MINI CASE FINANCIAL RATIO ANALYSIS You have been hired as an assistant to Judy Hiltz, C-Star’s President & CEO who has the task of returning the company to a sound financial position. The 2008, 2009 and 2010 balance sheets and income statements are presented below along with the financial ratios for 2008, 2009 and 2010. The industry averages for these ratios are also provided. Balance Sheets 2008 2009 2010 Assets Cash $ 57,600 $ 27,282 $ 85,632 Accounts Receivable 351,200 632,160 878,000 Inventories 715,200 1,287,360 1,716,480Total Current Assets 1,124,000 1,946,802 2,680,112 Gross Fixed Assets 491,000 1,202,950 1,220,000 Less: Accumulated Depreciation 146,200 263,160 383,160 Net Fixed Assets 344,800 939,790 836,840 Total Assets 1,468,800 2,886,592 3,516,952 Liabilities and Equity Accounts Payable 281,600 608,960 739,800 Short-term debt 200,000 720,000 300,000 Total Current Liabilities 481,600 1,328,960 1,039,800 Long-term Debt 323,432 1,000,000 500,000 Common Stock 460,000 460,000 1,680,936 Retained Earnings 203,786 97,632 296,216Total Equity 663,786 557,632 1,997,152 Total Liabilities and Equity 1,468,800 2,886,592 3,516,952 Income Statements 2008 2009 2010 Sales $3,432,000 $5,834,400 $7,035,600 Cost of goods sold 2,864,000 4,980,000 5,800,000 Gross Profit 568,000 854,400 1,235,600 Other expenses 340,000 720,000 612,960 Depreciation 18,900 116,960 120,000 EBIT (Operating Profit) 209,100 17,440 502,640 Interest expense 62,500 176,000 80,000 EBT 146,600 (158,560) 422,640 Taxes (40%) 58,640 (63,424) 169,056 Net Income 87,960 (95,136) 253,584 Stock Data Stock Price $8.
0 $6. 00 $12. 17 Shares Outstanding 100,000 100,000 250,000 EPS 0. 880 (0. 951) 1. 014 Book value per share $6.
64 $5. 58 $7. 91 Ratio Analysis 2008 2009 2010 Industry Liquidity ratios Current ratio 2. 3x 1. 5x 2. 7x Quick ratio 0.
8x 0. 5x 1. 0x Activity ratios Receivables turnover 9. 8x 9. 2x 11.
4x Average collection period (days) 37 40 32 Inventory turnover 4. 8x 4. 5x 6. 1x Average days on stock 76 81 60 Solvency ratios Debt ratio 54. 8% 80.
7% 50. 0% Interest coverage ratio (TIE) 3. 3x 0. 1x 6. 2x Profitability ratiosGross profit margin 16. 6% 14.
6% 18. 2% Net Profit margin 2. 6% -1. 6% 3. 6% ROA 14.
2% 0. 6% 16,2% ROE 31. 5% 3. 1% 28. 9% Investment ratios P/E ratio 9. 7x ---- 16.
2x Questions 1. What are the current 2010 financial ratio’s? 2. What improvements the company has made? 3. What is the performance of the current ratio’s compared with industry? 4. List the major problems and/or strengths that the ratio analysis identifies? 5.
What other financial tools would you like to use before advising management of the problems confronting the company?
