Banking Case

Chapter 8

1. Calculate the following, for both 2007 and 2008

1. Return on assets

2007:         427456 / 2017074 = 21.19%

2008:        197692 / 1988433 = 9.94%

1. Return on equity

2007:        427456 / 1781957 = 23.99%

2008:        197692 / 1781454 = 11.09%

1. Net profit margin

2007:        427456 / 972625 =        43.95%

2008:        197629 / 5122825 = 38.6%

1. Earnings per share

2007:        427456 / 318908 = 1.34 per share

2008:        197629 / 316150 = 0.63 per share

1. Dividend payout ratio

2007:         0.13 / 1.34 = 9.7%

2008:        0.17 / 0.63 = 27%

1. Net working capital

2007:        1727848 – 202224 = 1525624

2008:        1727581 – 168997 = 1558584

1. Current ratio

2007:        1727848 / 202224 = 8.54 times

2008:        1727581 / 168997 = 10.22 times

1. Acid test ratio

2007:        1638838 / 202224 = 8.10 times

2008:        1633407 / 168997 = 9.67 times

1. Average collection period

2007:        89836 / (972625 / 360) = 33.25 days

2008:        81447 / (512282 / 360) = 57.23 days

1. Average payment period

2007:        10615 / (231122 / 360) = 17 days

2008:        5098 / (144719 / 360) = 13 days

1. Inventory turnover ratio

2007:        231122 / 25592 = 9.03 times

2008:        144719 / 28942 = 5 times

1. Age of inventory

2007:        360/ 9.03 = 40 days

2008:        360 / 5 = 72 days

1. Asset turnover ratio

2007:        972625 / 2017074 = 48%

2008:        512282 / 1988433 = 26%

1. Debt ratio

2007:        235117 / 2017074 = 11.66%

2008:        206979 / 1988433 = 10.4%

1. Long-term debt as a percentage of total capital

2007:        N/A

2008:        N/A

1. Times interest earned

2007:        N/A

2008:        N/A

1. What conclusions can you draw from the comparison of these ratios over the 2 years?

According to Chipco’s financial statement, ROE, ROA and earning per share for the year ended 2008 dropped significantly compared to 2007 as there was decrease in sales while fixed costs remained stable. Apart from drop in net profit margin, gross profit margin also decreased around 6.6% which might be the result of rising in cost of goods sold or lower in sale price. Despite decrease in profitability, dividend payout ratio increased around 178% in 2008 which is very sharp rise.