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Pamplin Inc. Financial Summary

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a) The firm can increase its inventory up to 50% of its current liabilities. Inventory can be financed by a short-term note of no more than $429,000 to be able to maintain a current ratio of 2.0. b) Based on the current ratio and acid-test ratio calculations, Pamplin Inc. was more liquid than the average firm in the industry in 2012, however; in 2013, the company became less liquid due to its increase in current liabilities while there was not any increase on its current assets. The calculation on inventory turnover shows that Pamplin Inc. is moving its inventory more slowly than the industry. This suggests that Pamplin Inc.’s inventory is less liquid than its competitors. The days in receivable ratio demonstrates that Pamplin Inc. is significantly slower at collecting its …show more content…

is using its assets less efficiently than the industry norm, generating only $0.50 cents in sales per dollar of assets in 2012 and $0.56 cents in 2013, whereas the industry generates $0.75. However, in 2013, Pamplin Inc. improved the use of its fixed-assets, increasing the amount generated from its fixed- assets from $0 in 2012 to $1.03 in 2013, 0.3 cents more than the industry. Although Pamplin Inc. is not using its assets completely efficiently, the operating profit margins shows that its managers were better at managing its cost of goods sold and operating expenses than the competitors, with an operating profit margin of 21% in 2012 and 25% in 2013, which was 5% higher than the industry norm. d) Based on the debt ratio calculations, in 2012, Pamplin Inc. financed 33% of its assets with debt, same as the industry norm; however, Pamplin Inc. had a greater financial risk after this percentage increased to 35% in 2013. The times interest earned ration shows that Pamplin Inc. was able to cover from its operating profits, 5 times the interest on its debt in 2012 and 5.62 times in 2013, nonetheless, the industry norm is

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