Fundamentals of Financial Management (Concise 6th Edition)

104 Part 2 Fundamental Concepts in Financial Management

Tabl e 4 - 3 Allied Food Products: Summary of Financial Ratios (Millions of Dollars)

Ratio Formula Calculation Ratio

Industry

Average Comment

Liquidity

Current _______________Current assets

Current liabilities

$1,000______

$310

(^) = 3.2# 4.2# Poor
Quick Current assets ____Current liabilities " Inventories (^) $310$385_ = 1.2# 2.2# Poor
Asset Management
Inventory turnover __InventoriesSales $3,000__
$615
(^) = 4.9# 10.9# Poor
Days sales outstanding
(DSO)
___Receivables
Annual sales/365
___$375
$8.2192
= 46 days 36 days Poor
Fixed assets turnover __Net fixed assetsSales __$3,000
$1,000
= 3.0# 2.8# OK
Total assets turnover (^) Total assets__Sales __$3,000
$2,000
= 1.5# 1.8# Somewhat low
Debt Management
Total debt to total assets __Total assetsTotal debt __$1,060$2,000 = 53.0% 40.0% High (risky)
Times interest earned (TIE)
Earnings before interest and taxes (EBIT)
__ (^) Interest charges __$283.8$88 = 3.2# 6.0# Low (risky)
Profitability
Operating margin
Operating income (EBIT)

Sales
__$283.8
$3,000
= 9.5% 10.0% Low
Profit margin Net income__Sales __$117.5
$3,000
= 3.9% 5.0% Poor
Return on total assets (ROA) Net income__Total assets __$117.5$2,000 = 5.9% 9.0% Poor
Basic earning power (BEP)
Earnings before interest and taxes (EBIT)
__ (^) Total assets __$283.8$2,000 = 14.2% 18.0% Poor
Return on common equity
(ROE)
Common equity__^ Net income^ $117.5__^
$940
= 12.5% 15.0% Poor
Market Value
Price/earnings (P/E)
Price per share
Earnings per share____^ $23.06^ __$2.35^ = 9.8# 11.3# Low
Market/book (M/B)
Market price per share
___Book value per share $23.06 __$18.80 = 1.2# 1.7# Low
4-10 SUMMARY OF ALLIED’S RATIOS
Table 4-3 provides a summary of the ratios we have discussed in the chapter. This
table is useful as a quick reference for the formulas, for calculations, and for the
ratios of Allied and the average food processing company.