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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