Show ALL work Ratio Analysis. The Williams Corporation’s forecasted 2010 financi
ID: 2652245 • Letter: S
Question
Show ALL work
Ratio Analysis. The Williams Corporation’s forecasted 2010 financial statements follow, along with some industry average ratios.
Forecasted Balance Sheet as of December 31, 2010
Cash
$ 72,000
Accounts receivables
$ 439,000
Accounts and notes payable
$ 432,000
Inventories
$ 894,000
Accruals
$ 170,000
Total current assets
$1,405,000
Total current liabilities
$ 602,000
Land and building
$ 238,000
Long-term debt
$ 404,290
Machinery
$ 132,000
Common stock
$ 575,000
Other fixed assets
$ 61,000
Retained earnings
$ 254,710
Total assets
$1,836,000
Total liabilities and equity
$1,836,000
Forecasted Income Statement for 2010
Sales
$4,290,000
Cost of goods sold
$3,580,000
Per-Share Data
Gross operating profit
$ 710,000
EPS
$ 4.71
General admin & selling expenses
$ 236,320
DPS
$ 0.95
Depreciation
$ 159,000
P/E Ratio
5.00
Misc.
$ 134,000
Market price
$ 23.57
Earnings before Taxes
$ 180,680
Number of shares outstanding
23000
Taxes
$ 72,272
Net Income
$ 108,408
Industry Financial Ratios
William’s Financial Ratios
Ratio/Comment
Quick Ratio
1x
Quick Ratio
Current Ratio
2.7x
Current Ratio
Inventory Turnover
7x
Inventory Turnover
Days Sales Outstanding
40 days
Days Sales Outstanding
Fixed Asset Turnover
13x
Fixed Asset Turnover
Total Asset Turnover
2.6x
Total Asset Turnover
Return on Assets
9.10%
Return on Assets
Return on Equity
18.20%
Return on Equity
Debt Ratio
55%
Debt Ratio
Profit Margin on Sales
3.50%
Profit Margin on Sales
P/E Ratio
6x
P/E Ratio
Please show all work for the following questions.
a. Calculate the indicated ratios for William’s in the appropriate blanks.
b. Outline William’s strengths and weaknesses as compared to its industry. Be detailed in your ratio analysis.
c. Recommend at least three areas for correction. Be sure to support your recommendations.
d. Why is being trustworthy essential to success in the business world? Use at least two of the following scriptures to answer this question: Psalm 101:7, Proverbs 4:20-27, Proverbs 13:11, and Proverbs 28:12-13.
Forecasted Balance Sheet as of December 31, 2010
Cash
$ 72,000
Accounts receivables
$ 439,000
Accounts and notes payable
$ 432,000
Inventories
$ 894,000
Accruals
$ 170,000
Total current assets
$1,405,000
Total current liabilities
$ 602,000
Land and building
$ 238,000
Long-term debt
$ 404,290
Machinery
$ 132,000
Common stock
$ 575,000
Other fixed assets
$ 61,000
Retained earnings
$ 254,710
Total assets
$1,836,000
Total liabilities and equity
$1,836,000
Explanation / Answer
c.
Fixed Asset Turnover ration is giving indication that William is not able to utilise the Fixed Assets effectively, may because of unused capacity.
Inventory turnover ratio is signalling the stock pile up. In this case it may be like the capacity has been utilised to produce more which Willian is not able to market, whic will cost william inventory carrying cost
Profit Margin is low for William though the debt content is less indicating the action from managment for better cost control.
Detail Formula Ratio Quick Ratio Cash and Cash Equivalents+ Marketable SecuritiesAccounts Receivable/Current Liabilities 0.85 Current Ratio Current Assets/Current Liabilities 2.33 Inventory Turnover Cost Of Goods Sold/Inventory 4.00 Days Sales Outstanding 365/(Sales /Receivable) 37.35 Fixed Asset Turnover Sales/Fixed Assets 9.95 Total Asset Turnover Sales/Fixed Assets+ Current Assets 2.34 Return on Assets Net Profit/Total Assets 5.90% Return on Equity PAT/Equit 13.07% Debt Ratio Debt/Total Assets 22.02% Profit Margin on Sales Net Profit/Sales 2.5%