SUBJECT: FINANCIAL MANAGEMENT.
ANSWER ALL QUESTIONS
Question 3.13 a) Calculate the ratios as given in the question b) From (a), analyse each ratios compare the performance of the company vs Industry c) Outline Morton's strengths and weaknesses as revealed by your analysis according to liquidity, efficiency, profitability and the debt ratio. d) Refer as stated in the question.
Chapter 3: Analysis of Financial Statements 111 (3-8) nano Deor (3-9) Curen ond QUIR Ronos Assume you are given the following relationships for the Clayton Corporation: Sales/total assets 1.5 Return on assers (ROA) 39 Return on equity (ROE) 5% Calculate Clayton's profit margin and debt ratio. The Nelson Company has S1,312,500 in current assets and $525.000 in current liabili- ties. Its initial inventory level is $375,000, and it will raise funds as additional notes pay- able and use them to increase inventory. How much can Nelson's short-term debe (notes payable) increase without pushing its current ratio below 2.02 What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds: The Manor Corporation has $500,000 of debt outstanding, and it pays an interest rate of 10% annually: Manor's annual sales are $2 million, its average tax rate is 30%, and its net profit margin on sales is 5%. If the company does not maintain a TIE ratio of at least 5 to 1. then its bank will refuse to renew the loan and bank- ruptcy will result. What is Manor's TIE ratio (3-10) Times Interest-Eomed Rand 1- f3-11) Bolonce Sheet Analysis 06 Complete the balance sheet and sales information in the table that follows for Hoff- meister Industries using the following financial data: Debt ratio: 50% Quick ratio: 0.80 Total assets turnover: 1.5 Days sales outstanding: 36,5 days Gross profit margin on sales (Sales - Cost of goods sold Sales = 25% Inventory turnover ratio: 5.0 Calculation is based on 365-day year Balance Sheet 60.000 Cash Accounts receivable Inventories Fixed assets Total assets Sales Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity Cost of goods sold 97.500 S300,000 (3-12). The Kretovich Company had a quick ratio of 1.4. a current ratio of 3.0, an inventory Comprehensive Rono turnover of 6 times, total current assets of S810,000, and cash and marketable securities Calculations of S120,000. What were Kretovich's annual sales and its DSO: Assume a 365-day yeur (3-13) Data for Morton Chip Company and its industry averages follow, Comprehensive Rono 3. Calculate the indicated ratios for Morton Analysis b. Construct the extended Du Pont equation for both Morton and the industry e. Outline Morton's strengths and weaknesses as revealed by your analysis. d. Suppose Morton had doubled its sales as well as its inventories, counts recen- able, and common equity during 2010. 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) Chapter 3: Analysis of Financial Statements 111 (3-8) nano Deor (3-9) Curen ond QUIR Ronos Assume you are given the following relationships for the Clayton Corporation: Sales/total assets 1.5 Return on assers (ROA) 39 Return on equity (ROE) 5% Calculate Clayton's profit margin and debt ratio. The Nelson Company has S1,312,500 in current assets and $525.000 in current liabili- ties. Its initial inventory level is $375,000, and it will raise funds as additional notes pay- able and use them to increase inventory. How much can Nelson's short-term debe (notes payable) increase without pushing its current ratio below 2.02 What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds: The Manor Corporation has $500,000 of debt outstanding, and it pays an interest rate of 10% annually: Manor's annual sales are $2 million, its average tax rate is 30%, and its net profit margin on sales is 5%. If the company does not maintain a TIE ratio of at least 5 to 1. then its bank will refuse to renew the loan and bank- ruptcy will result. What is Manor's TIE ratio (3-10) Times Interest-Eomed Rand 1- f3-11) Bolonce Sheet Analysis 06 Complete the balance sheet and sales information in the table that follows for Hoff- meister Industries using the following financial data: Debt ratio: 50% Quick ratio: 0.80 Total assets turnover: 1.5 Days sales outstanding: 36,5 days Gross profit margin on sales (Sales - Cost of goods sold Sales = 25% Inventory turnover ratio: 5.0 Calculation is based on 365-day year Balance Sheet 60.000 Cash Accounts receivable Inventories Fixed assets Total assets Sales Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity Cost of goods sold 97.500 S300,000 (3-12). The Kretovich Company had a quick ratio of 1.4. a current ratio of 3.0, an inventory Comprehensive Rono turnover of 6 times, total current assets of S810,000, and cash and marketable securities Calculations of S120,000. What were Kretovich's annual sales and its DSO: Assume a 365-day yeur (3-13) Data for Morton Chip Company and its industry averages follow, Comprehensive Rono 3. Calculate the indicated ratios for Morton Analysis b. Construct the extended Du Pont equation for both Morton and the industry e. Outline Morton's strengths and weaknesses as revealed by your analysis. d. Suppose Morton had doubled its sales as well as its inventories, counts recen- able, and common equity during 2010. 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)
