Question

2015 The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none ofits debt must be retired during the next 5 years, and the notes payable will be rolled over. Balance Sheet Millions of S) Assets Cash and securities $ 1.554.0 Accounts receivable 9,660.0 Inventories 13,440.0 Total current assets $24,654.0 Net plant and equipment 17.346.0 Total assets $42.000.0 Liabilities and Equity Accounts payable $ 7,980.0 Notes payable 5,880.0 Accruals 4.620.0 Total current liabilities $18.480.0 Long-term bonds 10.920.0 Total debt $29,400.0 Common stock 3,360.0 Retained earnings 9.240.0 Total common equity $12,600.0 Total liabilities and equity $42.000.0 Income Statement Millions of S) 2015 Net sales $58,800.0 Operating costs except depr'n $54,978.0 Depreciation $ 1,029.0 Eamings befint and taxes (EBIT) $ 2,793.0 Less interest 1.050.0 Eamings before taxes (EBT) $ 1,743.0 Taxes $ 610.1 Net income $ 1.133.0 Other data: Shares outstanding (millions) 175.00 Common dividends $ 509.83 Int rate on notes payable & L-T bonds 6.25% Federal plus state income tax rate 35% Year-end stock price $77.69 12. Compute ratios of Pettijohn Inc's to evaluate the following areas ) (10 pts) • Liquidity <Two ratios > • Asset management <Four ratios Debt management < Three ratios: No need to compute EBITDA Coverage> Profitability At least five ratios> • Market value ratios <Four ratios

Answer 1

Liquidity Ratios

Current Ratio = Current Assets/Current Liabilities = 24654/18480 = 1.33 times

Quick Ratio = Current Assets - Inventory/Current Liabilities = 11214/18480 = 0.61 times

Asset Management

Fixed Assets Turnover Ratio = Turnover/ Fixed Assets = 58,800/17,346 = 3.39 times

Net Working Capital Turnover Ratio = Turnover/Working Capital = 58,800/(24654 - 18480)= 9.52 times

Total Asset turnover Ratio = Turnover/Total Assets =58,800/42000 = 1.4 times

Inventory Turnover Ratio = Cost of Goods Sold/Inventory = 54978/13440 = 4.09 times

Debt Ratios

Debt to Equity Ratio = Debt/Equity = 29400/12600 = 2.33 times

Total debt to total assets ratio = Total debt/Total assets = 29400/42000 = 0.7 times

Debt Service Ratio = EBIT/Interest = 2793/1050 = 2.66 times

Profitability Ratios

Gross Profit Ratio = Gross Profit/Sales = (58800-54978)/58800*100% = 6.5%

Net Profit Ratio = Net Profit /Sales = 1133/58800*100% = 1.93%

Operating Profit Ratio = Operating Profit/Sales = 2793/58800*100% = 4.75%

Return on Investment ratio = Profit after taxes and Int/Shareholders Funds = 1133/12600*100% = 8.99%

Dividend Payout Ratio = Dividend/Net Income = 509.83/1133*100% = 45%