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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
Assess Corrigan’s debt management position and determine how it compares with
peers and how its debt management has changed over time.
d. Assess Cortigan’s profitability ratios and determine how they compare with peers and
how its profitability position has changed over time.
fe. Assess Corrigan’s market value ratios and determine how its valuation compares with
peers and how it has changed over time.
£ 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
Total assets $1,836,000
Accounts and notes payable $ 432,000 $ 409,500
Accrued liabilities 170,000 162,000
Total current lial $ 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 Corporatio
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
Per-Share Data
2008 2007
EPS $0.80 $4.17
Cash dividends $1.10 $0.95
Market price (average) $12.34 $2357
PIE ratio 15.4x 5.65x
Number of shares outstanding 23,000 23,000
Industry Financial Ratios”
2008
Current ratio 27x
Inventory turnover” 7.0x
Days sales outstanding® 32.0 days
Fixed assets turnover” 13.0x
Total assets turnover” 26x
Return on assets 9.1%
Return on equity 18.2%
Debt ratio 50.0%
Profit margin 3.5%
P/E ratio 60x
/cash flow ratio 35x
®industry average ratios have been constant for the past 4 years.
Based on year-end balance sheet figures.
Calculation is based on a 365-day year.
