Refer to exhibits 2.1 and 2.2 to use the data to evaluate current ratio, quick ratio, debt ratio, times interest earned, payables turnover, receivables turnover, inventory turnover, return on equity, return on sales, payables conversion period, receivables conversion period, inventory conversion period, and cash conversion cycle. Then comment on the financial strength or weakness of the corporation based on these ratios and cycles. EXHIBIT 2.2 Rengas Company and Plastic Manufacturing Industry RatiosRengasIndustryCurrent ratio2.91.6Quick ratio3.30.9Debt ratio50.0%50.0%Times interest earned6.33.6Receivables turnover5.57.3Average collection period days66.049.3Inventory turnover6.77.1Days in inventory54.850.7Return-on-equity21.8%10.9%Return-on-sales9.0%3.0%Source: RMA, Annual Statement Studies, Industry NAICS 326122, for companies with greater than$25 million in sales EXHIBIT 2.1 Rengas Company Income Statement (for the years endedDecember 31, 2012, and 2013)20122013Sales$125,000,000$150,000,000Less: Cost of goods sold85,000,000100,000,000Gross profits40,000,00050,000,000Less: Selling and administrative expense15,000,00020,000,000Less: Depreciation expense3,000,0005,000,000Operating profit22,000,00025,000,000Less: Interest expense4,000,0004,000,000Earnings before taxesLess: Corporate taxes (at 35%)18,000,00021,000,0006,300,0007,350,000Net income after taxes$11,700,000$13,650,000Dividends paid$6,000,000$ 7,400,000

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Refer to exhibits 2.1 and 2.2 to use the data to evaluate current ratio, quick ratio, debt ratio, times interest earned, payables turnover, receivables turnover, inventory turnover, return on equity, return on sales, payables conversion period, receivables conversion period, inventory conversion period, and cash conversion cycle. Then comment on the financial strength or weakness of the corporation based on these ratios and cycles.

Refer to exhibits 2.1 and 2.2 to use the data to evaluate current ratio, quick ratio, debt ratio, times interest earned, payables turnover, receivables turnover, inventory turnover, return on equity, return on sales, payables conversion period, receivables conversion period, inventory conversion period, and cash conversion cycle. Then comment on the financial strength or weakness of the corporation based on these ratios and cycles.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter2: Financial Statements, Cash Flow, And Taxes

Section: Chapter Questions

Problem 14SP

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