IN-COURSE PROJECT General Instructions: 1. Form a group with 3 members. 2. Conduct a Research on: Case study Learning Objectives The purpose of this case is to help you: Students will possess knowledge of current theory and techniques of the major business discipline. Students will exhibit the leadership capacity and teamwork skills for business decision making. Students will understand the ethical implication of business decision making and recognize ethical dilemmas. Students will demonstrate the ability to communicate effectively. Students will demonstrate critical thinking skills. An experienced budget analyst at Marwin ,Inc,. , has been charged with assessing the firm's financial performance during 2006 and its financial position at year-end 2006. To complete this assignment, she gathered the firm's 2006 financial statements (below). In addition, She obtained the firm's ratio values for 2004 and 2005, along with the 2006 industry average ratios (also applicable to 2004 and 2005). TO DO Q1. Calculate the firm's 2006 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) (13 marks) (1 mark each ratio listed above) Q2. Analyze the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evalua- tions of the firm's liquidity, activity, debt, profitability, and market. (10 marks) (2 marks each categories ) Q3. Summarize the firm's overall financial position on the basis of your findings in part b ( 4 marks ) Q4. What ethical issues could confront a financial manger? ( 3 marks ) Marvin company balance sheet is given in $0000) Liabilities and Stockholders' Equity December 31 2006 2005 Assets $ 382 $ 270 99 79 $363 68 $ 288 51 365 503 289 159 $ 620 $ $1,023 $1,643 114 $ 483 $ 967 $1,450 300 $1,223 $1,004 Current assets Cash Marketable securities Accounts receivable Inventores Total current assets Gross fixed assets (at cost" Land and buildings Machinery and equipment Furniture and fixtures Vehicles Other (includes financial leases) Total gross fixed assets (at cost) Less: Accumulated depreciation Net fixed assets Total assets Current liabilities Accounts payable Notes payable Accruals Total current liabilities Long-term debt (includes financial leases Total liabilities Stockholders' equity Preferred stock-cumulative 5%, 5100 par, 2,000 shares authorized and issued Common stock-$2.50 par, 100,000 shares authorized, shares issued and outstanding in 2006: 76,262; in 2005: 76,244 Paid-in capital in excess of par on common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ 200 $ 200 $2,072 1,866 358 275 191 98 $4,669 $1,903 1,693 316 314 96 - $4,322 2,056 $2,266 $3,270 428 1,135 $1,954 $3,597 190 418 1,012 $1,820 $3,270 2,295 $2,374 $3,597 In 2006, the firm has a 6 year financial lease requiring annual beginning-of-year payments of $35,000. Four years of the lease have yet to run. bAnnual principal repayments on a portion of the firm's total outstanding debt amount to $71,000. The annual preferred stock dividend would be $5 per share (5% X $100 par), or a total of $10,000 annually (55 per share x 2,000 shares). Marvin company Income statement is given in $0000 For the years ended December 31 2006 2005 $3,074 $2,567 2,088 1,711 $ 986 $ 856 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Lease expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate - 29%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders Earnings per share (EPS) Dividend per share (DPS) $ 100 194 35 239 $ 568 $ 418 93 $ 325 94 $ 231 10 $ 221 $ 108 187 35 223 $ 553 $ 303 91 $ 212 64 S 148 10 $ 138 $ 2.90 $ 1.29 $ 1.81 $ 0.75 Marvin Company Statement of Retained Earnings ($000) for the Year Ended December 31, 2006 $1,012 231 Retained earnings balance (January 1, 2006) Plus: Net profits after taxes (for 2006) Less: Cash dividends (paid during 2006) Preferred stock Common stock Total dividends paid Retained earnings balance (December 31, 2006) $10 98 108 $1,135 Merill Incorporation Historical and Industry Average Ratios Summary of Company Ratios (20042005, Including 2006 Industry Averages) INDUSTRY AVERAGE 2004 2005 2006 RATIO Overall Liquidity Current ratio 2.04 2.08 2.05 Quick (acid-test) ratio 1.32 1.46 1.43 Activity Inventory turnover 5.7 5.7 6.6 Average collection period 43.8DAYS 51.2DAYS 44.3 days Average payment period 75.8 days 81.2 days 66.5 days Total asset turnover 0.94 0.79 0.75 Debt Debt ratio 36.80% 44.30% 40.00% Times interest earned ratio 5.6 3.3 4.3 Fixed-payment coverage ratio 2.4 1.4 1.5 Gross profit margin 31.40% 33.30% 30.00% Operating profit margin 14.60% 11.80% 11.00% Net profit margin 8.20% 5.40% 6.20% Earnings per share (EPS) $3.26 $1.81 $2.26 Return on total assets (ROA) 7.80% 4.20% 4.60% Return on common equity (ROE) 13.70% 8.50% 8.50% Market Price/earnings (P/E) ratio 10.5 10 12.5 Market/book (M/B) ratio 1.25 0.85 1.3