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Ratio AnalysisThe Corrigan Corporation's 2013 and 2014 financial statements follow along with some industry average ratios a Assess Corrigans liquidity position and determine how it compares

Ratio Analysis: The Corrigan Corporation's 2013 and 2014 financial statements follow, along with some industry average ratios.

a. Assess Corrigan's liquidity position and determine how it compares with peers and how the liquidity position has changed over time.

b. Assess Corrigan's asset management position and determine how it compares with peers and how its asset management efficiency has changed over time.

c. Assess Corrigan's debt management position and determine how it compares with peers and how its debt management has changed over time.

d. Assess Corrigan's profitability ratios and determine how they compares with peers and how its profitability position has changed over time.

e. Assess Corrigan's market value ratios and determine how its valuation compares with peers and how it has changed over time.

f. Calculate Corrigan's ROE as well as the industry average ROE using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry average numbers?

g. What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by the changes in these two accounts.

Corrigan Corporation: Balance Sheets as of December 31

  2014 2013
Cash 72000 65000
Accounts receivable 439000 328000
Inventories 894000 813000
     Total current assets 1405000 1206000
Land and building 238000 271000
Machinery 132000 133000
Other fixed assets 61000 57000
Total assets 1836000 1667000
Accounts payable 80000 72708
Accrued liabilities 45010 40880
Notes payable 476990 457912
     Total current liabilities 602000 571500
Long-term debt 404290 258898
Common stock 575000 575000
Retained earnings 254710 216602
Total liabilities and equity 1836000 1667000

Corrigan Corporation: Income Statements for Years Ending December 31

  2014 2013
Sales 4240000 3635000
Cost of goods sold 3680000 2980000
     Gross operating profit 560000 655000
General administrative and selling expenses 303320 297550
Depreciation 159000 154500
     EBIT 97680 202950
Interest 67000 43000
     Earnings before taxes (EBT) 30680 159950
Taxes (40%) 12272 63980
Net income 18408 95970

Per Share Data

  2014 2013
EPS 0.80 4.17
Cash dividends 1.10 0.95
Market price (average) 12.34 23.57
P/E ratio    15.42x    5.65x
Number of shares outstanding 23000 23000

Industry Financial Ratios

  2014
Current ratio 2.7x
Inventory turnover^b 7.0x
Days sales outstanding^c 32.0 days
Fixed assets turnover^b 13.0x
Total assets turnover^b 2.6x
Return on assets 9.1%
Return on equity 18.2%
Return on invested capital 14.5%
Profit margin 3.5%
Debt-to-capital ratio 50.0%
P/E ratio 6.0x

^a Industry average ratios have been constant for the past 4 years.

^b Based on year-end balance sheet figures.

^c Calculation is based on a 365-day year.

 

Apr 29 2020 View more View Less

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