Everelite Case Study

1752 Words Jan 27th, 2013 8 Pages

1. Why are ratios useful? What are the five major categories of ratios? * Ratios are used by managers to help improve firm’s performance, by lenders to help evaluate the firm’s likelihood of repaying debt and by stakeholders to help forecast future earnings and dividends. There are five major categories of ratio profitability, asset management, debt management, liquidity and market value.

2. Calculate Everelite’s 2009 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity positions in 2007, in 2008, and as projected for 2009? We often think of ratios as being useful (1) to managers to help run the
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How does Everelite compare with the industry with respect to financial leverage? What can you conclude form these ratios?

Year 2009
Debt Ratio = Total Debt/Total Assets = ($1073192 + $656600)/ $2298924 = 75%
Times-Interest-Earned-Ratios = EBIT/Interest Expenses = $161726/ $27434 = 5.9x * The company’s debt ratios were increased through years since 2007. This shows that the company has more debt than assets. The company might want to magnify earnings or because selling new stock would mean giving up control.

5. Calculate the 2009 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
Year 2009
Profit Margin = Net Income/ Sales = $80575/$2069032 = 3.89%
Basic Earning Power (BEP) = EBIT/Total Assets = $161726/$2298924 = 7%

Return on Assets (ROA) = Net Income/Total Assets = $80575/$2298924 = 3.5%
Return on Equity (ROE) = Net Income/Total Equity = $80575/$569132 = 14%

6. Calculate the 2009 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
Year 2009
Price/Earnings Ratio = Price per Share/ Earning Per Share *Find EPS = Net Income/Share Outstanding = $80575/10000 = $0.81 *Find P/E Ratio =

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