Chang was not satisfied with his mattress company performance.

| June 2, 2016

Question
1. Chang was not satisfied with his mattress company performance. He thinks that the
company could achieve the following ratios:

Changs Company
TARGET RATIOS
Dividend payout
Market price
Dividend yield
Number of shares outstanding
Return on equity
Long-term debt/equity
Current ratio
Acid-test ratio

45.0%
$15.00
5.2%
18,000
13.7%
27.3%
551.0%
407.3%

Profit margin
Gross margin
Return on assets
Inventory turnover
Operating profit
Accounts receivable collection period
Accounts payable payment period
Tax rate

5.1%
27.6%
9.4%
733.3%
8.7%
92.5 days
28.7 days
34.0%

Using Changs target ratios for his mattresses company, complete the following financial
statements:
Changs Mattress Company
Changs REVISED FINANCIAL STATEMENTS

Income Statement
Sales
Cost of sales
Gross profit
Selling, general, and administrative
expenses
Operating profit
Interest
Earnings before taxes
Taxes
Net income

Balance Sheet
Cash
Accounts receivable
Inventory

Total current assets
Net property, plant, and equipment
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Total liabilities
Owners’ equity
Total liabilities and owners’ equity
Dividends per share

2.
As the new financial analyst for P&G chemicals, you have been asked to analyze the
profitability problems encountered during the last two years. Current financial
statements and selected industry averages are as follows:

P&G chemicals
FINANCIAL STATEMENTS
(dollars in millions)
Income Statement

2000

1999

$1,478
(1,182)
296
(443)
(147)
(27)
$(174)

$1,435
(1,076)
359
(445)
(86)
(29)
$(115)

Balance Sheet

2000

1999

Cash and equivalent

$120

$76

Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating profit
Interest expense
Net income

Accounts receivable (net)
Inventory
Other current assets
Total current assets
Plant, property, and equipment
Total assets
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Total liabilities
Owners’ equity
Total liabilities and owners’ equity

432
324
37
913
300
$1,213
$500
309
809
178
987
226
$1,213

437
284
38
835
376
$1,210
$412
98
510
300
810
400
$1,210

Using your analysis of the financial statements, how does P&G compare to the following
industry averages?

Chemical INDUSTRY AVERAGES
Industry Ratios
Current ratio
Acid-test ratio
Receivables collection period
Payables payment period
Debt/equity
Return on assets
Return on equity

150%
90%
65 days
60 days
110%
7%
19%

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