C. outline mortons strengths and weaknesses as revealed by your anaylsis D. Supp

Question

C. outline mortons strengths and weaknesses as revealed by your anaylsis D. Suppose morton had doubled its sales as well as its ainventories, accounts receiveable, and commmon equity during 2010. How would that information affect the validity of your ratio anaylsis? Data for Morton Chip Company and its industry averages follow. Morton Chip Company: Balance Sheet as of December 31, 2010 (Thousands of Dollars) 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 Net fixed assets 292,500 Long-term debt 256,500 Common equity 361,000 Total assets $947,500 Total liabilities and equity $947,500 Morton Chip Company: Income Statement for Year Ended December 31, 2010 (Thousands of Dollars) Sales $1,607,500 Cost of goods sold 1,392,500 Selling general and administrative expenses 145,000 Earnings before interest and taxes (EBIT) $ 70,000 Interest expense 24,500 Earnings before taxes (EBT) $ 45,500 Federal and state income taxes (40%) 18,200 Net income $ 27,300 a.Calculate the indicated ratios for Morton. Round your answer to two decimal places. Ratio Morton Industry Average Current assets/Current liabilities x 2.0x Days sales outstanding* days 35.0 days Sales/Inventory x 6.7x Sales/Fixed assets x 12.1x Sales/Total assets x 3.0x Net income/Sales % 1.2% Net income/Total assets % 3.6% Net income/Common equity % 9.0% Total debt/Total assets % 60.0% *Calculation is based on a 365-day year. b.Construct the extended Du Pont equation for both Morton and the industry. Round your answer to two decimal places. For the firm, ROE is % For the industry, ROE is %

Explanation / Answer

a, Morton Industry Average 1.98 2.0x weakness 76.4 35 days weakness 6.66 6.7x weakness 5.5 12.1x strength 1.7 3.0x weakness 1.70% 1.20% strength 2.90% 3.60% weakness 7.60% 9.00% weakness 62% 60% weakness A3=655000/330000=1.98 receivable turnover=sales/AR=1607500/336000=4.78 A4=365/4.78=76.36 A5=1607500/241500=6.66 A6=1607500/292500=5.50 A7=sales/total A8=net assets=1.70 income/sales=0.017 A9=net income/total assets=0.029 A10=0.076 =A11=(947500-361000)/947500=0.62 ============================ ========================== b, strengths: Motorn has higher profit margin than industry average. It also has less fixed asset. weakness: solution current ratio is lower than the average. Motorn needs increase company's liquidity. Motorn has much longer time on sale receivable. It should increase the efficiency of collecting payment. It can use a little behind average on sale/inventory the company can try to hire more sales people or in having much less efficiency on utilizing assets it can replace the old assets. lower ROA than average it could replace the old assets. lower ROE than average it should increase net income. the company has more debt than average the company should generate more profit to pay off some debt =========================== c, cting payment. It can use discount to encourage faster payment. e more sales people or invest more on advertising. t to pay off some debt question ==================== 4 Answe r the Local bank= the outta bank A 25000*(1+5%) 25000*(1+4.8%/4)^4 26250 26221.77 28.23 therefore, she will earn 28.23 more when invest in the Local bank. =============== question 5 FV=13400*(1+0.08/12)^(12*6) 21620.93 question 6 retirement in 10 years, Bond: stocki total balance after 10 years equal withdraw amout: 431378.7 1187978.73 1619357.43 total balance=pmt*{1-1/(1+6.75%)^(25*12)}/0.5625% pmt=1118835 7, year 1 year 2 year 3 total loan amout interest payment principle interest $13,464.59 $14,945.69 $16,589.72 balance 4950 $31,535.41 $3,468.90 $16,589.72 $1,824.87 0 10243.76 45000 0.11 $18,414.59 Therefore, in the third year, interest is 1824.869. total interest equal 10243.76. 8, discount rate 0 5% infinite NPV 134014 64912.98 513250 64912.98 paymenequal 10243.76.

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