The financial statements and industry norms are shown below for Pamplin, Inc.:

a. Compute the financial ratios for Pamplin for 2014 and for 2015 to compare both against the industry norms.

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?

INDUSTRY NORM

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%

Return on common equity .......................... 9%

Pamplin, Inc. Balance Sheet at 12/31/2014 and 12/31/2015

Pamplin, Inc. Income Statement for Years Ending 12/31/2014 and 12/31/2015

*15% of sales are cash sales, with the remaining 85% being credit sales.

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Assets Cash Accounts receivable Inventory Current assets Plant and equipment Less accumulated depreciation Net plant and equipment Total Total assets Liabilities and Owners' Equity Accounts payable Notes payable-current (9%) Current liabilities Bonds (8.33% interest) Total debt Owners' equity common stock 2014 2015 $ 200 450 550 $1,200 150 425 625 $1,200 $2,200 (1,000) 2,600 (1200) $1,200 $1,400 2,400 200 200 800 150 150 300 900 300 600 300 600 Paid-in capital Retained earnings Total owners' equity Total liabilities and owners' equity $1600 $2.400 $1700 $2.600 2014 2015 Sales* Cost of goods sold Gross profit Operating (expenses) Depreciation Operating profits Interest expense Net income before taxes Taxes (40%) Net income $1,200 $1,450 (30) 220 (40) 200 250 360 200 296