US Republic Corporation balance sheet, December 31, 20X3

ASSETS

Cash Accounts receivable Inventory Fixed assets, net

Total assets

LIABILITIES AND SHAREHOLDERS EQUITY

$ 1,000,000 5,000,000 7,000,000 17,000,000

$30,000,000

Notes payable, bank Accounts payable Accrued wages and taxes Long-term debt Preferred stock Common stock Retained earnings

Total liabilities and shareholders equity

$ 4,000,000 2,000,000 2,000,000 12,000,000 4,000,000 2,000,000 4,000,000

$30,000,000

$16,000,000 4,000,000 $20,000,000

$16,800,000

• $ 3,200,000 1,200,000

• $ 2,000,000 240,000

• $ 1,760,000 2,600,000

• $ 4,360,000 360,000

• $ 4,000,000

  INDUSTRY NORMS

  225% 110% 6.0 4.0 33% 40% 15% 20% 12% 1.0 5.0

US Republic Corporation statement of income and retained earnings, year ended December 31, 20X3

Net sales Credit

Cash Total

Cost and Expenses Cost of goods sold Selling, general, and administrative expenses Depreciation Interest

Net income before taxes Taxes on income

Net income after taxes Less: Dividends on preferred stock

Net income available to common shareholders Add: Retained earnings at 1/1/X3

Subtotal Less: Dividends paid on common stock

Retained earnings 12/31/X3 a. Fill in the 20X3 column in the table that follows.

US Republic Corporation

RATIO 20X1

$12,000,000 2,200,000 1,400,000 1,200,000

20X2

200% 90% 4.5 3.0 40% 41% 15% 20% 12% 0.8 4.5

20X3

1. Current ratio 2. Acid-test ratio 3. Receivable turnover 4. Inventory turnover 5. Long-term debt/total capitalization 6. Gross profit margin 7. Net profit margin 8. Return on equity 9. Return on investment

10. Total asset turnover 11. Interest coverage ratio

250% 100% 5.0 4.0 35% 39% 17% 15% 15% 0.9 5.5

164

2. Evaluate the position of the company using information from the table. Cite specific ratio levels and trends as evidence.

3. Indicate which ratios would be of most interest to you and what your decision would be in each of the following situations:

   1. (i) US Republic wants to buy $500,000 worth of merchandise inventory from you,

      with payment due in 90 days.

   2. (ii) US Republic wants you, a large insurance company, to pay off its note at the bank

and assume it on a 10-year maturity basis at a current rate of 14 percent.

6 Financial Statement Analysis (iii) There are 100,000 shares outstanding, and the stock is selling for $80 a share. The

company offers you 50,000 additional shares at this price.