity position has changed over time.

b. Assess Corrigans asset management position, and determine how it compares with

peers and how its asset management efficiency has changed over time.

c. Assess Corrigans debt management position, and determine how it compares with

peers and how its debt management has changed over time.

d. Assess Corrigans profitability ratios, and determine how they compare with peers and

how its profitability position has changed over time.

e. Assess Corrigans market value ratios, and determine how its valuation compares with

peers and how it has changed over time.

f. Calculate Corrigans ROE as well as the industry average ROE, using the DuPont

equation. From this analysis, how does Corrigans financial position compare with the

industry average numbers?

g. 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

2016 2015

Cash $ 72,000 $ 65,000

Accounts receivable 439,000 328,000

Inventories 894,000 813,000

Total current assets $1,405,000 $1,206,000

Land and building 238,000 271,000

Machinery 132,000 133,000

Other fixed assets 61,000 57,000

Total assets $1,836,000 $1,667,000

Accounts payable $ 80,000 $ 72,708

Accrued liabilities 45,010 40,880

Notes payable 476,990 457,912

Total current liabilities $ 602,000 $ 571,500

Long-term debt 404,290 258,898

Common stock 575,000 575,000

Retained earnings 254,710 261,602

Total liabilities and equity $1,836,000 $1,667,000

Corrigan Corporation: Income Statements for Years Ending December 31 2016 2015 Sales $4,240,000 $3,635,000 Cost of goods sold 3,680,000 2,980,000 Gross operating profit $ 560,000 $ 655,000 General administrative and selling expenses 303,320 297,550 Depreciation 159,000 154,500 EBIT $ 97,680 $ 202,950 Interest 67,000 43,000 Earnings before taxes (EBT) $ 30,680 $ 159,950 Taxes (40%) 12,272 63,980 Net income $ 18,408 $ 95,970 Industry Financial Ratiosa 2016 Current ratio 2.7 Inventory turnoverb 7.0 Days sales outstandingc 32.0 days Fixed assets turnoverb 13.0 Total assets turnoverb 2.6 Return on assets 9.1% Return on equity 18.2% Return on invested capital 14.5% Profit margin 3.5% Debt-to-capital ratio 50.0% P/E ratio 6.0 aIndustry 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.