Assessing Martin Manufacturing-Answer

Assessing Martin Manufacturing’s Current Financial Position 1) Calculate Calculate the firm’s firm’s 2009 2009 financial financial ratios, ratios, and then fill fill in the preceding preceding table table !Assume !Assume a "#$% da& &ear) Martin Manufacturing Compan& 'istorical and (ndustr& Aerage Aerage *atios Ratio

Current *atio -uic. *atio (nentor& urnoer !times) Aerage Collection Period otal Asset urnoer !times) ebt *atio ime (nterest 3arned *atio 4ross Profit Margin  5et Profit Margin *eturn on otal Assets !*6A) *eturn on 37uit& !*63) Price83arnings !P83) *atio Mar.et8oo.!M8) *atio

Actual 2007 1 + 1 0 $ 2 $0+ da&s 1 $ /$ 22 2+$ 11 1 +  " 1  ""$ 1 0

Actual 2008

Actual 2009

1  09 $0 $0 da&s 1 $ $/" 1 9 2 10 1$  " "  "+ 1 1

2 $ 1 / $ " $  0 1 # $+ 1 # 2+ 0+ 1 1  2 #  "// 0

Industry Average Average 2009 200 9 1$ 12 102 /# da&s 2 0 2/$ 2 $ 2 # 12 2 /  " 2  /"/ 1 2

a) Curr Curren entt *at *atiio $ 1,531,181 =2.5 $ 616,000  b) -uic. *atio $ 1,531,181 − $ 700,625 =1.3 $ 616,000 c) (nent (nentor& or& turnoe turnoerr !times !times)) $ 3,704,000 =5.3 $ 700,625 Comment: 200+ and 200 current ratio at $2 and $0 respectiel& ;ere considered the ;orst compared to 2009 'o;eer, ;hen compared to industr& aerage, it is belo; the aerage his sho;s the compan& is haing a problem to sell their product or the& the & are holding the inentor& for too long d) Aera Aerage ge collec collectio tion n period period !da&s) !da&s)

(

$ 805,556 =58.0 days $ 5,075,000 365

)

Comment: he aerage collection period has increase oer the &ears ho;eer in 2009 there is a significantl& increase to $0 da&s compared to industr& aerage at /#0 da&s his sho;s that the compan& is ta.ing longer time to collect its debts from debtors and  poorl& managed credit or collection department or both e) otal asset turnoer !times) $ 5,075,000 =1.6 $ 3,125,000 f) ebt *atio $ 1,781,250 =57 $ 3,125,000 Comment: he compan& is haing the highest debt ratio in 2009 at $+ compared to 200+ at /$ and 200 at $/" and also the highest ;hen compared to industr& aerage at 2/$ his sho;s the compan& is ta.ing high ris. on its financial leerage and financial ris. then other firms in the industr& (t ;ill leads to ban.ruptc& and haing less cash to coer its ei7uidit& *atio i) ime%series anal&sis he firm’s abilit& to pa& its current liabilities out of its current assets has increased, reducing its short term li7uidit& ris. or the chance of being technicall& insolent 3en though its 7uic. ratio is lo;est in 200, there is a significant up;ard trend in 7uic. ratio in 2009 ii) Cross%sectional anal&sis he firm’s li7uidit& ratios are significantl& higher than the industr& aerage, indicating it has e