Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto:
for the Year Ended December 31, 2015 Sales revenue $602,000 Less: Cost of goods sold 460000 Gross profits $142,000 Less: Operating expenses General and administrative expenses $29,600 Depreciation expense 30500 Total operating expense 60100 Operating profits $81,900 Less: Interest expense 10300 Net profits before taxes $71,600 Less: Taxes 27500 Net profits after taxes (earnings available
for common stockholders) $44,100 Earnings per share (EPS) $2.17
Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto:
Industry average, 2015 Current ratio 2.4 Quick ratio 0.91 Inventory turnover* 4.46 times Average collection period* 35.7 days Total asset turnover 1 Debt ratio 0.22 Times interest earned 12.3 Gross profit margin 0.204 Operating profit margin 0.138 Net profit margin 0.101 Return on total assets (ROA) 0.092 Return on common equity (ROE) 0.169 Earnings per share (EPS) $3.16 *Based on a 365-day year and on end-of-year figures.
a. Prepare and interpret a complete ratio analysis of theâ firm's 2015 operations.
b. Summarize your findings and make recommendations.
| Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto: | |
| for the Year Ended December 31, 2015 | |
| Sales revenue | $602,000 |
| Less: Cost of goods sold | 460000 |
| Gross profits | $142,000 |
| Less: Operating expenses | |
| General and administrative expenses | $29,600 |
| Depreciation expense | 30500 |
| Total operating expense | 60100 |
| Operating profits | $81,900 |
| Less: Interest expense | 10300 |
| Net profits before taxes | $71,600 |
| Less: Taxes | 27500 |
| Net profits after taxes (earnings available for common stockholders) | $44,100 |
| Earnings per share (EPS) | $2.17 |
Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto:
| Industry average, 2015 | |
| Current ratio | 2.4 |
| Quick ratio | 0.91 |
| Inventory turnover* | 4.46 times |
| Average collection period* | 35.7 days |
| Total asset turnover | 1 |
| Debt ratio | 0.22 |
| Times interest earned | 12.3 |
| Gross profit margin | 0.204 |
| Operating profit margin | 0.138 |
| Net profit margin | 0.101 |
| Return on total assets (ROA) | 0.092 |
| Return on common equity (ROE) | 0.169 |
| Earnings per share (EPS) | $3.16 |
| *Based on a 365-day year and on end-of-year figures. a. Prepare and interpret a complete ratio analysis of theâ firm's 2015 operations. b. Summarize your findings and make recommendations. |
Related questions
Ratio Analysis
The Vanguard Group, Inc. has compiled the following financial statements and comparative financial ratios for the year-end review.
| Balance Sheet | ||
| Assets | ||
| Current assets | ||
| âCash | $ 118,750 | |
| âAccounts receivable | 296,250 | |
| âInventory | 303,750 | |
| âTotal current assets | $ 718,750 | |
| Gross fixed assets | $625,000 | |
| Less: Accumulated depreciation | 93,750 | |
| Net fixed assets | 531,250 | |
| Total assets | $1,250,000 | |
| Liabilities and stockholdersâ equity | ||
| Current liabilities | ||
| âAccounts payable | $ 111,250 | |
| âNotes payable | 211,250 | |
| âAccruals | 108,750 | |
| ââTotal current liabilities | $ 431,250 | |
| Long-term debt | 235,000 | |
| ââTotal liabilities | $ 666,250 | |
| Stockholdersâ equity | ||
| âCommon stock | 318,750 | |
| âRetained earnings | 265,000 | |
| ââTotal stockholdersâ equity | $ 583,750 | |
| Total liabilities and stockholdersâ equity | $1,250,000 | |
| Income Statement | |||
| Sales revenue | $1,680,000 | ||
| Cost of sales | 1,362,480 | ||
| Gross profits | $ 317,520 | ||
| Less: Operating expenses | |||
| Selling expense | $ 125,600 | ||
| General and administrative expense | 81,600 | ||
| Depreciation expense | 24,000 | ||
| âââTotal operating expense | $231,200 | ||
| Operating profits | $ 86,320 | ||
| Less: Interest expense | 15,600 | ||
| Net profits before taxes | $ 70,720 | ||
| Less: Taxes (40%) | 28,288 | ||
| Net profits after taxes | $ 42,432 | ||
| Historical and Industry Average Ratios | ||||
| Industry Average | ||||
| Ratio | 2005 | 2006 | 2007 | 2007 |
| Current ratio | 1.6 | 1.7 | â | 1.6 |
| Quick ratio | 0.9 | 1.0 | â | 0.9 |
| Inventory turnover | 6.0 | 5.0 | â | 8.4 |
| Average collection period | 40 days | 50 days | â | 40 days |
| Total asset turnover | 1.5 | 1.5 | â | 1.75 |
| Debt ratio | 60% | 56% | â | 50% |
| Times interest earned | 2.5 | 3.5 | â | 4.0 |
| Gross profit margin | 20% | 19.7% | â | 20% |
| Operating profit margin | 4.7% | 4.8% | â | 6% |
| Net profit margin | 2.0% | 2.3% | â | 3% |
| Return on investment | 3.0% | 3.5% | â | 5.25% |
| Return on equity | 7.5% | 7.95% | â | 10.5% |
1. Prepare an executive summary on the firmâs overall financial condition and performance. Your summary must be at least one page, but no more than 3 pages. Comment on the meaning of each ratio, discussing its trend and its comparison to the industry average.
