136 4-9. (Ratio analysis) The financial statements and industry norms are shown below for Pamplin, Inc.: a. Compute the financial ratios for Pamplin to compare both for 2017 and 2018 against the industry norms. b. How liquid is the firm? c. Are its managers generating an adequate operating profit on the firm's assets? d. How is the firm financing its assets? e. Are its managers generating a good return on equity? Current ratio Acid-test (quick) ratio Inventory turnover Average collection period Debt ratio Times interest earned Total asset turnover Fixed-asset turnover Operating profit margin Return on common equity Pamplin Inc. Balance Sheet at 12/31/2017 and 12/31/2018 INDUSTRY NORM 5.00 3.00 2.20 90.00 0.33 7.00 0.75 1.00 20% 9% Assets 2017 2018 Cash $ 200 $ 150 Accounts receivable 450 425 Inventory 550 625 Current assets $1,200 $1,200 Plant and equipment $2,200 $2,600 Less accumulated depreciation (1,000) (1,200) Net plant and equipment $1,200 $1,400 Total assets $2.400 $2,600 Liabilities and Owners' Equity Accounts payable $ 200 Notes payable-current (9%) 0 Current liabilities $ 200 Bonds (8.33% interest) 600 $ 150 150 $ 300 600 Total debt $ 800 $ 900 Owners' equity Common stock $ 300 $ 300 Paid-in capital 600 600 Retained earnings 700 800 Total owners' equity $1,600 Total liabilities and owners' equity $2.400 $1,700 $2,600 PART 1⚫ The Scope and Environment of Financial Management Pamplin Inc. Income Statement for Years Ending 12/31/2017 and 12/31/2018 2017 2018 Sales* Cost of goods sold $1,200 700 Gross profit $ 500 $1,450 850 $ 600 Operating expenses $ 30 $ 40 Depreciation expense 220 Operating profits $ 250 200 $ 360 Interest expense 50 64 Profit before taxes Taxes (21%) Net income *15% of sales are cash sales, with the remaining 85% being credit sales. $ 296 62 $234 $ 200 42 $158
136 4-9. (Ratio analysis) The financial statements and industry norms are shown below for Pamplin, Inc.: a. Compute the financial ratios for Pamplin to compare both for 2017 and 2018 against the industry norms. b. How liquid is the firm? c. Are its managers generating an adequate operating profit on the firm's assets? d. How is the firm financing its assets? e. Are its managers generating a good return on equity? Current ratio Acid-test (quick) ratio Inventory turnover Average collection period Debt ratio Times interest earned Total asset turnover Fixed-asset turnover Operating profit margin Return on common equity Pamplin Inc. Balance Sheet at 12/31/2017 and 12/31/2018 INDUSTRY NORM 5.00 3.00 2.20 90.00 0.33 7.00 0.75 1.00 20% 9% Assets 2017 2018 Cash $ 200 $ 150 Accounts receivable 450 425 Inventory 550 625 Current assets $1,200 $1,200 Plant and equipment $2,200 $2,600 Less accumulated depreciation (1,000) (1,200) Net plant and equipment $1,200 $1,400 Total assets $2.400 $2,600 Liabilities and Owners' Equity Accounts payable $ 200 Notes payable-current (9%) 0 Current liabilities $ 200 Bonds (8.33% interest) 600 $ 150 150 $ 300 600 Total debt $ 800 $ 900 Owners' equity Common stock $ 300 $ 300 Paid-in capital 600 600 Retained earnings 700 800 Total owners' equity $1,600 Total liabilities and owners' equity $2.400 $1,700 $2,600 PART 1⚫ The Scope and Environment of Financial Management Pamplin Inc. Income Statement for Years Ending 12/31/2017 and 12/31/2018 2017 2018 Sales* Cost of goods sold $1,200 700 Gross profit $ 500 $1,450 850 $ 600 Operating expenses $ 30 $ 40 Depreciation expense 220 Operating profits $ 250 200 $ 360 Interest expense 50 64 Profit before taxes Taxes (21%) Net income *15% of sales are cash sales, with the remaining 85% being credit sales. $ 296 62 $234 $ 200 42 $158
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 2MC
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Please help with this question 4-9
Transcribed Image Text:136
4-9. (Ratio analysis) The financial statements and industry norms are shown below
for Pamplin, Inc.:
a. Compute the financial ratios for Pamplin to compare both for 2017 and 2018
against the industry norms.
b. How liquid is the firm?
c. Are its managers generating an adequate operating profit on the firm's assets?
d. How is the firm financing its assets?
e. Are its managers generating a good return on equity?
Current ratio
Acid-test (quick) ratio
Inventory turnover
Average collection period
Debt ratio
Times interest earned
Total asset turnover
Fixed-asset turnover
Operating profit margin
Return on common equity
Pamplin Inc. Balance Sheet at 12/31/2017 and 12/31/2018
INDUSTRY NORM
5.00
3.00
2.20
90.00
0.33
7.00
0.75
1.00
20%
9%
Assets
2017
2018
Cash
$ 200
$ 150
Accounts receivable
450
425
Inventory
550
625
Current assets
$1,200
$1,200
Plant and equipment
$2,200
$2,600
Less accumulated depreciation
(1,000)
(1,200)
Net plant and equipment
$1,200
$1,400
Total assets
$2.400
$2,600
Liabilities and Owners' Equity
Accounts payable
$ 200
Notes payable-current (9%)
0
Current liabilities
$ 200
Bonds (8.33% interest)
600
$ 150
150
$ 300
600
Total debt
$ 800
$ 900
Owners' equity Common stock
$ 300
$ 300
Paid-in capital
600
600
Retained earnings
700
800
Total owners' equity
$1,600
Total liabilities and owners' equity
$2.400
$1,700
$2,600
PART 1⚫ The Scope and Environment of Financial Management
Pamplin Inc. Income Statement for Years Ending 12/31/2017 and 12/31/2018
2017
2018
Sales*
Cost of goods sold
$1,200
700
Gross profit
$ 500
$1,450
850
$ 600
Operating expenses
$ 30
$ 40
Depreciation expense
220
Operating profits
$ 250
200
$ 360
Interest expense
50
64
Profit before taxes
Taxes (21%)
Net income
*15% of sales are cash sales, with the remaining 85% being credit sales.
$ 296
62
$234
$ 200
42
$158
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