(Ratio analysis )Using Pamplin Inc.'s financial statements shown in the popup window

Pamplin Inc. Balance Sheet at 12/31/2012 and 12/31/2013
ASSETS
			2012				2013
Cash			$ 200				$150
Accounts receivable			450				425
Inventory			550				625
Current assets			$ 1,200				$ 1,200
Plant and equipment	$ 2,200				$ 2,600
Less accumulated depreciation	1,000				1,200
Net plant and equipment			$ 1,200				$ 1,400
Total assets			$2,400				$ 2,600
LIABILITIES AND OWNERS' EQUITY
Accounts payable			$ 200				$ 150
Notes payablecurrent(9.00 %interest)			0				150
Current liabilities			$ 200				$ 300
Bonds (8.33 % interest)			600				600
Total debt			$ 800				$ 900
Owners' equity
Common stock	$ 300				$ 300
Paid-in capital	600				600
Retained earnings	700				800
Total owners' equity			$ 1,600				$ 1,700
Total liabilities and owners' equity			$ 2,400				$ 2,600

Pamplin Inc. Income Statement for Years Ending 12/31/2012 and 12/31/2013

2012

2013

Sales (all credit)

$ 1,200

$ 1,450

Cost of goods sold

700

850

Gross profit

$ 500

$ 600

Operating expenses

$ 30

$ 40

Depreciation

220

250

200

240

Operating income

$ 250

$ 360

Interest expense

50

64

Net income before taxes

$ 200

$296

Taxes (40 %)

80

118

Net income

$ 120

$178

a.Compute the ratios in the popup window, for both 2012 and 2013.

Industry Norm 2012 2013 Current ratio 5.00 Acid-test (quick) ratio 3.00 Inventory turnover 2.20 Average collection period 90.00 Debt ratio 0.33 Times interest earned 7.00 Total asset turnover 0.75 Fixed asset turnover 1.00 Operating profit margin 20.0% Return on common equity 9.0%

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?

a. Compute the following ratios for both 2012 and 2013.