P3-23 Cross-sectional ratio analysis Use the financial statements below and on the next page for Fox Manufacturing Company for the year ended December 31, 2015, along with the industry average ratios below to do the following: a. Prepare and interpret a complete ratio analysis of the firm's 2015 operations, b. Summarize your findings and make recommendations. Fox Manufacturing Company Income Statement for the Year Ended December 31, 2015 Sales revenue $600,000 Less: Cost of goods sold 460.000 Gross profits $140,000 Less: Operating expenses General and administrative expenses $ 30,000 Depreciation expense 30,000 Total operating expense 60.000 Operating profits $ 80,000 Less: Interest expense 10.000 Net profits before taxes $ 70,000 Less: Taxes 27.100 $ 42,900 Net profits after taxes (Hint: Earnings available for common stockholders as there are no preferred stockholders) Earnings per share (EPS) $2.15 Ratio Industry average, 2015 Current ratio 2.35 Quick ratio 0.87 Inventory turnover a 4.55 Average collection period 35.8 days Total asset turnover 1.09 Debt ratio 0.300 Times interest earned ratio 12.3 Gross profit margin 0.202 Operating profit margin 0.135 Net profit margin 0.091 Return on total assets (ROA) 0.099 Return on common equity (ROE) 0.167 Earnings per share (EPS) $3.10 * Based on a 365-day year and on end-of-year figures. Fox Manufacturing Company Balance SheetDecember 31, 2015 Assets Cash $ 15,000 Marketable securities 7,200 Accounts receivable 34,100 Inventories 82,000 Total current assets $138.300 Net fixed assets 270,000 Fox Manufacturing Company Balance SheetDecember 31, 2015 Assets Cash $ 15,000 Marketable securities 7,200 Accounts receivable 34,100 Inventories 82,000 Total current assets $138,300 Net fixed assets 270,000 Total assets $408,300 Liabilities and Stockholders' Equity Accounts payable $ 57,000 Notes payable 13,000 Accruals 5.000 Total current liabilities $ 75,000 Long-term debt $150.000 Common stock equity (20,000 shares outstanding) $110,200 Retained earnings 73.100 Total stockholders' equity $183,300 Total liabilities and stockholders' equity $408,300 LG 6 13,000,000 Less: Accumulated depreciation Net fixed assets $26,500,000 4,000,000 Paid-in capital in excess of par value Total assets $50,000,000 Retained earnings 2,000,000 Total stockholders' equity $13,500,000 $50,000,000 Total liabilities and stockholders' equity The firm has a 4-year financial lease requiring annual beginning-of-year payments of $200,000. Three years of the lease have yet to run. Required annual principal payments are $800,000. Industry averages Debt ratio 0.51 Times interest earned ratio 7.30 Fixed-payment coverage ratio 1.85 LG 5 P3-23 Cross-sectional ratio analysis Use the financial statements below and on the next page for Fox Manufacturing Company for the year ended December 31, 2015, along with the industry average ratios below to do the following: a. Prepare and interpret a complete ratio analysis of the firm's 2015 operations, b. Summarize your findings and make recommendations. Fox Manufacturing Company Income Statement for the Year Ended December 31, 2015 Sales revenue $600,000 Less: Cost of goods sold 460.000 Gross profits $140,000 Less: Operating expenses General and administrative expenses $ 30,000 Depreciation expense 30,000 Total operating expense 60.000 Operating profits $ 80,000 Less: Interest expense 10.000 Net profits before taxes $ 70,000 Less: Taxes 27.100 $ 42,900 Net profits after taxes (Hint: Earnings available for common stockholders as there are no preferred stockholders) Earnings per share (EPS) $2.15 Ratio Industry average, 2015 Current ratio 2.35 Quick ratio 0.87 Inventory turnover a 4.55 Average collection period 35.8 days Total asset turnover 1.09 Debt ratio 0.300 Times interest earned ratio 12.3 Gross profit margin 0.202 Operating profit margin 0.135 Net profit margin 0.091 Return on total assets (ROA) 0.099 Return on common equity (ROE) 0.167 Earnings per share (EPS) $3.10 * Based on a 365-day year and on end-of-year figures. Fox Manufacturing Company Balance SheetDecember 31, 2015 Assets Cash $ 15,000 Marketable securities 7,200 Accounts receivable 34,100 Inventories 82,000 Total current assets $138.300 Net fixed assets 270,000 Fox Manufacturing Company Balance SheetDecember 31, 2015 Assets Cash $ 15,000 Marketable securities 7,200 Accounts receivable 34,100 Inventories 82,000 Total current assets $138,300 Net fixed assets 270,000 Total assets $408,300 Liabilities and Stockholders' Equity Accounts payable $ 57,000 Notes payable 13,000 Accruals 5.000 Total current liabilities $ 75,000 Long-term debt $150.000 Common stock equity (20,000 shares outstanding) $110,200 Retained earnings 73.100 Total stockholders' equity $183,300 Total liabilities and stockholders' equity $408,300 LG 6 13,000,000 Less: Accumulated depreciation Net fixed assets $26,500,000 4,000,000 Paid-in capital in excess of par value Total assets $50,000,000 Retained earnings 2,000,000 Total stockholders' equity $13,500,000 $50,000,000 Total liabilities and stockholders' equity The firm has a 4-year financial lease requiring annual beginning-of-year payments of $200,000. Three years of the lease have yet to run. Required annual principal payments are $800,000. Industry averages Debt ratio 0.51 Times interest earned ratio 7.30 Fixed-payment coverage ratio 1.85 LG 5