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Finance

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Normal No Spacing AaBbCcDc abcDdEt ABCD Hangt Heading 2 Heading 3 Consider the Balance Sheet and income Statement for INC Corporation with year ended December 31 (both in $ million): BALANCE SHEET Assets 2006 2005 Liabilities & Stockowner's Equity 2006 2005 Current Assets Current Liabilities Cash 222 19.5 Accounts payable 29.2 24.5 Accounts receivables 18.5 13.2 Notes payable short term debt 4.5 3.2 Inventories 14.2 14.3 Current maturities of long-term debt 13.3 12.3 Other current assets 2.0 1.0 Other current liabilities 3.0 4.0 Total current assets 56.9 48.0 Total current liabilities 50.0 45.0 Long term Assets Long-term Liabilities Land 222 20.7 Long-term debt 98.9 56.3 Buildings 36.5 30.5 Capital lease obligations Equipment 39.2 33.2 Total Debt 98.956.3 Less: Accumulated Depreciation (18.7) (17.5) Deferred taxes 7.6 7.4 Net Property, plant and Equipment 79.7 66.9 other long-teliabilities Goodwill 22.0 Total long-term liabilities 106569.7 Other long-term assets 21.0 140 Total liabilities 156.5 108.7 Totallong term assets 1227 80.9 Stockholders' equity 23.1 20.2 Total Assets 179.6 128.9 Total Liabilities and stockholders' equity 179.5 128.9 United States) IGUAL Aa IS Normal No Spa 0 INCOME STATEMENT 2006 2005 Total Sales 188.8 176.1 Cost of Sales (153.4) (147.3) Gross Profit 35.4 28.8 Selling, General and Administration Expenses (13.5) (13.0) Research and Development (9.2) (7.6) Depreciation and Amortization (2.2) (1.1) Operating Income 10.5 7.1 Other Income Earning Before Interest and Tax (EBIT) Interest Income (or Expense) 10.5 7.1 (7.7) (4.6) Pretax income 2.8 Taxes (0.7) (0.6) Net Income 2.1 1.9 Earnings per share Diluted earnings per share $0.556 $0.528 $0.526 $0.500 United States) Diluted earnings per share $0.526 $0.500 1) Compute the following: Please show the formulas you use! a) Working capital (WC) for INC Corp in 2005 and in 2006. b) Percentage change in working capital [Formula: (2006WC 2005WC)/2005WC x 100] c) 2006 Debt Ratio (Debt to Total Assets) d) 2006 Equity Ratio (shareholder equity/total assets) e) What are your thoughts about the company's capital structure? f) 2006 Gross profit margin g) 2006 Operating margin h) 2006 Net profit margin 1) Based on the company's margins, where do you see a problem with the company? (Professor's Note: I just want your impressions and I also want you to know that in real life, we would go digging around for the back story related to these numbers!) 1 2) What is one new business insight you have gained from working with ratio analysis? Explain

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