88 PART 1 Introduction to Managerial Finance
LG6 2–20 Financial statement analysis The financial statements of Zach Industries for the
year ended December 31, 2003, follow.Zach Industries
Balance Sheet
December 31, 2003
AssetsCash $ 500
Marketable securities 1,000
Accounts receivable 25,000Inventories (^4) (^5) , (^5) (^0) (^0)
Total current assets $ (^7) (^2) , (^0) (^0) (^0)
Land $ 26,000
Buildings and equipment 90,000
Less: Accumulated depreciation (^3) (^8) , (^0) (^0) (^0)
Net fixed assets $ (^7) (^8) , (^0) (^0) (^0)
Total assets $
1
5
0
,
0
0
0
Liabilities and Stockholders’ Equity
Accounts payable $ 22,000
Notes payable (^4) (^7) , (^0) (^0) (^0)
Total current liabilities $ (^6) (^9) , (^0) (^0) (^0)
Long-term debt $ 22,950
Common stocka $ 31,500
Retained earnings $ (^2) (^6) , (^5) (^5) (^0)
Total liabilities and stockholders’ equity $
1
5
0
,
0
0
0
aThe firm’s 3,000 outstanding shares of common stock closed
2003 at a price of $25 per share.
Zach Industries
Income Statement
for the Year Ended December 31, 2003
Sales revenue $160,000
Less: Cost of goods sold (^1) (^0) (^6) , (^0) (^0) (^0)
Gross profits $ (^5) (^4) , (^0) (^0) (^0)
Less: Operating expenses
Selling expense $ 16,000
General and administrative expenses 10,000
Lease expense 1,000
Depreciation expense (^1) (^0) , (^0) (^0) (^0)
Total operating expense $ (^3) (^7) , (^0) (^0) (^0)
Operating profits $ 17,000
Less: Interest expense (^6) , (^1) (^0) (^0)
Net profits before taxes $ 10,900
Less: Taxes (^4) , (^3) (^6) (^0)
Net profits after taxes $
6
,
5
4
0
Ratio Industry average, 2003
Current ratio 2.35
Quick ratio 0.87
Inventory turnovera 4.55
Average collection perioda 35.3 days
Total asset turnover 1.09
Debt ratio 0.300
Times interest earned ratio 12.3
Gross profit margin 0.202
Operating profit margin 0.135
Net profit margin 0.091
Return on total assets (ROA) 0.099
Return on common equity (ROE) 0.167
Earnings per share (EPS) $3.10
aBased on a 360-day year and on end-of-year figures.