The Following Are The Financial Statements For Nederland Con

The Following Are The Financial Statements For Nederland Consumer Prod

The following are the financial statements for Nederland Consumer Products Company for the fiscal year ended September 30, 2011. Nederland Consumer Products Company Income Statement for the Fiscal Year Ended September 30, 2011: Net sales of $62,141, Cost of goods sold of $26,906, Gross margin of $35,235, Marketing, research, administrative expenses of $15,715, Depreciation of $776, Operating income of $18,744, Interest expense of $499, Earnings before income taxes of $18,245, Income taxes of $5,623, and Net earnings of $12,622. The Balance Sheet as of September 30, 2011, lists assets including cash and marketable securities ($6,807), investment securities ($353), accounts receivable ($3,288), inventories ($5,376), prepaid expenses & other receivables ($1,991), property, plant, and equipment at cost ($30,215) minus accumulated depreciation ($9,653), netting to $20,562, net goodwill and intangible assets ($23,970), and other non-current assets ($1,622). On the liabilities side, current liabilities include accounts payable ($2,776), accrued and other liabilities ($7,780), taxes payable ($2,047), and debt due within one year ($7,490), totaling $20,093, with total liabilities amounting to $38,357. Stockholders' equity comprises convertible Class A preferred stock ($1,696), common stock ($1,608), and retained earnings ($23,190), totaling $26,494. Using this data, calculate all relevant financial ratios for Nederland and compare them with industry averages. Ratios include current ratio, quick ratio, gross margin, net profit margin, debt ratio, long-term debt to equity, interest coverage, ROA, and ROE, with specified rounding rules.:

Paper For Above instruction

This paper aims to perform a comprehensive financial ratio analysis for Nederland Consumer Products Company by calculating various key ratios based on the provided financial statements and comparing these ratios with industry averages. The analysis evaluates the company's liquidity, profitability, leverage, and efficiency, offering insights into its financial health relative to the industry norms.

Introduction

Financial ratios serve as critical tools for assessing a company's operational efficiency, liquidity position, profitability, and leverage. By comparing these ratios with industry benchmarks, stakeholders can determine whether a company operates effectively within its sector, identify areas of strength, and highlight potential risks. This analysis applies standard financial metrics to Nederland Consumer Products' fiscal year 2011 data, juxtaposing the results with industry averages to gauge performance.

Liquidity Ratios

Current Ratio

The current ratio measures a company's ability to cover its short-term liabilities with its short-term assets. Calculated as current assets divided by current liabilities, the ratio for Nederland is:

Current Assets = $18,697

Current Liabilities = $20,093

Current Ratio = $18,697 / $20,093 ≈ 0.93

Compared to the industry average of 2.05, Nederland’s current ratio of 0.93 indicates a liquidity concern, as the ratio is well below the benchmark, suggesting potential difficulties in meeting short-term obligations.

Quick Ratio

The quick ratio, or acid-test ratio, assesses liquidity excluding inventories and prepaid expenses, focusing on the most liquid assets:

Quick Assets = Current Assets - Inventories - Prepaid expenses & other receivables = $18,697 - $5,376 - $1,991 = $11,330

Quick Ratio = $11,330 / $20,093 ≈ 0.56

Compared to the industry average of 0.78, Nederland’s quick ratio also reflects a less favorable liquidity position, suggesting limited immediate liquid assets to cover short-term liabilities.

Profitability Ratios

Gross Margin

Gross margin indicates the percentage of revenue exceeding the cost of goods sold:

Gross Margin = ($35,235 / $62,141) * 100 ≈ 56.7%

This surpasses the industry average of 23.9%, indicating superior gross profit efficiency, possibly due to favorable pricing, cost management, or product mix.

Net Profit Margin

Net profit margin reveals the percentage of revenue converted into net income:

Net Profit Margin = ($12,622 / $62,141) * 100 ≈ 20.3%

Compared to the industry average of 12.3%, Nederland exhibits a notably higher net profit margin, reflecting effective expense control or higher-margin products.

Leverage Ratios

Debt Ratio

The debt ratio indicates the proportion of assets financed by debt:

Debt Ratio = Total liabilities / Total assets = $38,357 / $64,851 ≈ 0.59

This is significantly higher than the industry average of 0.23, suggesting that Nederland relies more heavily on debt financing, which may amplify financial risk.

Long-term Debt to Equity

This ratio measures the extent of long-term debt relative to shareholders’ equity:

Long-term Debt = $12,217

Shareholders' Equity = $26,494

Long-term Debt to Equity Ratio = $12,217 / $26,494 ≈ 0.46

In comparison to the industry average of 0.98, Nederland’s smaller ratio indicates a more conservative approach toward leveraging long-term debt.

Coverage and Efficiency Ratios

Interest Coverage

Interest coverage ratio assesses the company’s ability to meet interest obligations:

Earnings before interest and taxes (EBIT) = Operating income = $18,744

Interest Expense = $499

Interest Coverage = $18,744 / $499 ≈ 37.56

This is substantially higher than the industry average of 5.62, showing that Nederland has ample earnings to cover interest expenses comfortably.

Return on Assets (ROA)

ROA measures how effectively assets generate profit:

ROA = Net income / Total assets = $12,622 / $64,851 ≈ 19.5%

This exceeds the industry average of 5.3%, indicating highly efficient asset utilization and superior profitability.

Return on Equity (ROE)

ROE indicates the return generated on shareholders’ equity:

ROE = Net income / Shareholders’ equity = $12,622 / $26,494 ≈ 47.7%

Compared to the industry average of 18.8%, Nederland’s high ROE reflects strong profitability relative to equity, possibly due to high operational efficiency or leverage.

Conclusion

The financial analysis reveals that Nederland Consumer Products exhibits exceptional profitability and asset efficiency, as evidenced by its high gross margin, net profit margin, ROA, and ROE relative to industry benchmarks. However, liquidity ratios indicate potential concerns, with both current and quick ratios falling below industry standards, suggesting challenges in short-term liquidity management. The company’s leverage ratios show conservative long-term debt use but higher overall reliance on debt (reflected in the debt ratio), implying increased financial risk. The robust interest coverage underscores the company’s ability to service its debt comfortably. Overall, Nederland demonstrates strong profitability and asset utilization, but should focus on improving liquidity to ensure long-term financial stability.

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