Business Finance Homework Problem - Chapter Five. This is a comprehensive problem that provides a review of the material covered in the course to date (particularly chapters 3,4, and 5).

Branson Bowling Equipment Company

Balance Sheet - December 31, 2011

Assets

Liabilities and Stockholder's Equity

Cash

$70,000

Accounts Payable

$3,080,000

Marketable Securities

Accrued Expenses

Accounts Receivable

4,200,000

Notes Payable (Due 9/26/12

Inventory

Bonds (10%)

Gross Plant and Equipment

Common Stock (2,380,000

Shares, par value $1.00

Accumulated Depreciation

Retained Earnings

1,652,000

Total Assets

$11,382,000

Total Liabilities and Stockholder's Equity

$11,382,000

Income Statement - 2011

Sales (All credit sales)

$9,800,000

Fixed Costs1

2,940,000

Variable Costs (0.60)

5,880,000

Earnings Before Interest and Taxes

980,000

Less: Interest

350,000

Earnings Before Taxes

$630,000

Less: Taxes @ 36%

226,800

Earnings After Taxes

403,200

Dividends (40% payout)

161,200

Increased Retained Earnings

$241,800

1 Fixed costs include both lease expenses of $280,000 and depreciation of $700,000

The table below shows selected ratios for the firms in this industry.

Profit margin

5.75%

Compute all of the ratios and compare them to the industry averages. Discuss the ratios in terms of the weaknesses and strengths. What recommendations can you make to improve Branson's performance. Note: Your analysis should go a bit beyond simply stating which ratios are lower or higher than the industry averages. Try to think about what these ratios mean.
Profit Margin: 403,200 / 9,800,000 = 4.11%

ROA: 630,000 / 11,382,000 = 5.53%

ROE: 403,200 / 2,380,000 = 16.94%

Rec. Turnover: 9,800,000 / 4,200,000 = 2.33

Inv. Turnover: 9,800,000 / 1,400,000 = 7

Fixed Asset Turnover: 9,800,000 / (8,400,000 -- 2,800,000) = 1.75

Total Asset: 9,800,000 / 11,382,000 = 0.86

Current Ratio: (70,000 + 112,000 + 4,200,000 + 1,400,000) /

(3,080,000 + 210,000 + 560,000)= 1.5

Quick Ratio: (70,000+112,000+4,200,000) / (3,080,000+210,000+560,000)= 1.14

Interest Coverage: 980,000 / 350,000 = 2.8

Fixed Charge Coverage: (980,000 + 280,000) / (280,000 + 350,000) = 2

The firm is currently operating with a net profit margin that is roughly 71.5% of…