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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

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.

Answer 1