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Net profit margin and other ratios

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Consider the following set of financial statements:

GLOBAL GOODIES, INC.
Income Statements
(in 000's, except EPS)

2006 2007 2008

Net Sales $2100 $3051 $3814
Cost of Goods Sold 681 995 1040
Gross Profit 1419 2056 2774
Selling & Admin Expenses 610 705 964
Operating Profit 809 1351 1810
Interest Expense 11 75 94
Income Before Tax 798 1276 1716
Income Tax @ 33% 263 421 566
Net Income $535 $855 $1150

Dividends Paid 0 0 0
Increase in Retained Earnings $535 $855 $1150
Avg Number of Common Shares 2326 2326 2326
EPS $0.230 $0.367 $0.494

(see balance sheet, next page)

GLOBAL GOODIES, INC.
BALANCE SHEETS
(in 000's) as of Dec 31, years ended:

2006 2007 2008
Assets:
Cash & Equivalents $224 $103 $167
Accounts Receivable 381 409 564
Inventories 307 302 960
Other Current Assets 69 59 29
Total Current Assets 981 873 1720
Prop. Plant & Equip, Gross 1901 3023 3742
Less Accum Depr (81) (82) (346)
Prop. Plant & Equip, Net 1820 2941 3396
Other Fixed Assets 58 101 200
Total Assets $2859 $3915 $5316

Liabilities & Equity:
Accounts Payable $210 $405 $551
Short Term Debt 35 39 72
Total Current Liabilities 245 444 623
Long Term Debt 17 19 91
Total Liabilities 262 463 714
Common Stock 2062 2062 2062
Retained Earnings 535 1390 2540
Total Equity 2597 3452 4602
Total Liabilities & Equity $2859 $3915 $5316

a. Was Global Goodies more or less profitable in 2008 than it was in 2006? Justify your answer using at least two ratios.

b. Was Global Goodies more or less liquid at the end of 2008 than it was at the end of
2006? Justify your answer using at least two ratios.

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Solution Preview

a. Was Global Goodies more or less profitable in 2008 than it was in 2006? Justify your answer using at least two ratios.

For assesing the profitablity we will calculate:

First ratio: Net profit margin= Net Profit/Sales
For 2008, Net profit margin =1150/3814
30.15%

For 2006, Net profit margin ...

Solution Summary

Response provides guidance to calculate the net profit margin and other ratios

$2.19
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The Eddison Electronics Company (EEC) owns a wide variety of manufacturing companies that make sophisticated electronic controls. You are EEC's corporate business financial analyst.

Scenario:

The Eddison Electronics Company (EEC) owns a wide variety of manufacturing companies that make sophisticated electronic controls. You are EEC's corporate business financial analyst. Your responsibilities include the following:

Creating and analyzing the monthly performance of each company within EEC.
Providing and analyzing costing information for each company within EEC.
Analyzing the major capital projects submitted by each company.

EEC has introduced a new 1.5GB computer memory chip. The following is the plan and first-year results of the 1.5GB chip project and the financial activity for 2006.

ASSIGNMENT:
Using the Library and other course resources, find a manufacturing company's annual report.

Calculate the following ratios for the company selected:

Return on Assets
Return on Equity
Gross Profit Margin
Debt/Equity Ratio
Debt Ratio
Current Ratio
Quick Ratio
Inventory Turnover
Total Asset Turnover
Price Earnings Ratio
Using the calculated ratios, analyze the financial performance of the firm. In a memo to the CEO, explain the ratios calculated. Also address other methods of analyzing financial statements besides ratio analysis. Lastly, explain your analysis of the firm, making recommendations for improvements.

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