Question

Given the BS and IS for Simmons Mfg. Co., compute the ratios on the next page. For each ratio indicate if Simmons is doing better or worse than the industry average by providing an “x” in the appropriate box. SHOW CALCULATIONS ON NEXT PAGE BELOW THE CHART. 20 points

SIMMONS MANUFACTURING COMPANY

Balance Sheet

      Assets                                                                          Liabilities and Stockholders’ Equity

     

      Cash                            $ 15,000                                 Accounts Payable                   $ 21,000

      Accts. Receivable           22,000                                 Notes Payable                             20,000

      Inventory                        30,000                                 Accrued Expenses                        5,000

         Current Assets             67,000                                 Current Liabilities                       46,000

      Net Fixed Assets            73,000                                 Long-Term Debt                         30,000

                                                                                          Stockholders’ Equity                  64,000

                                                                                          Total Liabilities +

      Total Assets               $ 140,000                                Stockholders equity                 $140,000                   

                                      Income Statement

      Sales (80% credit)                                                                   $120,000

      Less: COGS                                                                                45,000

      Gross Profit                                                                                 75,000

      Selling & Administrative Expenses                                           20,000

      Rent Expense (lease)                                                                     8,000

      EBIT                                                                                           47,000

      Interest Expense                                                                           5,000

      EBT                                                                                             42,000

      Taxes (25%)                                                                                10,500

      Net Income                                                                             $ 31,500

Common Shares outstanding                    15,000

EPS                                                           $ 2.10

Ratio	Ratio For Simmons	Industry Average Ratios	Better	Worse
Profit margin	26.25%	17.5%
Return on assets	22.50%	20.8%
Return on equity	49.22%	35%
Receivables Turnover	4.36x	4.44x
Avg. Collection Period	82.5 days	68.0 days
Fixed asset turnover	1.64x	2.4x
Total asset turnover	.86x	.76x
Quick Ratio	.80	.85
Debt to Total Assets	.54	.45
Times interest earned	9.4x	12.0x

Answer 1