Analysis of financial statement using ratio analysis.
Cross-sectional ratio analysis
Use the financial statements below and on page 84 for Fox Manufacturing Company for the year ended December 31, 2006, along with the industry average ratios also given in what follows, to:
a. Prepare and interpret a complete ratio analysis of the firm's 2006 operations.
b. Summarize your findings and make recommendations.
Note: INTERMEDIATE
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Fox Manufacturing Company
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Income Statement for the Year Ended December 31, 2006
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Sales revenue
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$600,000
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Less: Cost of goods sold
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460,000
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Gross profits
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$140,000
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Less: Operating expenses
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General and administrative expenses
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$30,000
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Fox Manufacturing Company
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Income Statement for the Year Ended December 31, 2006
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Depreciation expense
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30,000
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Total operating expense
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60,000
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Operating profits
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$80,000
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Less: Interest expense
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10,000
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Net profits before taxes
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$70,000
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Less: Taxes
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27,100
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Net profits after taxes (earnings available for common stockholders)
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$42,900
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Earnings per share (EPS)
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$2.15
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Fox Manufacturing Company
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Balance Sheet December 31, 2006
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Assets
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Cash
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$15,000
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Marketable securities
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7,200
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Accounts receivable
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34,100
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Inventories
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82,000
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Total current assets
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$138,300
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Net fixed assets
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270,000
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Total assets
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$408,300
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Liabilities and Stockholders' Equity
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Accounts payable
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$57,000
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Notes payable
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13,000
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Accruals
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5,000
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Total current liabilities
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$75,000
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Fox Manufacturing Company
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Balance Sheet December 31, 2006
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Assets
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Long-term debt
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$150,000
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Stockholders' equity
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Common stock equity (20,000 shares outstanding)
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$110,200
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Retained earnings
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73,100
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Total stockholders' equity
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$183,300
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Total liabilities and stockholders' equity
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$408,300
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Ratio
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Industry average, 2006
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Current ratio
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2.35
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Quick ratio
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0.87
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Inventory turnovera
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4.55
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Average collection perioda
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35.8 days
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Total asset turnover
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1.09
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Debt ratio
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0.300
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Ratio
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Industry average, 2006
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Times interest earned ratio
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12.3
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Gross profit margin
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0.202
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Operating profit margin
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0.135
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Net profit margin
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0.091
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Return on total assets (ROA)
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0.099
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Return on common equity (ROE)
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0.167
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Earnings per share (EPS)
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$3.10
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Based on a 365-day year and on end-of-year figures.