Ratios Compared with Industry Averages Packard Plastics, Inc., manufactures vari
ID: 342395 • Letter: R
Question
Ratios Compared with Industry Averages Packard Plastics, Inc., manufactures various plastic and synthetic products. Financial statement data for the firm follow 2016 Thousands of Dollars, Sales revenue Cost of goods sold Net income Dividends Earnings per share Except Earnings per Share) 825,000 540,000 50,500 15,000 4.25 Packard Plastics, inc. Balance Sheets (Thousands of Dollars) Dec. 31, 2016 Dec. 31, 2015 Assets Cash Accounts receivable (net) Inventory $2,700 60,900 148,000140,000 219,000203,600 215,000 194000 3,900 $4,100 66,900 Total Current Assets Plant assets (net) Other assets 13,900Explanation / Answer
company ratio
Industry median
1-
quick ratio
quick assets/current liabilities
71000/83700
0.848268
1.2
companys quick ratio is less than industry
quick assets
total current assets-inventory-prepaid expenses
219000-148000
71000
current liabilities
83700
2-
current ratio
current assets/current liabilities
219000/83700
2.616487
1.9
companys current ratio is more than industry median it means company invests more in inventory
current assets
219000
current liabilities
83700
3-
accounts receivable turnover
sales/average accounts receivables
825000/63900
12.9108
7.9
it is better for company as its contributing more in sales
sales
825000
average accounts receivables
(66900+60900)/2
63900
4-
Inventory turnover ratio
cost of goods sold/average inventory
540000/144000
3.75
7.8
it is not good for company as inventory is contributing less in sales
cost of goods sold
540000
average inventory
(140000+148000)/2
144000
5-
debt to equity ratio
total of liabilities/total of equity
223700/214200
1.044351
0.95
company is highly levered company in comparison to industry
total of liabilities
223700
total of equity
214200
6-
gross profit margin
gross profit/sales
285000/825000
34.55%
32.70%
Gross profit margin is better for company
gross profit
825000-540000
285000
sales
825000
7-
return on sales
net income/sales
50500/825000
6.12%
3.50%
return on sales is also better than industry average
net income
50500
sales
825000
8-
return on assets
net income/average total assets
50500/424700
11.89%
6.30%
it is also better for the company
net income
50500
average total assets
(447900+401500)/2
424700
b-
dividend paid per share
dividend paid/no of shares
15000/12500
1.20
c-
dividend pay out ratio
dividend paid/net income
15000/50500
29.70%
EPS
net income/no of shares
50500/12500
4.04
d-
PE ratio
market price/EPS
50.25/4.04
12.44
e-
dividend yield
dividend per share/market price per share
1.20/50.25
2.39%
Over all conclusion
This is said that company is performing better in term of profitability, while its performance is poor in terms of short term solvency due to poor inventory management. Company is also using debt. So overall performance of company is good but attention should be paid on inventory management.
company ratio
Industry median
1-
quick ratio
quick assets/current liabilities
71000/83700
0.848268
1.2
companys quick ratio is less than industry
quick assets
total current assets-inventory-prepaid expenses
219000-148000
71000
current liabilities
83700
2-
current ratio
current assets/current liabilities
219000/83700
2.616487
1.9
companys current ratio is more than industry median it means company invests more in inventory
current assets
219000
current liabilities
83700
3-
accounts receivable turnover
sales/average accounts receivables
825000/63900
12.9108
7.9
it is better for company as its contributing more in sales
sales
825000
average accounts receivables
(66900+60900)/2
63900
4-
Inventory turnover ratio
cost of goods sold/average inventory
540000/144000
3.75
7.8
it is not good for company as inventory is contributing less in sales
cost of goods sold
540000
average inventory
(140000+148000)/2
144000
5-
debt to equity ratio
total of liabilities/total of equity
223700/214200
1.044351
0.95
company is highly levered company in comparison to industry
total of liabilities
223700
total of equity
214200
6-
gross profit margin
gross profit/sales
285000/825000
34.55%
32.70%
Gross profit margin is better for company
gross profit
825000-540000
285000
sales
825000
7-
return on sales
net income/sales
50500/825000
6.12%
3.50%
return on sales is also better than industry average
net income
50500
sales
825000
8-
return on assets
net income/average total assets
50500/424700
11.89%
6.30%
it is also better for the company
net income
50500
average total assets
(447900+401500)/2
424700
b-
dividend paid per share
dividend paid/no of shares
15000/12500
1.20
c-
dividend pay out ratio
dividend paid/net income
15000/50500
29.70%
EPS
net income/no of shares
50500/12500
4.04
d-
PE ratio
market price/EPS
50.25/4.04
12.44
e-
dividend yield
dividend per share/market price per share
1.20/50.25
2.39%
Over all conclusion
This is said that company is performing better in term of profitability, while its performance is poor in terms of short term solvency due to poor inventory management. Company is also using debt. So overall performance of company is good but attention should be paid on inventory management.
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