RATIO ANALYSIS The Corrigan Corporation’s 2017 and 2018 financial statements follow, along with some industry average ratios. a. Assess Corrigan’s liquidity position, and determine how it compares with peers and how the liquidity position has changed over time. b. Assess Corrigan’s asset management position, and determine how it compares with peers and how its asset management efficiency has changed over time. c. Assess Corrigan’s debt management position, and determine how it compares with peers and how its debt management has changed over time. d. Assess Corrigan’s profitability ratios, and determine how they compare with peers and how its profitability position has changed over time. e. Assess Corrigan’s market value ratios, and determine how its valuation compares with peers and how it has changed over time. Assume the firm’s debt is priced at par, so the market value of its debt equals its book value. f. Calculate Corrigan’s ROE as well as the industry average ROE, using the DuPont equation. From this analysis, how does Corrigan’s financial position compare with the industry average numbers? g. What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts. Corrigan Corporation: Balance Sheets as of December 31 2018 2017 Cash $ 72,000 $ 65,000 Accounts receivable 439,000 328,000 Inventories 894,000 813,000 Total current assets $ 1,405,000 $ 1,206,000 Land and building 238,000 271,000 Machinery 132,000 133,000 Other fixed assets 61,000 57,000 Total assets $ 1,836,000 $ 1,667,000 Accounts payable $ 80,000 $ 72,708 Accrued liabilities 45,010 40,880 Notes payable 476,990 457,912 Total current liabilities $ 602,000 $ 571,500 Long-term debt 404,290 258,898 Common stock 575,000 575,000 Retained earnings 254,710 261,602 Total liabilities and equity $1,836,000 $ 1,667,000 Corrigan Corporation: Income Statements for Years Ending December 31 2018 2017 Sales $4,240,000 $ 3,635,000 Cost of goods sold 3,680,000 2,980,000 Gross operating profit $ 560,000 $ 655,000 General administrative and selling expenses 303,320 297,550 Depreciation 159,000 154,500 EBIT $ 97,680 $ 202,950 Interest 67,000 43,000 Earnings before taxes (EBT) $ 30,680 $ 159,950 Taxes (40%) 12,272 63,980 Net income $ 18,408 $ 95,970 Per-Share Data 2018 2017 EPS $ 0.80 $ 4.17 Cash dividends $ 1.10 $ 0.95 Market price (average) $12.34 $23.57 P/E ratio 15.423 5.653 Number of shares outstanding 23,000 23,000 Industry Financial Ratiosa 2018 Current ratio 2.73 Inventory turnoverb 7.03 Days sales outstandingc 32.0 days Fixed assets turnoverb 13.03 Total assets turnoverb 2.63 Return on assets 9.1% Return on equity 18.2% Return on invested capital 14.5% Profit margin 3.5% Debt-to-capital ratio 50.0% P/E ratio 6.03 M/B ratio 1.5 EV/EBITDA ratio 6.0 a Industry average ratios have been constant for the past 4 years. b Based on year-end balance sheet figures. c Calculation is based on a 365-day year.
RATIO ANALYSIS The Corrigan Corporation’s 2017 and 2018 financial statements follow,
along with some industry average ratios.
a. Assess Corrigan’s liquidity position, and determine how it compares with peers and
how the liquidity position has changed over time.
b. Assess Corrigan’s asset management position, and determine how it compares with
peers and how its asset management efficiency has changed over time.
c. Assess Corrigan’s debt management position, and determine how it compares with
peers and how its debt management has changed over time.
d. Assess Corrigan’s profitability ratios, and determine how they compare with peers
and how its profitability position has changed over time.
e. Assess Corrigan’s market value ratios, and determine how its valuation compares with
peers and how it has changed over time. Assume the firm’s debt is priced at par, so
the market value of its debt equals its book value.
f. Calculate Corrigan’s ROE as well as the industry average ROE, using the DuPont
equation. From this analysis, how does Corrigan’s financial position compare with the
industry average numbers?
g. What do you think would happen to its ratios if the company initiated cost-cutting
measures that allowed it to hold lower levels of inventory and substantially decreased
the cost of goods sold? No calculations are necessary. Think about which ratios would
be affected by changes in these two accounts.
Corrigan Corporation: Balance Sheets as of December 31
2018 2017
Cash $ 72,000 $ 65,000
Accounts receivable 439,000 328,000
Inventories 894,000 813,000
Total current assets $ 1,405,000 $ 1,206,000
Land and building 238,000 271,000
Machinery 132,000 133,000
Other fixed assets 61,000 57,000
Total assets $ 1,836,000 $ 1,667,000
Accounts payable $ 80,000 $ 72,708
Accrued liabilities 45,010 40,880
Notes payable 476,990 457,912
Total current liabilities $ 602,000 $ 571,500
Long-term debt 404,290 258,898
Common stock 575,000 575,000
Retained earnings 254,710 261,602
Total liabilities and equity $1,836,000 $ 1,667,000
Corrigan Corporation: Income Statements for Years Ending December 31
2018 2017
Sales $4,240,000 $ 3,635,000
Cost of goods sold 3,680,000 2,980,000
Gross operating profit $ 560,000 $ 655,000
General administrative and selling expenses 303,320 297,550
Depreciation 159,000 154,500
EBIT $ 97,680 $ 202,950
Interest 67,000 43,000
Earnings before taxes (EBT) $ 30,680 $ 159,950
Taxes (40%) 12,272 63,980
Net income $ 18,408 $ 95,970
Per-Share Data
2018 2017
EPS $ 0.80 $ 4.17
Cash dividends $ 1.10 $ 0.95
Market price (average) $12.34 $23.57
P/E ratio 15.423 5.653
Number of shares outstanding 23,000 23,000
Industry Financial Ratiosa
2018
Current ratio 2.73
Inventory turnoverb 7.03
Days sales outstandingc 32.0 days
Fixed assets turnoverb 13.03
Total assets turnoverb 2.63
Return on assets 9.1%
Return on equity 18.2%
Return on invested capital 14.5%
Profit margin 3.5%
Debt-to-capital ratio 50.0%
P/E ratio 6.03
M/B ratio 1.5
EV/EBITDA ratio 6.0
a
Industry average ratios have been constant for the past 4 years.
b
Based on year-end balance sheet figures.
c
Calculation is based on a 365-day year.
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