8. This question is based on the information provided in the abbreviated year-end Income Statement and abbreviated year-end Balance Sheet for NMC Corporation shown below.
NMC Corporation Income Statement for the Calendar Year (January 1 - December 31)
|
Thousands of dollars (except stock price, earnings per share, and dividends per share)
|
|
Net sales
|
$3000
|
|
Cost and expenses:
|
$2734
|
|
EBIT
|
$266
|
|
Less interest expense:
|
$66
|
|
Earnings before taxes
|
$200
|
|
Taxes
|
$80
|
|
Net income before preferred dividends
|
$120
|
|
Dividends to preferred stockholders
|
$8
|
|
Net income available to common stock holders
|
$112
|
|
Per share common stock:
|
|
|
Stock Price
|
$26.50
|
|
Earnings per share
|
$2.24
|
|
Dividends per share
|
$1.84
|
|
NMC Corporation Balance Sheet (Average of beginning and end of year)
|
Assets (thousands of dollars)
|
|
Liabilities and Equity (thousands of dollars)
|
|
Cash
|
$50
|
Accounts payable
|
$60
|
|
Market securities
|
$0
|
Notes payable
|
$100
|
|
Accounts receivable
|
$350
|
Accrued Wages
|
$10
|
|
Inventories
|
$300
|
Accrued Taxes
|
$130
|
|
Total Current Assets:
|
$700
|
Total Current Liabilities:
|
$300
|
|
Net plant and equipment:
|
$1300
|
Total Long Term Debt:
|
$800
|
|
|
|
Total Stock Holder’s Equity:
|
$900
|
|
Total Assets:
|
$2000
|
Total liabilities and equity:
|
$2000
|
8a. Calculate the NMC financial ratios contained in the following table
|
Financial Ratios
|
NMC Values
|
Industry Values
|
|
Current Ratio
|
|
2.5 times
|
|
Quick (Acid) Ratio
|
|
1.0 times
|
|
Total Debt to Total Assets
|
|
40%
|
|
Return on Assets (ROA)
|
|
9%
|
|
Price/Earnings Ratio
|
|
12.5 times
|
8b. Compare your results to the industry ratios and describe what NMC should do to improve its position in the market.