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    Case Study

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    Raisa Tasnim
    This document provides the income statement and balance sheet for Martin Manufacturing Company for the years ended 2005 and 2006. It asks to calculate the Price/Earnings (P/E) ratio and Market/Book (M/B) ratio for the company using the financial information provided.

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    Case Study

    Uploaded by

    Raisa Tasnim
    40 views2 pages
    This document provides the income statement and balance sheet for Martin Manufacturing Company for the years ended 2005 and 2006. It asks to calculate the Price/Earnings (P/E) ratio and Market/Book (M/B) ratio for the company using the financial information provided.

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    © © All Rights Reserved

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    This document provides the income statement and balance sheet for Martin Manufacturing Company for the years ended 2005 and 2006. It asks to calculate the Price/Earnings (P/E) ratio and Market/Book (M/B) ratio for the company using the financial information provided.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    40 views2 pages

    Case Study

    Uploaded by

    Raisa Tasnim
    This document provides the income statement and balance sheet for Martin Manufacturing Company for the years ended 2005 and 2006. It asks to calculate the Price/Earnings (P/E) ratio and Market/Book (M/B) ratio for the company using the financial information provided.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    I need to determine that I have correctly figured the Price/Earnings (P/E) and

    Market/Book (M/B) ratios. I am attaching the balance sheet and the income statement in
    a word document so that these ratios can be answered.
    Chapter 2 Case : Assessing Martin Manufacturing's Current Financial Position
    Using the following information, I need the Price/Earnings (P/E) ratio and the
    Market/Book (M/B) ratios.
    Martin Manufacturing Company
    Income Statement for the
    Year Ended December 31, 2006
    Sales revenue $5,075,000
    Less: Cost of goods sold 3,704,000
    Gross profits $1,371,000
    Less: Operating expenses
    Selling expense $650,000
    General and administrative expenses 416,000
    Depreciation expense 152,000
    Total operating expense 1,218,000
    Operating profits $ 153,000
    Less: Interest expense 93,000
    Net profits before taxes $ 60,000
    Less: Taxes (rate = 40%) 24,000
    Net profits after taxes $ 36,000
    Less: Preferred stock dividends 3,000
    Earnings available for common stockholders $ 33,000
    Earnings per share (EPS) $0.33
    Martin Manufacturing Company
    Balance Sheets
    December 31
    Assets 2006 2005
    Current assets
    Cash $ 25,000 $ 24,100
    Accounts receivable 805,556 763,900
    Inventories 700,625 763,445
    Total current assets $1,531,181 $1,551,445
    Gross fixed assets (at cost) $2,093,819 $1,691,707
    Less: Accumulated depreciation 500,000 348,000
    Net fixed assets $1,593,819 $1,343,707
    Total assets $3,125,000 $2,895,152
    Liabilities and Stockholders' Equity
    Current liabilities
    Accounts payable $ 230,000 $ 400,500
    Notes payable 311,000 370,000
    Accruals 75,000 100,902
    Total current liabilities $ 616,000 $ 871,402
    Long-term debt $1,165,250 $ 700,000
    Total liabilities $1,781,250 $1,571,402
    Stockholders' equity
    Preferred stock (2,500 shares, $1.20 dividend) $ 50,000 $ 50,000
    Common stock (100,000 shares at $4 par)a
    400,000 400,000
    Paid-in capital in excess of par value 593,750 593,750
    Retained earnings 300,000 280,000
    Total stockholders' equity $1,343,750 $1,323,750
    Total liabilities and stockholders' equity $3,125,000 $2,895,152
    aThe firm's 100,000 outstanding shares of common stock closed 2006 at a price of
    $11.38 per share.
    Calculate the firm’s 2003 financial ratios, and then fill in the preceding table. Solution: Martin
    Manufacturing Company Historical ratios Actual Actual Actual Industry average Ratio 2001 2002 2003
    2003 Current ratio 1.7 1.8 Current Assets / Current Liabilities 1531181/616000 2.5 1.5 Quick ratio 1 0.9
    (Current Assets- Prepaid Expenses - Inventories) / Current Liabilities (1531181-700625)/616001 1.3 1.2
    Inventory turnover (times) 5.2 5 Cost of Goods Sold/ Average Inventory 3704400/((700625+763445)/2)
    5.1 10.2 Average collection period 50 days 55 days 365/ Inventory Turnover Ratio 365/5.1 72 days 46
    days Total asset turnover (times) 1.5 1.5 Sales/ Average Assets 5075000/((3125000+2895152)/2) 1.7 2
    Debt ratio 45.80% 54.30% Debt / Total Assets 1781250/3125000 57.0% 24.50% Times interest earned
    ratio 2.2 1.9 EBIT/ Interest Expense 153000/93000 1.6 2.5 Gross profit margin 27.50% 28.00% Gross
    Profit/ Sales 1371000/5075000 27.01% 26.00% Net profit margin 1.10% 1.00% Net Profit/ Sales
    36000/5075001 0.71% 1.20% Return on total assets (ROA) 1.70% 1.50% Net income / Average Total
    Assets 36000/((3125000+2895152)/2) 1.20% 2.40% Return on common equity (ROE) 3.10% 3.30% Net
    income / Average Total Equity 36000/((1343750+1323750)/2) 2.70% 3.20% Price/earnings (P/E) ratio
    33.5 38.7 MPS/ EPS 11.38/.33 $ 34.5 43.4 Market/book (M/B) ratio 1 1.1 Stock Price/(Total Assets -
    Intangible Assets and liabilities) (11.38*100000)/($3125,000-0) 0.4 1.2 b. Analyze the firm’s current
    financial...

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