Question: 1

Data for Morton Chip Company and its industry averages follow:

a)Calculate the indicated ratios for Morton.

b)Construct the extended Du Pont equation for both Morton and the industry.

c)Outline Morton's strengths and weaknesses as revealed by your analysis.

d)Suppose Morton had doubled its sales as well as its inventories, accounts receivable, and common equity during 2007. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)

Data available in given picture:

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[4-13] Comprehensive Ratio Analysis Data for Morton Chip Company and its industry averages follow. a. b. c. d. Morton Chip Company: Balance Sheet as of December 31, 2007 {In Thousands} Cash $??,500 Accounts payable $129,000 Receivables 336,000 Notes payable 84,000 Inventories 241,500 Other current liabilities 117,000 Total current assets $655,000 Total current liabilities $330,000 Net fixed assets 292,500 Long-term debt 256,500 Common equity 361,000 Total assets $947,500 Total liabilities and equity $941500 Morton Chip Company: Income Statement for Year Ended December 31, 2007 (In Thousands) Sales $1,602,500 Cost of goods sold 1,392,500 Selling, general, and administrative expenses 145 000 Earnings before interest and taxes (BRIT) $ 70,000 Interest expense 24,500 Earnings before taxes (EBT) $ 45,500 Federal and state income taxes (40%) 18,200 Net income $ 2?,300 Ratio Morton Industry Average Current assets / current liabilities _ 2.0x Days sales outstanding\" _ 35.0 days Sales! inventory _ 6.7x Sales /' fixed assets _ 12.1 x Sales/ total assets _ 3.0x Net income! sales _L 1.2% Net income} total assets _ 3.6% Net income/common equity _. 9.0% Total debt! total assets 60.0% Calculate the indicated ratios for Morton. Construct the extended Du Pont equation for both Morton and the industry. Outline Morton's strengths and weaknesses as revealed by your analysis. Suppose Morton had doubled its sales as well as its inventories, accounts receivable, and common equity during 200?. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.) ||Calculation is based on a 36511\" year