James Madison was brought in as assistant to Computrons chairman, who had the task of getting the company back into a sound financial position. Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers.

1. Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?
2. Calculate the price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
3. Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses?

Computron's Balance Sheets (Millions of Dollars) Projection 2020E 2018 2019 S $ Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net Fixed Assets Total Assets $ 10,000 52,600 250,600 837,982 $ 1,151,182 882.982 $ 2.034.164 7,782 25,000 542,460 1.546.252 2,121,494 1,164.085 15,500 72,632 85,700 1,779,572 1,953,404 1.785,600 3.739.004 S $ S 3.285.572 $ $ $ Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock (100,000 shares) Retained earnings Total common equity Total liabilities and equity $ 154,600 250,000 142.000 $ 546,600 245.000 $ 791,600 1,000,000 242.564 $ 1,242,564 $ 2.034.164 S 382,500 620,000 254,700 S 1,257,200 800.000 S 2,057,200 1,000,000 228.379 $ 1.228,379 S 3.285.579 452,300 450,000 352.000 1,254,300 700,000 1,954,300 1,000,000 784,704 1.784,704 3.739.004 $ $ SS Income Statements (Millions of Dollars) $ $ $ Net sales Cost of goods sold (Excluding depr.) Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net Income 2018 $ 3,532,000 $ 2,547,000 $ 16,500 $ 385,000 S 583,500 $ 65.200 $ 518,300 SS 129,575 S 388.725 2019 $ 5,648,500 S 4,687,500 S 187,500 $ 625,000 S 148,500 S 156.000 S (7,500) S (1,875) S (5.625 $ $ Projection 2020E 7,453,600 5,750,000 150,000 723,500 830,100 75,000 755,100 188,775 566,325 SS $ $ Notes: Computron has no amortization charges. Additional Information Year-end common stock price Shares outstanding (millions) Common dividends (millions) Tax rate Additions to retained earnings (millions) Lease payments (millions) 2018 $8.50 100,000 $9,500 25% $379,225 $35,000 2019 $7.50 100,000 $8,560 25% $14,185 $35,000 Projection 2020E $11.15 100,000 $10,000 25% $556,325 $35,000 Per Share Information EPS DPS Book Value Per Share 2018 $3.89 $0.10 $12.43 2019 -$0.06 $0.09 $12.28 Projection 2020E $5.66 $0.10 $17.85 Ratio Analysis 2018 2019 2020E Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 28.0 3.0 Profit margin Operating profit margin Basic earning power ROA ROE Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Current Quick Debt ratio Debt-to-equity ratio Liabilities-to-assets ratio TIE EBITDA coverage Price/earnings (P/E) Market/book -0.1% 2.6% 4.5% -0.2% -0.5% 3.2 35.1 4.9 1.719 1.7 0.5 43.2% 1.16 62.6% 1.5 11.0% 16.5% 28.7% 19.1% 31.3% 3.1 25.9 4.0 1.736 2.1 0.6 24.3% 0.40 38.9% 8.9 6.3 2.2 0.7 2.5 1.9 15.0% 0.22 32.0% 13.0 17.2 16.8 2.7 1.0 1.9 -133.3 0.6 *Note "E" denotes "estimated