You are given the following information about COGS Inc., a sprocket manufacturer.
Balance Sheet:
ASSETS
Current assets:
| Accounts receivable | 40,000 |
| Total current assets | $130,000 |
Fixed assets:
Less:
| Accumulated Depreciation | (100,000) | 550,000 |
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
| Total current liabilities | $195,000 |
Long-term liabilities:
| Mortgage on plant | 200,000 |
| Total Liabilities | 395,000 |
Shareholders' equity:
| Capital stock, 20,000 common shares | 200,000 |
| Total shareholders' equity | 285,000 |
TOTAL LIABILITIES AND
| SHAREHOLDERS' EQUITY | $680,000 |
Income Statement:
Less:
| Cost of goods sold | $250,000 |
| Interest on mortgage | 20,000 |
| Net income before taxes | 50,000 |
a) COGS Inc. common shares were trading at $12 per share on financial statement date. Calculate the following ratios:
i) current
ii) quick
iii) debt-to-equity
iv) total debt-to-assets
v) gross operating margin
vi) return on common equity
vii) price-earnings
b) The following Industry Averages from the sprocket industry are provided to you. Based on your calculations from part a) and the industry average ratios, list and briefly discuss COGS Inc.'s relative financial and operating weaknesses?
| Industry Averages |
| Current ratio 0.75 |
| Quick ratio 0.52 |
| Debt-to-equity 0.58 |
| Total debt-to-assets 0.51 |
| Gross operating margin 0.45 |
| Return on common equity 0.10 |
| Price-earnings ratio 7.00 |
Quick Reply
