Comprehensive Ratio Analysis

Comprehensive Ratio Analysis

P3. Tuxedo Corporation’s condensed comparative income statements and balance sheets follow. All figures are given in thousands of dollars, except earnings per share.

✔ 1a: 2014 Current ratio: 1.5  times

✔ 1e: 2014 Inventory turnover: 3.9 times

✔ 2c: 2014 Return on assets: 5.0%

tuxedo CorporationComparative Income Statements

For the years ended December 31, 2014 and 2013

✔ 3b: 2014 Return on equity: 8.2%

✔ 4a: 2014 Cash flow yield: 1.7 times

✔ 5b: 2014 Dividend yield: 1.3%

2014                             2013

Net sales

$800,400

$742,600

Cost of goods sold

454,100

396,200

Gross margin

$346,300

$346,400

Operating expenses:

Selling expenses

$130,100

$104,600

Administrative expenses

140,300

115,500

Total operating expenses

$270,400

$220,100

Income from operations

$  75,900

$126,300

Interest expense

25,000

20,000

Income before income taxes

$  50,900

$106,300

Income taxes expense

14,000

35,000

Net income

$  36,900

$  71,300

Earnings per share

$      2.46

$      4.76

tuxedo Corporation Comparative Balance Sheets December 31, 2014 and 2013

Cash

Assets

2014

$  31,100

2013

$  27,200

Accounts receivable (net)

72,500

42,700

Inventory

122,600

107,800

Property, plant, and equipment (net)

577,700

507,500

Total assets

$803,900

$685,200

Liabilities and Stockholders’ equity

Accounts payable

$104,700

$  72,300

Notes payable (short-term)

50,000

50,000

Bonds payable

200,000

110,000

Common stock, $10 par value

300,000

300,000

Retained earnings

149,200

152,900

Total liabilities and stockholders’ equity

$803,900

$685,200

Additional data for Tuxedo in 2014 and 2013 follow.

2014

2013

Net cash flows from operating activities

$64,000

$99,000

Net capital expenditures

$119,000

$38,000

Dividends paid

$31,400

$35,000

Number of common shares

30,000

30,000

Market price per share

$80

$120

Balances of selected accounts at the end of 2012 were accounts receivable (net), $52,700; inventory, $99,400; accounts payable, $64,800; total assets, $647,800; and stockhold- ers’ equity, $376,600. All of the bonds payable were long-term liabilities.

ReQUIReD

Perform the following analyses. (Round to one decimal place.)

1.    Prepare an operating asset management analysis by calculating for each year the

(a)    current ratio, (b) quick ratio, (c) receivables turnover, (d) days’ sales uncol- lected, (e) inventory turnover, (f) days’ inventory on hand, (g) payables turnover,

(h) days’ payable, and (i) financing period.

2.    Prepare a profitability and total asset management analysis by calculating for each year the (a) profit margin, (b) asset turnover, and (c) return on assets.

3.    Prepare a financial risk analysis by calculating for each year the (a) debt to equity ratio, (b) return on equity, and (c) interest coverage ratio.

4.    Prepare a liquidity analysis by calculating for each year the (a) cash flow yield, (b) cash flows to sales, (c) cash flows to assets, and (d) free cash flow.

5.    Prepare an analysis of market strength by calculating for each year the (a) price/ earnings (P/E) ratio and (b) dividend yield.

6.    aCCounting ConneCtion ▶ After making the calculations, indicate whether each ratio improved or deteriorated from 2013 to 2014 (use F for favorable and U for unfavorable and consider changes of 0.1 or less to be neutral)