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Q1) Cross-sectional ratio analysis

Use financial statements below for Fox Manufacturing Company for year ended December 31, 2006, along with industry average ratios also given in what follows, to:

a. Create and interpret complete ratio analysis of firm's 2006 operations.

b. Summarize the findings and make recommendations.

Note: INTERMEDIATE

Fox Manufacturing Company
Income Statement for the Year Ended December 31, 2006 
Sales revenue  $600,000
Less: Cost of goods sold  460,000
Gross profits  $140,000
Less: Operating expenses 
General and administrative expenses  $30,000

 

Fox Manufacturing Company
Income Statement for the Year Ended December 31, 2006 
Depreciation expense  30,000
Total operating expense  60,000
Operating profits  $80,000
Less: Interest expense  10,000
Net profits before taxes  $70,000
Less: Taxes  27,100
Net profits after taxes (earnings available for common stockholders)  $42,900
Earnings per share (EPS)  $2.15

 

Fox Manufacturing Company
Balance Sheet December 31, 2006 
Assets 
Cash  $15,000
Marketable securities  7,200
Accounts receivable  34,100
Inventories  82,000
Total current assets  $138,300
Net fixed assets  270,000
Total assets  $408,300
Liabilities and Stockholders' Equity 
Accounts payable  $57,000
Notes payable  13,000
Accruals  5,000
Total current liabilities  $75,000

 

Fox Manufacturing Company
Balance Sheet December 31, 2006
Assets
Long-term debt $150,000
Stockholders' equity
Common stock equity (20,000 shares outstanding) $110,200
Retained earnings 73,100
Total stockholders' equity $183,300
Total liabilities and stockholders' equity $408,300

 

Ratio Industry average, 2006
Current ratio 2.35
Quick ratio 0.87
Inventory turnovera 4.55
Average collection perioda 35.8 days
Total asset turnover 1.09
Debt ratio 0.300

 

Ratio Industry average, 2006
Times interest earned ratio 12.3
Gross profit margin 0.202
Operating profit margin 0.135
Net profit margin 0.091
Return on total assets (ROA) 0.099
Return on common equity (ROE) 0.167
Earnings per share (EPS) $3.10

Based on a 365-day year and on end-of-year figures.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M922131

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