Analysis of financial statement using ratio

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Reference no: EM13356402

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

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 turnover^a	4.55
Average collection period^a	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.

Reference no: EM13356402

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