Question 4-9

tories! 4-9. (Ratio analysis) The financial statements and industry norms are shown below for the Congo Mining Company: a. Compute the financial ratios for Congo to compare both for 2017 and 2018 against the industry norms. b. How liquid is the firm? C. Are its managers generating an adequate operating profit on the firm's assets? d. How is the firm financing its assets? e. Are its managers generating a good return on equity? INDUSTRY NORM Current ratio Acid-test (quick) ratio Inventory turnover Average collection period Debt ratio Times interest earned Total asset turnover Fixed-asset turnover Operating profit margin Return on common equity 5.10 3.20 2.40 88.00 0.35 7.15 0.78 1.10 23% 11% 2018 $ 170 415 655 $ 1,240 $ 2,700 (1.300) $ 1.400 $ 2.640 The Congo Mining Company Balance Sheet at 12/31/2017 and 12/31/2018 Assets 2017 Cash $ 220 Accounts receivable 430 Inventory 570 Current assets $1,220 Plant and equipment $ 2,300 Less accumulated depreciation (1.000) Net plant and equipment $1,300 Total assets $ 2.520 Liabilities and Owners' Equity Accounts payable $ 220 Notes payablecurrent (9%) Current liabilities $ 220 Bonds (8.65% interest) 700 Total debt $ 920 Owners' equity Common stock $ 350 Paid-in capital Retained earnings 650 Total owners' equity $ 1,600 Total liabilities and owners' equity $ 2.520 $ 170 170 $ 340 700 $1,040 $ 350 600 650 $ 1.600 $ 2.640 600 164 PART 1 The Scope and Environment of Financial Management 2018 $1,650 _950 The Congo Mining Company Income Statement for Years Ending 12/31/2017 and 12/31/2018 2017 Sales $1,300 Cost of goods sold |_750 Gross profit $ 550 Operating expenses $ 35 Depreciation expense 265 Operating profits Interest expense Profit before taxes Taxes (20%) _46 Net income $ 184 * 15% of sales are cash sales, with the remaining 85% being credit sales. $ 700 $ 45 255 $ 380 $_304