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Calculate the firm's 2003 financial rations and then fill the preceding table.
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Question 1 a: Calculate the firm's 2003 financial rations and then fill the preceding table. Answer: Current ratio = $1,531,181 ? $616,000 = 2.5 Quick ratio = (1,513,181 - $700,625) ? $616,000 = 1.3 Inventory turnover (times) = $3,704,000 ? $700,625 = 5.3 Average collection period = ($805,556 ? $5,075,000) x 360 = 57 days Total asset turnover (times) = $5,075,000 ? $3,125,000 = 1.6 Debt ratio = ($1,781,250 ? $3,125,000) x 100 = 57% Times interest earned ratio = $153,000 ? $93,000 = 1.6 Gross profit margin = ($1,371,000 ? $5,075,000) x 100 = 27% Net profit margin = ($36,000 ? $5,075,000) x 100 = 0.71% Return on total assets (ROA) = ($36,000 ? $3,125,000) x 100 = 1.2% Return on common equity (ROE) = ($36,000 ? $1,343,750) x 100 = 2.7% Price/earning (P/E) ratio = $11.38 ? $0.33 = 34.48 Market/book (M/B) ratio = $1,343,750 - $50,000 100,000 = $12.94 = $11.38 ? $12.94 = 0.88 Martin Manufacturing Company Historical Ratios Ratio Actual 2001 Actual 2002 Actual 2003 Industry Average Current ratio (times) 1.7 1.8 2.5 1.5 Quick ratio (times) 1.0 0.9 1.3 1.2 Inventory turnover (times) 5.2 5.0 5.3 10.2 Average collection period (days) 50 55 57 46 Total asset turnover (times) 1.5 1.5 1.6 2.0 Debt ratio 45.8% 54.3% 57% 24.5% Times interest earned ratio 2.2 1.9 1.6 2.5 Gross profit margin 27.5% 28% 27% 26% Net profit margin 1.1% 1.0% 0.71% 1.2% Return on total assets (ROA) 1.7% 1.5% 1.2% 2.4% Return on common equity (ROE) 3.1% 3.3% 2.7% 3.2% Price/earning (P/E) ratio (times) 33.5 38.7 24.48 43.4 Market/book (M/B) ratio (times) 1.0 1.1 0.88 1.2 Question 1 b: Analyse the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluation of the firm's liquidity, activity,...
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