Latest Industry Averages Liquidty Profitability Net working

Latest Industry Averages

Liquidty

Profitability

Net working capital

N/A

h. Net profit margin

9.26%

Current ratio

2.46

i. Return on assets

27.2%

Receivables turnover

5.45

j. Return on equity

50.4%

Inventory turnover

3.85

Common-Stock Ratios

Fixed asset turnover

0.75

k. Earnings per share

$3.00

Leverage

l. Price-to-earnings ratio

20.0

Debt-equity ratio

1.25

m. Dividends per share

$1.00

Times interest earned

3.70

n. Dividend yield

2.5%

o. Payout ratio

33.3%

p. Book value per share

$6.25

q. Price-to-book-value

6.4

1.Construct a common size income statement and common size balance sheet. Why are common size financial statements useful?

2. Compute the following ratios and comment on whether the ratio is a strength or a weakness for the firm.

a.Debt equity ratio

b.Quick ratio

c.Current ratio

d.Inventory turnover

e.Receivables turnover

f.Fixed asset turnover

g.Net profit margin

h.Times interest earned

i.ROA

3.Decompose ROE using the DuPont equation. Why do we want to decompose ROE?

4.What is free cash flow? What are the five uses of FCF?

Latest Industry Averages
Liquidty		Profitability
Net working capital	N/A	h. Net profit margin	9.26%
Current ratio	2.46	i. Return on assets	27.2%
Receivables turnover	5.45	j. Return on equity	50.4%
Inventory turnover	3.85	Common-Stock Ratios
Fixed asset turnover	0.75	k. Earnings per share	$3.00
Leverage		l. Price-to-earnings ratio	20.0
Debt-equity ratio	1.25	m. Dividends per share	$1.00
Times interest earned	3.70	n. Dividend yield	2.5%
		o. Payout ratio	33.3%
		p. Book value per share	$6.25
		q. Price-to-book-value	6.4

Solution

PARTICULARS 2013 2012

SALES 100% 100%

EXPENSES EXCLUDING DEPRECIATION

AND AMORTIZATION 86% 86%

EBITDA 14% 14%

DEPRICIATION AND AMORTIZATION 3.5% 3.5%

EBIT 10.5% 10.5%

INTEREST EXPENSES 1.1% 1.1%

PRE-TAX EARNINGS 9.4% 9.4%

TAX@40% 3.8% 3.8%

NET INCOME 5.6% 5.6%

COMMON DIVIDENDS 4.6% 4.6%

ADDITIONS TO RETAINED EARNINGS 1.0% 1.0%

20-COMMON SIZE BALANCE SHEET

PARTICULARS 2013 2012

1)-cash and cash equivalents 5.9% 5.9%

2)-short term investments .50% .50%

3)-accounts receivable 35% 35%

4)-inventory 17.6% 17.6%

total current assets 59% 59

net fixed assets 41% 41%

total assets 100% 100%

liabilities and equity

accounts payable 11.70 % 11.70%

accurals 5.85% 5.85%

notes payable 3.25 % 3.25%

total current liabilities 20.85 % 20.85%

long term debt 11.70% 11.70%

total liabilities 32.55% 32.55%

common stock 55% 55%

retained earnings 12.45% 12.45%

total common equity 67.45 67.45

total 100% 100%

NOTE-INCOME STATEMENT FIGURES ARE PERCENTAGE OF TOTAL SALES AND BALANCE SHEET ITEMS ARE FIGURES OF TOTAL ASSETS/LIABILITIES.

COMMON SIZE FINANCIAL STATEMENTS ARE USEFUL BECAUSE THEY ARE COMPILED AND SUMMARIZED AND HENCE VERY CONVENIENENT FOR DECISION MAKING AND ALSO SINCE DATA IS IN PERCENTAGE FORM, A VERY QUICK DECISION CAN BE FORMED AT THE TOP LEVEL.