For Chapin Manufacturing Corporation By: Jennifer Olsen

Ratio Definitions Current Ratios= Current Assets Current Liabilities Quick Ratios= “Quick Assets” Current Liabilities Debt to Asset= Liabilities (debt) Assets Return on Sales= Net inc + interest exp. Sales Return on Assets = Net inc + int. exp * Sales Sales Assets Return on Equity= Net Income Stockholders’ Equity

Ratio Definitions Cont. Average Collection Period= Accounts Receivable Average daily Sales (sales/360) Average Days of Inventory= Inventory Average Daily Cost of Goods Sold (cost of good sold/360)

Calculated Ratios for Each Division and the Company as a Whole

Calculated Ratios Chart

Chart Analysis Based upon the previous chart I have compared the ratios of each division and found the following: Return on Equity- Gives investors a sense of return expected if they invest in a business, of the three Division C is the best.Division C Return on Assets- Is the percentage of profits that you would make from each sale. Of the three Division C is once again the best choice.Division C Return on Sales- Shows the percent of profit you make off every dollar of revenue. The best option of the three is once again Division C.Division C

Division A Division A Strengths: – The debt to asset ratio is fairly low at 39%. This indicates that it is not a risky business to invest in because the company does not have a lot to pay back. – The current ratio is excellent being 2.4 to 1. This is the measure of the ability to reach short term obligations. (Like to see it around 2-1) – The quick ratio is also good (like to see around 1-1) in this case it is 1.4 to 1

Division A Division A Weaknesses: -The Average Collection Period is 42 days. This is a calculation of on average how long it takes to collect from a credit sale. If this number gets to big there is a danger that it cuts down on your cash flow and as an investor it is less likely that your going to get paid. Yet, if it is too low lose business of people with credit sales. This number is fairly high. -The Average Days of Supply in Inventory is 65 days. This number is on the high end. Depending on what the industry is if the number high could be a sign that you’re not selling (falling off shelves- run out of space) Yet, if too low will not be able to supply for customer and it will incur a possible lost sale opportunity. Trend has been to drive this number down because firms finally realized how expensive this is.

Division B Division B Strengths: - The debt to asset ratio is 19%. This is a low ratio and is a sign of a less risky business. - The current ratio is very good a 3.3 to 1. It is better for the top number to be higher because this indicates that current assets are greater than the current liabilities, therefore the company will most likely be able to pay off its debts. -The quick ratio is 1.8 to 1, this is not to bad but could be better if closer to 1 to 1.

Division B Division B Weaknesses: -The Average Collection Period is 31 days it calculates how long it takes to collect from a credit sale. Once again this number is high and if it gets too big, there is a danger that it cuts down on your cash flow. This means that as an investor you would be less likely that your going to get paid. Yet, it should also be noted that if it is too low lose business of people w/ credit sales. -The Average Days in supply is 63 days, this means for next 63 days, don’t have to replace. You want the number to be in the middle. If the number is high could be a sign that you’re not selling (falling off shelves- run out of space). Yet, if too low will not be able to supply for customer-lost sale opportunity. In this case the number seems to be quite high.

Division C Division C – Strengths- Current Ratio is 3.3 to 1, this is okay but would like to see it close to 2-1. It is still good because will be able to pay off current debts. The Quick Ratio is 1.9 to 1, is okay but want to see closer to 1 to 1 but shows a fairly good ability to deal with debts. The Debt to Asset ratio percentage is 18%, very good because it is low and therefore does not have a lot of debt left to pay off.

Division C Division C Weaknesses: - The Average collection period is the same as Division B it is 31 days. It as stated before would be considered a detriment to the corporation. Division B - The Average Days of Inventory is 62, this is lower than both Division A and Division B but it is still high and could mean that there is an over abundance of the product.Division A Division B

Company (Corporations Consolidated) The company as a whole has good standing. -The ratios that the loan officer (creditor) would consider are the current ratio, quick ratio, average collection period, and the ratio of debts to assets. Of these four, three of them are favorable. - The ratios that an investor would look at are the average days of inventory and the return on equity percentage. They are both not in great standing, days of inventory being fairly high at 63 days, and the return on equity being okay at 34%.