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Category > Management Posted 05 Feb 2018 My Price 8.00

Corrigan Corporation

The Corrigan Corporation"s forecasted 2003 financial statements follow, along with some industry average ratios.

a. Calculate Corrigan"s 2003 forecasted ratios, compare them with the industry average data, and comment briefly on Corrigan"s projected strengths and weaknesses.

b. What do you think would happen to Corrigan"s 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: Forecasted Balance Sheet as of December 31, 2003

Cash

$ 72,000

Accounts receivable

439,000

Inventories

894,000

Total current assets

$1,405,000

Fixed assets

431,000

Total assets

$1,836,000

Accounts and notes payable

$ 432,000

Accruals

170,000

Total current liabilities

$ 602,000

Long-term debt

404,290

Common stock

575,000

Retained earnings

254,710

Total liabilities and equity

$1,836,000

 

Corrigan Corporation: Forecasted Income Statement for 2003

Sales

$4,290,000

Cost of goods sold

3,580,000

Selling, general, and administrative expenses

370,320

Depreciation

159,000

Earnings before taxes (EBT)

$ 180,680

Taxes (40%)

72,272

Net income

$ 108,408

 

Per-Share Data

EPS

$4.71

Cash dividends per share

$0.95

P/E ratio

5X

Market price (average)

$23.57

Number of shares outstanding

23,000

 

Industry Financial Ratios (2003)a

Quick ratio

1.0X

Current ratio

2.7X

Inventory turnoverbb

7.0X

Days sales outstandingc

32 days

Fixed assets turnoverb

13.0X

Total assets turnoverb

2.6X

Return on assets

9.1%

Return on equity

18.2%

Debt ratio

50.0%

Profit margin on sales

3.5%

P/E ratio

6.0X

P/cash flow ratio

3.5X

 

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Maurice Tutor
(5)
Status NEW Posted 05 Feb 2018 06:02 PM My Price 8.00

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