Martin Manufacturing Case Study

Martin Manufacturing Case Study - Martin Manufacturing's...

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Martin Manufacturing's Financial 1 Calculate the firm’s financial ratios, and then fill in the preceding table. (Assume a 365-day year). Martin Manufacturing Company Historical and Industry Average Ratios Ratio Actual 2004 Actual 2005 Actual 2006 Industry Average 2006 Current ratio 1.7 1.8 2.5 1.5 Quick ratio 1.0 0.9 1.4 1.2 Inventory turnover (times) 5.2 5.0 5.3 10.2 Average collection period 50.7 days 55.8 days 57.9 days 46 days Total asset turnover (times) 1.5 1.5 1.6 2.0 Debt ratio 45.8% 54.3% 57% 24.5% Times interest earned ratio 2.2 1.9 1.6 2.5 Gross profit margin 27.5% 28.0% 27.0% 26.0% Net profit margin 1.1% 1.0% .7% 1.2% Return on total assets (ROA) 1.7% 1.5% 1.1% 2.4% Return on common equity (ROE) 3.1% 3.3% 2.6% 3.2% Price/earnings (P/E) ratio 33.5 38.7 34.5 43.4 Market/book (M/B) ratio 1.0 1.1 .9 1.2 Gitman, L. J. (2006). Principles of Managerial Finance, Brief Fourth Edition . Boston: Pearson Education, Inc. (b) Analyze the firm’s current financial position from both a cross-sectional and a time- series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market. Liquidity The overall liquidity of the company has increased over the last two years. The current level is relatively higher than recent years, with a .7 increase in the current ratio which shows a larger increase in 2006 than in past years, and is a full percentage point over the industry standard. The quick ratio in 2006 has increased over the past two years and surpassed the
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Martin Manufacturing's Financial 2 industry standard. The current liquidity level has gained momentum over the 2004-2006 periods and is slightly higher than the industry standard in 2006 ensuring a strong liquidity for the firm. Activity Martin Manufacturing’s inventory has fluctuated, but has stayed consistent over the past couple of years and has performed at a level well below the industry standard at a difference of 4.9 times the inventory turnover rate. The company has experienced problems with accounts receivable steadily over the past couple of years as well as being well over the industry average.
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This note was uploaded on 07/12/2008 for the course ACC 363 taught by Professor Rossi during the Spring '08 term at University of Phoenix.

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Martin Manufacturing Case Study - Martin Manufacturing's...

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