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4-25. RATIO ANALYSIS The Corrigan Corporation's 2018 and 2019 financial statements follow, along with some industry average ratios. Corrigan is exempt from the interest deduction limitation because its average gross revenues for the prior 3 years was less than $25 million. So 100% of its interest expense is deductible. e. Assess Corrigan's market value ratios, and determine how its valuation compares with peers and how it has changed over time. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. f. Calculate Corrigan's ROE as well as the industry average ROE, using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry average numbers? g. What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts. Corrigan Corporation: Balance Sheets as of December 31 2019 2018 Cash $ 72,000 $ 65,000 Accounts receivable 439,000 328,000 Inventories 894,000 813,000 Total current assets $ 1,405,000 $ 1,206,000 Land and building 238,000 271,000 Machinery 132,000 133,000 Other fixed assets 61,000 57,000 Total assets $1,836,000 $ 1,667,000 Accounts payable $ 80,000 $ 72,708 Accrued liabilities 45,010 40,880 Notes payable 476,990 457,912 Total current liabilities $ 602,000 $ 571,500 Long-term debt 399,688 258,898 Common stock 575,000 575,000 Retained earnings 259,312 261,602 Total liabilities and equity $1,836,000 $ 1,667,000 Corrigan Corporation: Income Statements for Years Ending December 31 2019 2018 Sales $4,240,000 $ 3,635,000 Cost of goods sold 3,680,000 2,980,000 Gross operating profit $ 560,000 $ 655,000 General administrative and selling expenses 303,320 297,550 Depreciation 159,000 154,500 EBIT $ 97,680 $ 202,950 Interest 67,000 43,000 Earnings before taxes (EBT) $ 30,680 $ 159,950 Taxes (25%) 7,670 39,988 Net income $ 23,010 $ 119,963 Per-Share Data 2019 EPS Cash dividends Market price (average) P/E ratio Number of shares outstanding $ 1.00 $ 1.10 $12.34 12.33x 23,000 2018 $ 5.22 $ 0.95 $23.57 4.52% 23,000 Industry Financial Ratios * 2019 2.7x 7:0X Current ratio Inventory turnover Days sales outstanding * Fixed assets turnover * Total assets turnover * Return on assets Return on equity Return on invested capital Profit margin Debt-to-capital ratio P/E ratio M/B ratio EV/EBITDA ratio 32.0 days 13.0x 2.6x 11.4% 18.2% 14.5% 4.4% 50.0% 6.0x 1.5 6.0