The Ferri Furniture Company: Balance Sheet as of December 31, 2016 (In Thousands)
Cash $ 277,000 Accounts Payable $ 169,000 Receivables 220,000 Notes Payable 74,000 Inventories 145,000 Other current liabilities 57,000 Total current assets $ 642,000 Total current liabilities $ 300,000 Net fixed assets 305,000 Long-term debt 66,500 Common equity 581,000 Total assets $ 947,500 Total liabilities & equity $ 947,500
The Ferri Furniture Company: Income Statement for Year Ended December 31, 2016 (In Thousands) Sales $ 3,231,000 Cost of Goods Sold Material $ 717,000 Labour 453,000 Heat, light and power 68,000 Indirect labour 113,000 Depreciation 41,500 1,838,500 Gross Profit $ 1,392,500 Selling Expenses 115,000 General and Administrative expenses 30,000 Earnings before interest and taxes (EBIT) $ 1,247,500 Interest expense 22,500 Earnings before taxes (EBT) 1,225,000 Corporate taxes (40%) 490,000 Net income $ 735,000
A – Calculate and interpret the financial ratios for 2016 corresponding to the industry norms provided as follows:
INDUSTRY NORMS Current ratio 1.5 Inventory turnover 3 Total asset turnover 1 Operating profit margin 18% Operating income return on investment 18% Debt ratio 60% Average collection period 100 days Fixed asset turnover 1.5 Return on equity 15%
B – Comment on Ferri Company’s financial position in terms of liquidity, profitability and solvency as well as its overall performance, by using the ratios that you have found and comparing them with the industry averages.