Question P3-23:

Cross- Sectional ratio analysis. Use the financial statement below and on the next page for Fox Manufacturing Company for the year ended December 21,2015, along with the industry average ratios below to do the following:

Prepare and interpret a complete ration analysis of the firms 2015 operations

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

Net profits after taxes (Hint: Earnings available for common stockholders as there are no preferred stockholders)

$42,900

Earnings per share (EPS) $2.15

Ratio Industry Average, 2015

Current Ratio 2.35

Quick Ratio 0.87

Inventory turnover 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 Sheet

December 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