International Finance Ch3
Chapter 3
Chapter Case
Assessing Martin Manufacturing’s Current Financial Position
Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm’s financial performance during 2012 and its financial position at year-end 2012. To complete this assignment, she gathered the firm’s 2012 financial statements (see below). In addition, Terri obtained the firm’s ratio values for 2010 and 2011, along with the 2012 industry average ratios (also applicable to 2010 and 2011). These are presented in the table on historical and industry average ratios below.
To Do: a. Calculate the firm’s 2012 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) b. Analyze the firm’s current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market. c. Summarize the firm’s overall financial position on the basis of your findings in part b.
Answers
a.
Ratio | actual | actual | actual | Industry average | | 2010 | 2011 | 2012 | 2012 | Current ratio | 1.7 | 1.8 | 2.5 | 1.5 | Quick ratio | 1.0 | 0.9 | 1.4 | 1.2 | Inventory turnover | 5.2 | 5.0 | 5.3 | 10.2 | Average collection period | 50.7 days | 55.8days | 57.9 days | 46 days | Total asset turnover | 1.5 | 1.5 | 1.6 | 2.0 | Debt ratio | 45.8% | 54.3% | 57.0% | 24.5% | Times interest earned ratio | 2.2 | 1.9 | 1.65 | 2.5% | Gross profit margin | 27.5% | 28.0% | 27.0% | 26.0% | Net profit margin | 1.1% | 1.0% | 0.7% | 1.2% | Return on total assets | 1.7% | 1.5% | 4.9% | 2.4% | Return on common equity | 3.1% | 3.3% | 2.7% | 3.2% |
B. Liquidity:
Current ratio:
Looking from the cross-sectional viewpoint this ratio is bigger than the average figure of the industry. This was mainly caused by decreased current liabilities(shows that the company might be not using its current assets or its
Chapter Case
Assessing Martin Manufacturing’s Current Financial Position
Terri Spiro, an experienced budget analyst at Martin Manufacturing Company, has been charged with assessing the firm’s financial performance during 2012 and its financial position at year-end 2012. To complete this assignment, she gathered the firm’s 2012 financial statements (see below). In addition, Terri obtained the firm’s ratio values for 2010 and 2011, along with the 2012 industry average ratios (also applicable to 2010 and 2011). These are presented in the table on historical and industry average ratios below.
To Do: a. Calculate the firm’s 2012 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) b. Analyze the firm’s current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market. c. Summarize the firm’s overall financial position on the basis of your findings in part b.
Answers
a.
Ratio | actual | actual | actual | Industry average | | 2010 | 2011 | 2012 | 2012 | Current ratio | 1.7 | 1.8 | 2.5 | 1.5 | Quick ratio | 1.0 | 0.9 | 1.4 | 1.2 | Inventory turnover | 5.2 | 5.0 | 5.3 | 10.2 | Average collection period | 50.7 days | 55.8days | 57.9 days | 46 days | Total asset turnover | 1.5 | 1.5 | 1.6 | 2.0 | Debt ratio | 45.8% | 54.3% | 57.0% | 24.5% | Times interest earned ratio | 2.2 | 1.9 | 1.65 | 2.5% | Gross profit margin | 27.5% | 28.0% | 27.0% | 26.0% | Net profit margin | 1.1% | 1.0% | 0.7% | 1.2% | Return on total assets | 1.7% | 1.5% | 4.9% | 2.4% | Return on common equity | 3.1% | 3.3% | 2.7% | 3.2% |
B. Liquidity:
Current ratio:
Looking from the cross-sectional viewpoint this ratio is bigger than the average figure of the industry. This was mainly caused by decreased current liabilities(shows that the company might be not using its current assets or its