PROBLEMS 1. Copy the Big Rock Candy Mountain Mining financial statements from Problem 1 in Chapter 2 into a new workbook. Set up a ratio worksheet similar to the one in Exhibit 3-6, page 99, and calcu- late all of the ratios for the firm. b. Identify areas of concern, if any, using the ratios. Identify areas that have shown improvement, if any. In 2020 the ROE increased. Explain, in words, why this increase occurred using the DuPont method from equation (3-29). Now use the extended DuPont method from equation (3-33). d. Big Rock Candy Mountain Mining has shown an accounting profit in each of the past two years. Calculate the economic profit for these years and compare it to net income. The WACC is 9%. c. Using Altman's model for privately held firms, calculate the Z-score for Big Rock Candy Mountain Mining. Does it appear that the firm is in imminent danger of bankruptcy? EXHIBIT 3-6 EPI's Ratios vs. Industry Averages - B D Elvis Products International 2 Ratio Analysis for 2019 and 2020 Industry 3 Ratio 2020 2019 2020 4 Liquidity Ratios 5 Current Ratio 2.39% 2.33x 2.70x 6 Quick Ratio 0.84x 0.85x 1.00x 7 Efficiency Ratios 8 Inventory Turnover 3.89 4.00x 7.00x 9 A/R Turnover 9.58x 9.77x 10.70x 10 Average Collection Period 37.59 days 36.84 days 33.64 days 11 Fixed Asset Turnover 10.67% 9.95% 11.20x 12 Total Asset Turnover 2.33x 2.34x 2,60x 13 Leverage Ratios 14 Total Debt Ratio 58.45% 54,81% 50.00% 15 Long-term Debt Ratio 25.72% 22.02% 20.00% 16 LTD to Total Capitalization 38.23% 32.76% 28.57% 17 Debt to Equity 1.41x 1.21x 1.00x 18 LTD to Equity 61.90% 48.73% 40.00% 19 Coverage Ratios 20 Times Interest Earned 1.97% 3.35% 2.50x 21 Cash Coverage Ratio 2.23x 3.65x 2.80x 22 Profitability Ratios 23 Gross Profit Margin 15.58% 16.55% 17.50% 24 Operating Profit Margin 3.89% 6,09% 6.25% 25 Net Profit Margin 1.44% 3.20% 3.50% 26 Return on Total Assets 3.35% 7.49% 9.10% 27 Return on Equity 8.06% 16.56% 18.20% 8.06% 28 Return on Common Equity 16.56% 18.20% har industry averages may not be appropriate in all cas PROBLEMS 1. Using the data presented below Big Rock Candy Mountain Mining Co. Income Statements For the Years 2019 und 2020 20.20 Sales 54100 SO Cost of Goods 318.7 315.10 Gross Profit 931714 Depreciation 29 O Selling Admin. Expense 24550 Other Operating Expense 1.45 Net Operating Income 36.454 Interest Expense S.SE Earnings Before Taxes 27.872 1935 Taxes 6.965 Net Income 30.00 Notes Tax Rate 35.00 Shares 32.100 52.100 Earnings per Share S0.40 LS Big Rock Candy Mountain Mining Balance Sheet For the Year Ended December 31, 20.30 516.35 11.30 619 52.13 4373 31373 467567 An Cash Marketable Securities Accents Receivable Inventory Tental Care CrossFired Assets Accumulated Depreciation Net Plant & Equipo Total Ann Lilities & Owner's Equity Accounts Payable Accrued Expenses Tocal Care Lahtine Long-term Debt Tonal Liabiline Common Stock $1.00 par) Additional Paid Capital Retained Earnings Total Owner's Equity Total Lab. 4 Ownery Equity $37.750 1669 LOS $ 211.097 58.664 1360 60.539 256.010 118.551 218.45 S8664 13507 1965 235.100 45091 PROBLEMS 1. Copy the Big Rock Candy Mountain Mining financial statements from Problem 1 in Chapter 2 into a new workbook. Set up a ratio worksheet similar to the one in Exhibit 3-6, page 99, and calcu- late all of the ratios for the firm. b. Identify areas of concern, if any, using the ratios. Identify areas that have shown improvement, if any. In 2020 the ROE increased. Explain, in words, why this increase occurred using the DuPont method from equation (3-29). Now use the extended DuPont method from equation (3-33). d. Big Rock Candy Mountain Mining has shown an accounting profit in each of the past two years. Calculate the economic profit for these years and compare it to net income. The WACC is 9%. c. Using Altman's model for privately held firms, calculate the Z-score for Big Rock Candy Mountain Mining. Does it appear that the firm is in imminent danger of bankruptcy? EXHIBIT 3-6 EPI's Ratios vs. Industry Averages - B D Elvis Products International 2 Ratio Analysis for 2019 and 2020 Industry 3 Ratio 2020 2019 2020 4 Liquidity Ratios 5 Current Ratio 2.39% 2.33x 2.70x 6 Quick Ratio 0.84x 0.85x 1.00x 7 Efficiency Ratios 8 Inventory Turnover 3.89 4.00x 7.00x 9 A/R Turnover 9.58x 9.77x 10.70x 10 Average Collection Period 37.59 days 36.84 days 33.64 days 11 Fixed Asset Turnover 10.67% 9.95% 11.20x 12 Total Asset Turnover 2.33x 2.34x 2,60x 13 Leverage Ratios 14 Total Debt Ratio 58.45% 54,81% 50.00% 15 Long-term Debt Ratio 25.72% 22.02% 20.00% 16 LTD to Total Capitalization 38.23% 32.76% 28.57% 17 Debt to Equity 1.41x 1.21x 1.00x 18 LTD to Equity 61.90% 48.73% 40.00% 19 Coverage Ratios 20 Times Interest Earned 1.97% 3.35% 2.50x 21 Cash Coverage Ratio 2.23x 3.65x 2.80x 22 Profitability Ratios 23 Gross Profit Margin 15.58% 16.55% 17.50% 24 Operating Profit Margin 3.89% 6,09% 6.25% 25 Net Profit Margin 1.44% 3.20% 3.50% 26 Return on Total Assets 3.35% 7.49% 9.10% 27 Return on Equity 8.06% 16.56% 18.20% 8.06% 28 Return on Common Equity 16.56% 18.20% har industry averages may not be appropriate in all cas PROBLEMS 1. Using the data presented below Big Rock Candy Mountain Mining Co. Income Statements For the Years 2019 und 2020 20.20 Sales 54100 SO Cost of Goods 318.7 315.10 Gross Profit 931714 Depreciation 29 O Selling Admin. Expense 24550 Other Operating Expense 1.45 Net Operating Income 36.454 Interest Expense S.SE Earnings Before Taxes 27.872 1935 Taxes 6.965 Net Income 30.00 Notes Tax Rate 35.00 Shares 32.100 52.100 Earnings per Share S0.40 LS Big Rock Candy Mountain Mining Balance Sheet For the Year Ended December 31, 20.30 516.35 11.30 619 52.13 4373 31373 467567 An Cash Marketable Securities Accents Receivable Inventory Tental Care CrossFired Assets Accumulated Depreciation Net Plant & Equipo Total Ann Lilities & Owner's Equity Accounts Payable Accrued Expenses Tocal Care Lahtine Long-term Debt Tonal Liabiline Common Stock $1.00 par) Additional Paid Capital Retained Earnings Total Owner's Equity Total Lab. 4 Ownery Equity $37.750 1669 LOS $ 211.097 58.664 1360 60.539 256.010 118.551 218.45 S8664 13507 1965 235.100 45091