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Ratio Analysis. The Williams Corporationâs forecasted 2010 financial statements follow, along with some industry average ratios.
Forecasted Balance Sheet as of December 31, 2010 | ||||
Cash | $ 72,000 | |||
Accounts receivables | $ 439,000 | Accounts and notes payable | $ 432,000 | |
Inventories | $ 894,000 | Accruals | $ 170,000 | |
Total current assets | $1,405,000 | Total current liabilities | $ 602,000 | |
Land and building | $ 238,000 | Long-term debt | $ 404,290 | |
Machinery | $ 132,000 | Common stock | $ 575,000 | |
Other fixed assets | $ 61,000 | Retained earnings | $ 254,710 | |
Total assets | $1,836,000 | Total liabilities and equity | $1,836,000 |
Forecasted Income Statement for 2010 | ||||
Sales | $4,290,000 | |||
Cost of goods sold | $3,580,000 | Per-Share Data | ||
Gross operating profit | $ 710,000 | EPS | $ 4.71 | |
General admin & selling expenses | $ 236,320 | DPS | $ 0.95 | |
Depreciation | $ 159,000 | P/E Ratio | 5.00 | |
Misc. | $ 134,000 | Market price | $ 23.57 | |
Earnings before Taxes | $ 180,680 | Number of shares outstanding | 23000 | |
Taxes | $ 72,272 | |||
Net Income | $ 108,408 |
Industry Financial Ratios | Williamâs Financial Ratios | Ratio/Comment | ||
Quick Ratio | 1x | Quick Ratio | ||
Current Ratio | 2.7x | Current Ratio | ||
Inventory Turnover | 7x | Inventory Turnover | ||
Days Sales Outstanding | 40 days | Days Sales Outstanding | ||
Fixed Asset Turnover | 13x | Fixed Asset Turnover | ||
Total Asset Turnover | 2.6x | Total Asset Turnover | ||
Return on Assets | 9.10% | Return on Assets | ||
Return on Equity | 18.20% | Return on Equity | ||
Debt Ratio | 55% | Debt Ratio | ||
Profit Margin on Sales | 3.50% | Profit Margin on Sales | ||
P/E Ratio | 6x | P/E Ratio |
Please show all work for the following questions.
a. Calculate the indicated ratios for Williamâs in the appropriate blanks.
b. Outline Williamâs strengths and weaknesses as compared to its industry. Be detailed in your ratio analysis.
c. Recommend at least three areas for correction. Be sure to support your recommendations.
d. Why is being trustworthy essential to success in the business world? Use at least two of the following scriptures to answer this question: Psalm 101:7, Proverbs 4:20-27, Proverbs 13:11, and Proverbs 28:12-13.