Crafton Inc, Inc., produces widgets for the wind chime industry. The company sells all products on a

Crafton Inc, Inc., produces widgets for the wind chime industry. The company sells all

products on accounts with net 30 day terms. The company has been without someone

to assess the financial condition for some time (using only a bookkeeper to post activity

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to the general ledger accounts) and, therefore, is asking you to help with a more current

assessment of the company’s position.

Part A: Below you will find a series of accounts that represent the trial balance of the

business firm. These accounts encompass both income statement and balance sheet

accounts.

2009 2010 2011

Accumulated depreciation 176,580 209,050 242,725

Retained earnings 337,602 510,731 648,528

Sales 3,702,480 3,961,654 3,981,462

Cash 35,750 62,635 86,595

Bonds payable 421,000 334,000 325,000

Accounts receivable 246,580 293,430 349,182

Depreciation expense 31,265 32,470 33,675

Common stock shares outstanding 80,000 80,000 80,000

Plant and equipment, at cost 984,021 1,026,880 1,151,210

Taxes 79,484 93,223 74,198

Accounts payable 62,685 116,696 188,569

Common stock, $1 par 75,000 75,000 75,000

Inventory 185,652 243,117 312,622

Prepaid expenses 6,575 21,525 26,325

Cost of goods sold 2,665,786 2,879,049 2,936,630

Interest expense 12,532 10,325 10,235

Selling and administrative expenses 765,800 773,458 788,927

Marketable securities 12,545 23,564 24,153

Other current liabilities 123,256 150,674 195,265

Capital paid in excess of par (common) 275,000 275,000 275,000

Part B: Based on the financial statements that were prepared with this data, complete

the following financial ratio calculations and provide a narrative discussion of these

results as compared to industry averages (provided.)

Ratios required:

Ratio Industry Average

1. Profit margin 3.2%

2. Return on assets (use ending assets) 6.0%

3. Return on common equity (use ending common equity) 15.6%

4. Receivable turnover (use ending receivables) 8.5 x

5. Inventory turnover (use ending inventory) 12.0 x

6. Fixed asset turnover (use ending fixed asset balance) 5.75 x

7. Total asset turnover (use ending assets) 1.89 x

8. Current ratio 3.10

9. Quick ratio 1.40

10. Debt to total assets (use ending assets) 37.0%

Your solution should include the required ratios for each year and then provide a

narrative discussion regarding the results as they compare to the industry averages.

This analysis should discuss whether or not Crafton Inc. is better or worse than the

industry average but it should not stop there. You should also include a discussion as

to why or how the difference can be explained, i.e., the reason for the variance. The

final solution is to be provided in the Word document, with the module and part clearly

identified. The narrative discussion will reference the appropriate ratio and the

comparison to the appropriate industry average.

 

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