Corrigan Corporation: Balance Sheets as of December 31 2016 2015 Cash $ 72,000 $ 65,000 Accounts receivable 439,000 328,000 813,000 $1,206,000 Inventories 894,000 Total current assets $1,405,000 Land and building Machinery 238,000 271,000 132,000 133,000 61,000 $1,836,000 57,000 $1,667,000 Other fixed assets Total assets Accounts payable $ 80,000 $ 72,708 Accrued liabilities 45,010 40,880 Notes payable 476,990 457,912 Total current liabilities $ 602,000 $ 571,500 Long-term debt 404,290 258,898 Common stock 575,000 575,000 Retained earnings 254,710 $1,836,000 261,602 $1,667,000 Total liabilities and equity Corrigan Corporation: Income Statements for Years Ending December 31 2016 2015 Sales $4,240,000 $3,635,000 3,680,000 $ 560,000 Cost of goods sold Gross operating profit General administrative and selling expenses Depreciation 2,980,000 $ 655,000 297 550 154,500 $ 202,950 303,320 159,000 $ 97,680 EBIT Interest 67,000 43,000 $ 30,680 $ 159,950 Earnings before taxes (EBT) Тахеs (40%) 12,272 63,980 Net income $ 18408 $ 95970 Per-Share Data 2016 2015 $ 0.0 $ 1.10 $12.34 $ 4.17 $ 0.95 EPS Cash dividends Market price (average) $23.57 P/E ratio 15.42x 5.65x Number of shares outstanding 23,000 23,000 Industry Financial Ratios" 2016 Current ratio 2.7x Inventory tumover Days sales outstanding Fixed assets tumover Total assets tumover 7.0x 32.0 days 13.0x 2.6x Retum on assets 9.1% Retum on equity 18.2% Retum on invested capital Profit margin Debt-to-capital ratio 14.5% 3.5% 50.0% P/E ratio 6.0x "Industry average ratios have been constant for the past 4 years. Based on year-end balance sheet figures. Calculation is based on a 365-day year.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The Corrigan Corporation’s 2015 and 2016 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 compare 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 changes in these two accounts.

Corrigan Corporation: Balance Sheets as of December 31
2016
2015
Cash
$ 72,000
$ 65,000
Accounts receivable
439,000
328,000
813,000
$1,206,000
Inventories
894,000
Total current assets
$1,405,000
Land and building
Machinery
238,000
271,000
132,000
133,000
61,000
$1,836,000
57,000
$1,667,000
Other fixed assets
Total assets
Accounts payable
$ 80,000
$ 72,708
Accrued liabilities
45,010
40,880
Notes payable
476,990
457,912
Total current liabilities
$ 602,000
$ 571,500
Long-term debt
404,290
258,898
Common stock
575,000
575,000
Retained earnings
254,710
$1,836,000
261,602
$1,667,000
Total liabilities and equity

Corrigan Corporation: Income Statements for Years Ending December 31
2016
2015
Sales
$4,240,000
$3,635,000
3,680,000
$ 560,000
Cost of goods sold
Gross operating profit
General administrative and selling expenses
Depreciation
2,980,000
$ 655,000
297 550
154,500
$ 202,950
303,320
159,000
$ 97,680
EBIT
Interest
67,000
43,000
$ 30,680
$ 159,950
Earnings before taxes (EBT)
Тахеs (40%)
12,272
63,980
Net income
$ 18408
$ 95970
Per-Share Data
2016
2015
$ 0.0
$ 1.10
$12.34
$ 4.17
$ 0.95
EPS
Cash dividends
Market price (average)
$23.57
P/E ratio
15.42x
5.65x
Number of shares outstanding
23,000
23,000
Industry Financial Ratios"
2016
Current ratio
2.7x
Inventory tumover
Days sales outstanding
Fixed assets tumover
Total assets tumover
7.0x
32.0 days
13.0x
2.6x
Retum on assets
9.1%
Retum on equity
18.2%
Retum on invested capital
Profit margin
Debt-to-capital ratio
14.5%
3.5%
50.0%
P/E ratio
6.0x
"Industry average ratios have been constant for the past 4 years.
Based on year-end balance sheet figures.
Calculation is based on a 365-day year.

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