Analysis of ratios based on a company's balance sheet
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** Please see the attached file for the complete problem description **
This involves the analysis of the various ratios that can be calculated from the balance sheet, income statement and a statement of cash flow for a company. I basically know how all the ratios are calculated but would still like to have them done for comparison.
The main component of this task is to know what all of the ratios will actually tell someone. For example, once the liquidity ratios are calculated - what do they actually reveal and for what purpose would this information be used.
Attached are the ratios needed and the 3 statements needed to determine the ratios.
(Please see the attached file for better formatting)
OutBack Sportswear, Inc.
Annual Balance Sheet ($ millions)
December 31
Current Year Prior Year
ASSETS
Cash and equivalents 9.5 12.0
Accounts receivable 233.2 203.3
Inventories 133.9 118.8
Total Current Assets 376.6 334.1
Net Plant and equipment 203.8 167.0
Total Assets 580.4 501.1
LIABILITIES & STOCKHOLDER'S EQUITY
Accounts payable 18.8 14.7
Notes payable 66.2 33.2
Accrued expenses 77.7 62.0
Total current liabilities 162.7 109.9
Long-term bonds 74.4 70.2
Other long-term liabilities 19.6 17.7
Total Liabilities 256.7 197.8
Preferred stock 10.0 10.0
Common stock 45.4 45.4
Retained earnings 268.3 247.9
Total common equity 323.7 303.3
Liabilities and stockholders' equity 580.4 501.1
OutBack Sportswear, Inc.
Annual Income Statement
($ millions, except per-share data)
December 31
Sales 546.9 485.8
Cost of goods sold 286.3 247.3
Gross Profit 260.6 238.5
Selling, general & administrative exp. 186.2 180.5
Depreciation & amortization 22.7 20.1
Earnings before interest and taxes (EBIT) 51.7 37.9
Interest Expense 7.7 8.0
Earnings before tax 44.0 29.9
Total income tax 18.1 11.9
Ner Income 25.9 18.0
Preferred dividends 1.0 1.0
Net income available for common 24.9 17.0
Dividends on common stock 4.5 3.6
Addition to retained earnings 20.4 13.4
Per-share data:
Earnings per share 2.77 1.89
Dividends per share 0.50 0.40
Shares outstanding (millions) 9.000 9.000
OutBack Sportswear, Inc.
Statement of Cash Flows ($ millions)
December 31
Cash Flows from Operating Activities
Net Income 25.9
Depreciation and amortization 22.7
Accounts receivable decrease (increase) (29.9)
Inventories decrease (increase) (15.1)
Accounts payable increase (decrease) 4.1
Accrued expenses increase (decrease) 15.7
Net cash provided by (used in) operating activities 23.4
Cash Flows from Investing Activities
Purchase of plant and equipmemt (59.5)
Net cash provided by (used in) investing activities (59.5)
Cash Flows from Financing Activities
Notes payable increase (decrease) 33
Issuance of long-term debt, net 4.2
Increase in other long-term liabilities 1.9
Cash dividends (preferred and common) (5.5)
Net cash provided by (used in) financing activities 33.6
Net increase (decrease) in cash and equivalents (2.5)
Cash and equivalents, beginning of year 12.0
Cash and equivalents, end of year 9.5
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Analysis of ratios
The company's liquidity position as indicated by the ratios is pretty good. The current ratio and quick ratio are a healthy 2.31 and 1.49 respectively indicating that the company has sufficient liquid assets to pay its current liabilities. Both these ratios have however declined compared to previous year but are still indicative of strong liquidity position.
The asset activity ratios have remained stable (with a slight negative bias) in the current period as compared to last year. The company's receivables turnover is low and has also declined this year both indicating that the company has a high amount blocked in receivables that does not earn interest (interest-free credit period extended to customers). This can also be gauged from the days' sales outstanding number which indicates that the company takes 156 days to collect its receivables. Higher the ratio, the better it is as it indicates that the company has less amount blocked in receivables and collects its receivables faster.
Inventory turnover suggests how often the inventory is converted into sales in a year. The more number of times it does, the better it is. The company's inventory turnover has shown a marginal increase. This is also evident from the fact that its days' sales in inventory has declined marginally. This suggests that the company carried a little lesser inventory on its hand this year but it was still equal to 171 days' sales.
Fixed asset ...
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