Pulp, Paper and Paperboard

Given the following balance sheet, income statement, historical ratios and industry averages, calculate the Pulp, Paper, and Paperboard, Inc. financial ratios for the most recent year. Analyze its overall financial situation for the most recent year. Analyze its overall financial situation from both a cross‑sectional and time‑series viewpoint. Break your analysis into an evaluation of the firm’s liquidity, activity, debt, and profitability.
Income Statement
Pulp, Paper and Paperboard, Inc.
For the Year Ended December 31, 2005

Sales Revenue                                                 $2,080,976
Less: Cost of Goods Sold                                  1,701,000
Gross Profits                                                       $379,976
Less: Operating Expenses                                   273,846
Operating Profits                                               $106,130
Less: Interest Expense                                          19,296
Net Profits Before Taxes                                    $86,834
Less: Taxes (40%)                                                   34,810
Net Profits After Taxes                                      $52,024

Balance Sheet
Pulp, Paper and Paperboard, Inc.
December 31, 2005

Assets
Cash                                                                          $ 95,000
Accounts receivable                                               237,000
Inventories                                                               243,000
Total current assets                                        $ 575,000
Gross fixed assets                                                   500,000
Less: Accumulated depreciation                            75,000
Net fixed assets                                                   $ 425,000
Total assets                                                   $1,000,000
Liabilities and stockholders’ equity
Current liabilities
Accounts payable                                            $ 89,000
Notes payable                                                   169,000
Accruals                                                                87,000
Total current liabilities                             $ 345,000
Long‑term debt                                                     188,000
Total liabilities                                                    $ 533,000
Stockholders’ equity
Common stock                                                 255,000
Retained earnings                                            212,000
Total stockholders’ equity                       $ 467,000
Total liabilities and stockholders’ equity $1,000,000

 
Historical and Industry Average Ratios
Pulp, Paper and Paperboard, Inc.

Ratio                                               2003                   2004                   2005                Industry 2005

Current Ratio                                  1.6                       1.7                       —                           1.6
Quick Ratio                                     0.9                       1.0                        —                           0.9
Inventory Turnover                      8.1                        9.3                        —                           8.4
Average Collection Period           33 days                37 days                —                          39 days
Total Asset Turnover                   2.3                        2.2                         —                         2.2
Debt Ratio                                      60%                      56%                       —                          58%
Times Interest Earned                2.5                         3.5                          —                         2.3
Gross Profit Margin                     21%                    19.7%                       —                      20.4%
Operating Profit Margin            4.7%                     4.8%                        —                        4.7%
Net Profit Margin                       1.8%                     1.6%                         —                        1.4%
Return on total assets               4.1%                      3.5%                         —                      3.08%
Return on Equity                      10.3%                     7.9%                          —                        7.3%