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Ratio Analysis a. Calculate the indicated ratios for the company (see the last table)

Ratio Analysis
a. Calculate the indicated ratios for the company (see the last table)
b. Construct the extended Du Pont equation for the company and the industry
c. Outline the company’s strengths and weaknesses as revealed by the analysis
d. Suppose the company had doubled its sales as well as its inventories, accounts receivable, and common equity during 2005.  How would that information affect the validity of the ratio analysis? (Hint, think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed)

Company Balance Sheet as of Dec. 31, 2005 (in thousands)
Cash
$ 77,500
Accounts payable
$129,000
Receivables
 336,000
Notes payable
    84,000
Inventories
 241,500
Other current liabilities
  117,000
  Total current assets
$655,000
  Total current liabilities
$330,000


Long term debt
  256,500
Net fixed assets
  292,500
Common equity
  361,000
Total assets
$947,500
Total liabilities and equity
$947,500

Company Income Statement for year ended Dec. 31, 2005 (in thousands)
Sales

$1,607,500
Cost of goods sold


  Material
$717,000

  Labor
 453,000

  Heat, light, power
  68,000

  Indirect labor
 113,000

  Depreciation
  41,500
1,392,500
Gross Profit

$  215,000
Selling expenses

    115,000
General & administrative expenses
 
      30,000
   Earnings before interest and taxes (EBIT)

 $   70,000
Interest expense

      24,500
  Earnings before taxes (EBT)

$    45,500
Federal & state income taxes (40%)

       18,200
Net income

 $     27,300

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