90.2K

Verified Solution

Link Copied!

Pamplin, Inc. Balance Sheets
Assets	2012	2013
Cash	$197	$149
Accounts receivable	445	421
Inventories	555	627
Current assets	$1,197	$1,197
Plant and equipment	2,200	2,580
Less: Accumulated depreciation	(1,030)	(1,240)
Net plant and equipment	$1,170	$1,340
Total assets	$2,367	$2,537
Liabilities and Owners' Equity	2012	2013
Accounts payable	$196	$153
Notes payablecurrent (9% interest)	0	150
Current liabilities	$196	$303
Bonds (8.33% interest)	$596	$596
Owners' equity
Common stock	$304	$304
Paid-in capital	601	601
Retained earnings	670	733
Common equity	$1,575	$1,638
Total liabilities and owners' equity	$2,367	$2,537

Pamplin, Inc.
Income Statements	2012	2013
Sales (all credit)	$1,196	$1,454
Cost of goods sold	(696)	(851)
Gross profit	$500	$603
Operating expenses (cash)	$(28)	$(40)
Depreciation	(219)	(202)
Total operating expenses	$(247)	$(242)
Net operating income	$253	$361
Interest expense	(46)	(69)
Earnings before taxes	$207	$292
Income taxes (40%)	(83)	(117)
Net income	$124	$175

A. Compute the following ratios for both 2012 and 2013 using the financial statements below:

Industry Norm
Current ratio	5.00
Acid-test (quick) ratio	3.00
Inventory turnover	2.20
Average collection period	90.0
Debt ratio	33.0%
Times interest earned	7.00
Total asset turnover	0.75
Fixed asset turnover	1.00
Operating profit margin	20.0%
Return on equity	9.0%

b.Compare Pamplin's financial ratios to the industry norms listed above and assess each of the following attributes of the firm's financial condition: liquidity, capital structure, asset managementefficiency, and profitability.

Answer & Explanation Solved by verified expert

See Answer