Reference no: EM13971197

RATIO ANALYSIS:

The Corrigan Corporation's 2007 and 2008 financial statements follow, along with some industry average ratios.

a. Assess Corrigan's liquidity position and determine how it compares with peers and how the liquidity position has changed over time.

b. Assess Corrigan's asset management position and determine how it compares with peers and how its asset management efficiency has changed over time.

c. Assess Corrigan's debt management position and determine how it compares with peers and how its debt management has changed over time.

d. Assess Corrigan's profitability ratios and determine how they compare with peers and how its profitability position has changed over time.

e. Assess Corrigan's market value ratios and determine how its valuation compares with peers and how it has changed over time.

f. Calculate Corrigan's ROE as well as the industry average ROE using the DuPont equation. From this analysis, how does Corrigan's financial position compare with the industry average numbers?

g. What do you think would happen to its ratios if the company initiated cost-cutting measures that allowed it to hold lower levels of inventory and substantially decreased the cost of goods sold? No calculations are necessary. Think about which ratios would be affected by changes in these two accounts.

Corrigan Corporation: Balance Sheets as of December 31

	2008		2007
Cash	$    72,000		$    65,000
Accounts receivable	439,000		328,000
Inventories	894,000		813,000
Total current assets	$1,405,000		$1,206,000
Land and building	238,000		271,000
Machinery	132,000		133,000
Other fixed assets	61,000		57,000
Total assets	$1,836,000		$1,667,000
Accounts and notes payable	$   432,000		$   409,500
Accrued liabilities	170,000		162,000
Total current liabilities	$   602,000		$   571,500
Long-term debt	404,290		258,898
Common stock	575,000		575,000
Retained earnings	254,710		261,602
Total liabilities and equity	$1,836,000		$1,667,000

Corrigan Corporation: Income Statements for Years Ending December  31

		2008		2007
Sales		$4,240,000		$3,635,000
Cost of goods sold		3,680,000		2,980,000
Gross operating profit		$   560,000		$   655,000
General administrative and selling expenses		236,320		213,550
Depreciation		159,000		154,500
Miscellaneous		134,000		127,000
Earnings before taxes (EBT)		$   30,680		$   159,950
Taxes (40%)		12,272		63,980
Net income		$     18,408		$     95,970
	Per-Share Data
		2008	2007
EPS		$0.80	$4.17
Cash dividends		$1.10	$0.95
Market price (average)		$12.34	$23.57
P/E ratio Number of shares outstanding		15.4X 23,000	5.65X 23,000

Industry Financial Ratiosa

 2008

Current ratio                                                               2.7X

Inventory turnoverb                                                                                       7.0X

Days sales outstandingc                                                                                32 days

Fixed assets turnoverb                                                                                   13.0X

Total assets turnoverb                                                                                     2.6X

Return on assets                                                          9.1%

Return on equity                                                        18.2%

Debt ratio                                                                 50.0%

Profit margin                                                              3.5%

P/E ratio                                                                     6.0X

Price/cash flow ratio                                                     3.5X

aIndustry average ratios have been constant for the past 4 years.

bBased on year-end balance sheet figures.

cCalculation is based on a 365-day year.