The Portable MBA in Finance and Accounting, 3rd Edition

Business Valuation 603

The profitability ratios ref lect the returns earned by ACME and assist in
evaluating management performance. ACME has been consistently profitable
in each of the past five years. The earnings before taxes to tangible worth f luc-
tuated between 55% and 66%. Officers’ compensation ranged from $2.2 mil-
lion to $3.6 million during the five years and was $3.4 million in the most
recent year.

EXHIBIT 18.3 ACME Manufacturing Inc.: Revenue growth 1996 –2000.

Year

Dollars (millions)

Revenues

1996 1997 1998 1999 2000

$-

10

20

30

40

50

60

EXHIBIT 18.4 ACME Manufacturing Inc.: Ratio analysis 1996 –2000.

2000 1999 1998 1997 1996

Liquidit y ratios:
Current ratio 1.0 1.8 1.4 2.2 1.9
Quick ratio 0.6 1.1 0.9 1.3 1.1
Activ it y ratios:
Revenue/accounts receivable 7.3 7.5 7.0 7.8 7.2
Days’ receivable 49.8 48.6 52.4 46.9 50.4
COS/inventory 7.8 7.6 6.4 7.2 6.3
Days’ inventory 46.6 47.8 57.2 50.5 58.1
COS/payables 7.6 9.4 4.9 7.4 7.6
Days’ payables 47.7 39.0 73.9 49.2 48.0
Revenue/working capital 274.2 9.4 11.4 7.5 7.8
Coverage/leverage ratios:
EBIT/interest 7.3 8.4 8.4 13.0 8.3
Fixed assets/tangible worth 1.5 1.1 1.5 0.9 1.0
Debt /tangible worth 1.8 1.5 2.6 1.0 1.5
Profitability & operating ratios:
EBT/tangible worth 55.4% 58.8% 63.4% 62.8% 65.5%
EBT/total assets 18.4% 22.1% 16.2% 30.8% 26.0%
Revenue/fixed assets 3.6 4.7 4.4 5.0 4.9
Revenue/total assets 1.8 2.0 1.6 2.1 2.0