XYZ Manufacturing Co. is evaluating its financial performance for
the year 2023. The following data has been extracted from its
financial statements:
Net Income: $700,000
Total Equity: $2,800,000
Total Assets: $6,500,000
Total Liabilities: $3,700,000
Current Assets: $1,600,000
Current Liabilities: $1,000,000
Cost of Goods Sold (COGS): $2,500,000
Sales Revenue: $4,000,000
Inventory: $400,000
Accounts Receivable: $450,000
Accounts Payable: $500,000
Interest Expense: $100,000
EBIT (Earnings Before Interest and Taxes): $800,000
Additionally, the company provides the following operational data:
The company takes, on average, 40 days to sell its inventory.
It collects receivables, on average, in 30 days.
It pays its payables, on average, in 45 days.
Questions:
a. Based on your calculations for the relevant ratios, determine if
XYZ Manufacturing Co. has positive financial leverage. Explain your
answer.
b. Based on your calculations for the relevant ratios, assess the
company's short-term liquidity. Explain your answer.
c. Analyze the company's long-term solvency based on these
ratios.
