a. Calculate a common size income statement and common size balance sheet. Is there anything worth noting based on this information?
At 72.99%, the cost to produce Martin Manufacturing Co's products in terms of revenue dollars is really high. Martin Manufacturing generates 76 cents to cover interest and taxes for every dollar of sales. For net income, it looks like Martin Manufacturing is losing a little over 2 cents per sales dollar.
b. Perform a financial summary of ratios using DuPont Analysis. This includes calculating ROE using the DuPont identity. Then analyze the ROE and its components relative to the industry.
The DuPont identity suggests that Martin Manufacturing is less asset efficient than the industry average. On top of that, Martin Manufacturing is not operating at an efficient level at all compared to the industry getting only 0.0071 cents of every sales dollar. Martin Manufacturing Co. has used more debt than the industry average, but it seems that it has done more harm than good. Currently, Martin Manufacturing's return on equity is not meeting or exceeding the industry average.
c. Calculate the firm’s 2012 financial ratios, and then fill in the preceding table. (Assume a 365-day year.)
d. Analyze the firm’s current financial position from both a cross-sectional and a timeseries viewpoint. Break your analysis into evaluations of the firm’s liquidity, financial leverage, asset management, profitability, and market value.
Liquidity: The current and quick ratios have improved over the years and are higher than the industry average. The current ratio of 2.5 tells us that the current assets should generate enough cash to cover the current liabilities coming due and keep the company out of short-term cash problems. Since the current ratio is greater than one, the company may be holding too much cash.
Financial leverage: The debt ratio shows that the Martin Manufacturing is well over 50% in debt, which means that they may be...
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