This case requires students to prepare and interpret a Statement of Cash Flows or Sources and Uses,

Question:

This case requires students to prepare and interpret a Statement of Cash Flows or Sources and Uses, Common Size Statements, and Financial Ratios for a straightforward manufacturing firm which is based on a composite of firms in the dispenser and container industries. Students will use the DuPont identity to isolate areas of strength and weakness. Finally, students are asked to deduce, based on what they can observe in the statements, what internal variances may have occurred.

1. Cranston’s Common Size Income Statements and Balance Sheets for 2009 and 2008 are given below. Prepare common size statements for 2010.

2. Complete the 2010 table of financial ratios for Cranston.

3. Use the common size statements and the ratio analysis you have completed above to comment on Cranston’s:

a. Liquidity

b. Solvency

c. Asset management

d. Profitability

e. Market performance

4. Express Cranston’s Return on Equity (ROE) in terms of the DuPont identity. Which ratios are contributing to Cranston’s below average ROE?

5. Based on your analyses in questions 1 through 4, why do you think Cranston’s recent stock performance has been disappointing?

DuPont Identity
The DuPont identity is an expression that shows a company's return on equity (ROE) can be represented as a product of three other ratios: the profit margin, the total asset turnover, and the equity multiplier. The formula for the DuPont identity... Financial Ratios
The term is enough to curl one's hair, conjuring up those complex problems we encountered in high school math that left many of us babbling and frustrated. But when it comes to investing, that need not be the case. In fact, there are ratios that,...