Valeria Martinez

Jhocabed Herrera
Annette Molina

CASE FINANCIAL RATIOS Trimark Products, Inc.

1- Calculate and analyze financial ratios. Using the 2017 income statement and
Trimark Products Inc. balance sheet, used in the Financial Statements attached
Excel file, calculate the following financial ratios (use 365 days / year).

Industry
Financial Ratios Calculations Tri-Mark
Average
Current Ratio 1.766 2.200
Quick Ratio 1.048 1.500
Cash Ratio 0.108 0.135
Total Debt Ratio 0.371 0.430
Cash Coverage 37.189 10.600
Receivable Turnover 22.105 30.000
Days' Sales in Receivables 16.512 12.000
Total Asset Turnover 2.389 2.800
Inventory Turnover 17.381 30.100
Days' Sales in Inventory 21.000 11.500
Profit Margin 0.053 0.045
Return on Assets (ROA) 0.128 0.126
Retorn on Equity (ROE) 0.203 0.221

2 - Analysis: How is the company doing relative to its industry in the areas of
liquidity, asset management, leverage, and profitability? Briefly explain each of
them in general terms of the reasons within the same category.
Liquidity: in terms of short-term liquidity, the firm is not doing well in comparison
with the average industry which can pay its current liabilities 2.2 times, pay its
short-term obligations with its most liquid assets 1.5 times and their cash ratio is
higher 0.135 compared to 0.108 Tri-Mark.
Financial Leverage: tri-mark is doing well in financial leverage since its total debt
ratio indicates that only 37% of its assets are funded by debt, meaning that the
majority are funded by equity. Also, their TDTA is below industry average.
Likewise, the firm can pay its interest expenses 37 times, much better that 10 times
from the average.
Asset management: in terms of accounts receivables, the firm collects it 22 times
in one period and takes 16.5 days to collect. This is higher from the average (30
times, 12 days). Also, in inventory, the firm sells and replaces their inventory 17
times and takes them 21 days. Too much time when compared to the rest. Lastly,
its TAT indicates that for every $1 in assets it makes $2.389.
Profitability: in terms of profitability the firm for every $1 in sales, it makes $0.053.
For every $1 invested in assets it makes $0.128, or 12% return. And, for every $1
from shareholders it makes $0.203. In relation to the rest of the industry, Tri-Mark
is slightly doing well in terms of profitability.
3- DuPont Analysis. Based on the ratios calculated in the previous point (# 2),
and along with the industry averages provided, perform a DuPont analysis on the
key profitability ratios of Trimark vs. the industry. (for industry use a Capital
Multiplier (EM) of 1.75).

Promedio
Du-Pont Análisis Tri-Mark
Industria

1- Profit Margin 5.3% 4.5%

2 - Total Assets Turnover (TAT) 2.389 2.800

3- Equity Multiplier (EM) 1.590 1.75

4- ROA = (1 x 2) 12.7% 12.6%

5- ROE = (3 x 4) 20.1% 22.1%

Tri-mark firm has a profit margin of 5.3%, TAT of 2.389:1, and a ROA of 12.7%
which equals to a ROE of 20.1%. In order for the firm to increase it, they could
manage better their assets or increase their prices. Either ways, will improve its
ROE.