The Corrigan Corporation's 2004 and 2005 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 debit management position, and determine how it compares with peers and how its debt management has changed over time
D.Asses Corrigan's profitability ratios, and determine how they compare with peers and how the profitability position has changed over time.
E.Assess Corrigan's market value ratios, and determine how their valuation compares with peers and how it has changed over time.
F.Calculate Corrigan's ROE, as well as the industry average ROE, using the extended Du Pont 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 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
Cash $72,00 $65,00
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 and notes payable 432,000 409,500
Accrued liabilities 170,000 162,000
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 year ending December 31
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 236,320 213,550
Depreciation 159,000 154,500
Miscellaneous 134,000 127,000
Earnings before taxes (EBT) 30,680 159,950
Taxes (40%) 12,272 63,980
Net income 18,408 95,970
Per share data
EPS $0.80 $4.17
Cash dividends $1.10 $0.95
Market price (average) $12.34 $23.57
P/E ratio 15.4x 5.65x
Number of shares outstanding 23,000 23,000
Industry financial ratios*
Inventory turnover* 7.0x
Days sales outstanding* 32 days
Fixed assets turnover* 13.0x
Total assets turnover* 2.6x
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin on sales 3.5%
P/E ratio 6.0x
Price/cash flow ratio 3.5x
*(industry financial ratio)-Industry average ratios have been constant for the past 4 years
*(Inventory turnover, fixed assets turnover and total assets turnover)-based on year-end balance sheet figures
*(Days sales outstanding)- Calculation is based on a 365-day year