Chapter 4 Analysis of Financial Statements 119

TA B L E 4 - 2 Allied Food Products: Summary

of Financial Ratios (Millions of Dollars)
Industry
Ratio Formula Calculation Ratio Average Comment

Liquidity
Current assets $1,000
Current !3.2" 4.2" Poor
Current liabilities $310

Current assets $ Inventories $385

Quick !1.2" 2.2" Poor
Current liabilities $310

Asset Management
Sales $3,000
Inventory turnover !4.9" 10.9" Poor
Inventories $615

Receivables $375
Days sales outstanding (DSO) !46 days 36 days Poor
Annual sales>365 $8.2192

Sales $3,000
Fixed assets turnover !3.0" 2.8" OK
Net fixed assets $1,000

Sales $3,000
Total assets turnover !1.5" 1.8" Somewhat low
Total assets $2,000

Debt Management

Total debt $1,060

Total debt to total assets !53.0% 40.0% High (risky)
Total assets $2,000
Times-interest- Earnings before interest and taxes 1EBIT 2 $283.8
!3.2" 6.0" Low (risky)
earned 1TIE2 Interest charges $88

EBITDA # Lease payments $411.8

EBITDA coverage !3.0" 4.3" Low (risky)
Interest # Principal payments # Lease payments $136

Profitability
Net income $117.5
Profit margin on sales !3.9% 5.0% Poor
Sales $3,000

Return on total Net income $117.5

!5.9% 9.0% Poor
assets 1ROA 2 Total assets $2,000

Basic earning Earnings before interest and taxes 1EBIT2 $283.8

!14.2% 18.0% Poor
power 1BEP2 Total assets $2,000

Return on common Net income $117.5

!12.5% 15.0% Poor
equity 1ROE2 Common equity $940

Market Value
Price per share $23.00
Price/earnings (P/E) !9.8" 11.3" Low
Earnings per share $2.35

Price per share $23.00

Price/cash flow !5.3" 5.4" Low
Cash flow per share $4.35

Market price per share $23.00

Market/book (M/B) !1.2" 1.7" Low
Book value per share $18.80