Analysis of Financial Statements - Minicase Chapter 3

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Mini Case Chapter 3

A. Ratios are used to standardize numbers, facilitate comparisons, and highlight both weaknesses and strengths. In addition, ratios are important profit tools in financial analysis that help financial managers implement plans that improve profitability, liquidity, financial structure, reordering, leverage, and interest coverage. Managers use ratios to help them effectively run the business. Creditors use ratios for risk analysis. Equity investors use the ratios for stock valuation and to estimate the value of the organization. The 3 groups that use ratios are stockholders for stock evaluation, managers/investors to help run the business and bankers for credit analysis.

B. 2011 Current Ratio is 2.58, Quick Ratio is .93.

2009 QR is .85, CR is 2.33
2010 QR is .50, CR is 1.46, 2011.
Fairly liquid, 2011 worst but in all 3 current assets are still rising faster than current liabilities.

No they would not have the same interest in liquidity ratios. Creditors want a high ratio, since they could sell of some assets. Stockholders would not want their money tied up; and Managers want a happy medium from operation within industry average, but not such low inventories that they lose sales.

C. 2011 Inventory Turnover is 4.10-Lower than industry avg DSO is 45.55 -Higher than industry avg
FAT is 8.41 -Higher than industry avg
TAT is 2.00 -Lower than industry avg

D. 2011 Debt is .44, Lower than industry avg
Times Interest Ratio is 6.28, Higher than industry avg EBITDA is 5.5, lower than the industry average, which reflects the firms’ lease obligations.

E. 2011 Profit Margin is 3.6%, same as industry avg
BEP is 14.3%-Lower than industry avg
ROA is 7.2%-Lower than industry avg
ROE is 12.8%-Lower than industry avg
The firm’s profit margin is above year 2009 and 2010. The ROA and ROE are above 2009 and 2010; however, they are below industry average indicating that there is an inefficient use of assets.

F. 2011 P/E Ratio is 12.00 - Lower than industry avg
P/CF Ratio is 8.2 – higher than industry avg
Market Book Ratio is 1.54-Lower than industry avg
The ratios indicate that the company’s price per earning level is better than 2009 and 2010; however, it is still below the industry avg. Investors should see that the company is doing better, and at least will have a better return for the year 2011.

G. Common size and percentage size analysis
Common Size Balance Sheet |Assets | | |2009 |2010 |2011 |Ind | |Cash |0.6% |0.3% |0.4% |0.3% | |Short Term Investments |3.3% |0.7% |2.0% |0.3% | |Accounts Receivable |23.9% |21.9% |25.0% |22.4% | |Inventories |48.7% |44.6% |48.8% |41.2% | |Total Current Assets |76.5% |67.4% |76.2% |64.1% | |Gross Fixed Assets |33.4% |41.7% |34.7% |53.9% | |Less Accumulated Depreciation |10.0% |9.1% |10.9% |18.0% | |Net Fixed Assets |23.5% |32.6% |23.8% |35.9% | |Total Assets |100.0% |100.0%...
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