Analyze the profitability problems encountered

Assignment Help Financial Management

Reference no: EM131903876

As the new financial analyst for Peterson's Chemicals, you have been asked to analyze the profitability problems encountered during the last two years. Current financial statements and selected industry averages are as follows:

PETERSON'S CHEMICALS

FINANCIAL STATEMENTS

(dollars in millions)

PETERSON'S CHEMICALS FINANCIAL STATEMENTS (dollars in millions)

Income Statement	2000	1999
Sales	$1,478	$1,435
Cost of goods sold	(1,182)	(1,076)
Gross profit	296	359
Selling and administrative expenses	(443)	(445)
Operating profit	(147)	(86)
Interest expense	(27)	(29)
Net income	$(174)	$(115)
Balance Sheet	2000	1999
Cash and equivalent	$120	$76
Accounts receivable (net)	432	437
Inventory	324	284
Other current assets	37	38
Total current assets	913	835
Plant, property, and equipment	300	376
Total assets	$1,213	$1,210
Accounts payable	$500	$412
Other current liabilities	309	98
Total current liabilities	809	510
Long-term debt	178	300
Total liabilities	987	810
Owners' equity	226	400
Total liabilities and owners' equity	$1,213	$1,210

Using your analysis of the financial statements, how does Peterson's compare to the following industry averages?

CHEMICAL INDUSTRY AVERAGES
	Industry Ratios

Current ratio	150%
Acid-test ratio	90%
Receivables collection period	65 days
Payables payment period	60 days
Debt/equity	110%
Return on assets	7%
Return on equity	19%

Reference no: EM131903876

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