Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firms financial performance during 2015 and its financial position at year-end 2015. To complete this assignment, she gathered the firms 2015 financial statements, which follow. In addition, Terri obtained the firms ratio values for 2001 and 2014, along with the 2015 industry average ratios (also applicable to 2013 and 2014).

Martin Manufacturing Company

Income Statement

for the Year Ended December 31, 2015

Sales revenue $5,075,000Less: Cost of goods sold 3704000Gross profits 1371000Less: Operating expenses Selling expense650000 General and administrative expenses416000 Depreciation expense152000 Total operating expense 1218000Operating profits 153000Less: Interest expense 93000Net profits before taxes $60000Less: Taxes (rate = 40%) 24000Net profits after taxes 36000Less: Preferred stock dividends 3000Earnings available for common stockholders $33000Earnings per share (EPS) $0.33

Martin Manufacturing Company

Income Statement

for the Year Ended December 31, 2015

Assets20152014 Current assets Cash$25000$24100 Accounts receivable 805,556763,900 Inventories700625763445 Total current assets15311811551445 Gross fixed assets (at cost)20938191691707 Less: Accumulated depreciation500000348000 Net fixed assets15938191343707 Total assets31250002895152 Liabilities and Stockholders Equity Current liabilities Accounts payable $ 230,000$ 400,500 Notes payable 311,000370,000 Accruals75000100902 Total current liabilities616000871402 Long-term debt1165250700000 Total liabilities17812501571402 Stockholders equity Preferred stock (2,500 shares, $1.20 dividend) $ 50,000$ 50,000 Common stock (100,000 shares at $4 par)a400,000 400,000 Paid-in capital in excess of par value 593,750593,750 Retained earnings300000280000 Total stockholders equity13437501323750 Total liabilities and stockholders equity31250002895152 a)The firms 100,000 outstanding shares of common stock closed 2015 at a price of $11.38 per share

Martin Manufacturing Company

Historical ratios

RatioActual 2013Actual 2014Actual 2015Industry average 2015Current ratio1.71.8-----------1.5Quick ratio1.00.9-----------1.2Inventory turnover (times)5.25.0-----------10.2Average collection period50 days55 days-----------46 daysTotal asset turnover (times)1.51.5-----------2.0Debt ratio45%54%-----------24.5%Times interest earned ratio2.21.9-----------2.5Gross profit margin27.5%28.0%-----------16.0%Net profit margin1.1%1.0%-----------1.2%Return on total assets (ROA)1.7%1.5%-----------2.4%Return on common equity (ROE)3.1%3.3%-----------3.2%Price/earnings (P/E) ratio33.538.7-----------43.4Market/book (M/B) ratio1.01.1-----------1.2

Required

1. Calculate the firms 2015 financial ratios, and then fill in the preceding table.
2. Analyze the firms current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firms liquidity, activity, debt, profitability, and market
3. Summarize the firms overall financial position on the basis of your findings in part b.