Statements Corporate Org. &Balance Sheet

8/13/2019 Statements Corporate Org. &Balance Sheet

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Financial statements of an organization

is the basis of data required for financial decision making.As such, correct understanding of the structure of

financial statements and also of the tools available for

the interpretation of financial statements is a must

before one talks of any of the further discussions onfinancial management.


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Any organization doing the business, whatever it is manufacturing activity

or trading activity or service activity, is interested in knowing basically two

facts about the business.

a. Where the business stands at any given point of time in financial terms.

b. What is the result of operations carried out by the business organization

during a specific period.

In order to answer these questions, the organization carr ies out the

process of recording various transactions in a defined set of records,

technically referred to as accountingwhich effectively result into the

preparation of what are called as f inancial statements.


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These Financial Statements Are:

a. First financial statements is balance sheet. This is the answer to the

first question viz. where the business stands in finance terms. Balance

sheet informs about the various sources used by the organization toraise the funds which technically result into what are referred as

Liabilities and the way these sources are used which technically

result into the creation of the Assets. Sometimes, balance sheet is

also referred to as statement of sources and application of funds.Effectively, balance sheet is a listing of various assets and liabilities of

the organization at any given point of time. Technically, balance sheet

is a position statement in the sense it refers to a particular date. As

such, balance sheet is referred to as Balancesheet as on ________

or Balance Sheet as at_______


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Cont

b. Second financial statement is profitability statement. In technical

language. It is referred to as Profit & Loss Account. This is the

answer to the second question. What is the result of operation of the

business during the specific period i.e. whether the operations have

resulted into a profit or loss and by what amount. Technically,

profitability statement is a period statement in the sense it refers to a

particular period. This may be a month, a quarter, a half yeardepending upon the organization and purpose for which it is prepared.

As such, profitability statement is referred to as Profit and Loss

Account for the year ending on___


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Structure of Financial StatementAs there is no specific law applicable to the preparation of

financial statements of a non-corporate organizations like proprietary

firms or partnership firms, these organizations can prepare theirfinancial statements in whatever structure they want. However, in case

of a corporate organization, in simple language a company form of

organization, there is a uniform law applicable to these types of

organizations viz. Companies Act. 1956. As such a company form of

organization is required to prepare and present its financial statements

in accordance with the provision of Companies Act. 1956. to be more

specific as per the provisions of schedule VI of the Companies Act

1956. the underlying presumptions of the schedule VI provisions is

that it is through the financial statements that the companiescommunicate with the various outsiders. As such, it is required that

the financial statements should be as transparent and as an

informative as possible. Hence, schedule VI lays down various

disclosure requirements which the companies are required to followwhile preparing their financial statements.


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Schedule VISchedule VI of the Companies Act, 1956 is subdivided

into four parts:

Part-I

Deals with the format of the Balance sheet.

Part-II

Deals with the Profit and Loss Account.

Part-III

Deals with notes forming part of the P&L A/C. andthebalance sheet. The last reporting requirement to Part

VI was interested recently with the effect from 15thMay

1995 which deals with Balance Sheet abstract and the

companys general business profile.


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Part-I Structure of Balance Sheet

As stated above, Part-I of Schedule VI deals with balance

sheet, though in normal circumstances we come across vertical form

of Balance Sheet.


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Liabilities

a. Share Capitalb. Reserves & Surplus

c. Secured Loans

d. Unsecured Loans

e. Current Liabilities

and Provisions

Assets

a. Fixed Assets

b. Investments

c. Current Assts, Loans&

Advancesns

d. Misc. Expenditure

e. Profit & Loss a/c debit

Balance


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1) Authorized Capital

2) Issued Capital3) SubscribedCapital

4) Paid-up Capital


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Reserves

1) Subsidy Received From The Govt

2) DevelopmentRebate reserve

3) Revaluation of fixed assets

4) Issue of Shares at Premium

5) General Reserves

Surplus

The credit balance in profit and loss account


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a. Debentures

b. Loans and Advances From Banks.

c. Loans and advances From subsidiaries.d. Other Loans and advances.


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a. Fixed Deposits.

b. Loans and Advances From subsidies.

c. Short Term Loans and Advancesi) From Subsidiaries

ii) From Others

d. Other Loans and Advancesi) From Subsidiaries

ii) From Others


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a. Goodwill

b. Land

c. Buildingsd. Plant & Machinery

e. Furniture fittings

f. Patents, Trade Marks and Designsg. Vehicles

h. etc.


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a. Investments in Govt. or Trust securities.

b. Investmentsin shares, debentures or bonds.

c. Investment in Capital of Partnership firm


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Raw materials, work-in-progress, finished goods,spares and consumables

Sundry debtors and receivables < 6 mths Advances paid to suppliers of raw materials

Cashand bank balances

Interest receivables Other current assets such as Government

securities, Bank deposits ..etc


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Tax disputes

Legal litigations

Bills and cheques discounted with banks Claims against the company not

acknowledged


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Ratio analysis is one of the powerfultools of financial analysis. It indicates aquantitative relationship between the figuresand group of figures which are used for

Evaluation And Decision Making.


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Ratio is a simple mathematical expression of

relationship between two related items in quantitative

form. It may be a number expressed in terms of another

number.

The relationship between two figures may be expressed as

Quotient

A Rate

Percentage


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In assessingthe financial stability of a firm, a management

should, apart from profitability, be interested in relative figures rather

than in absolute figures.

Ratioscan be directly helpful as a basis for making predictions.

A ratio is a mathematical relationship between two quantities.

To evaluate financial condition and the purposes of a firm, the

financial analyst needs certain yardsticks.Such yardsticks frequently

used is a ratio.

The ratios are not only helpful to those who manage companybut

also its shareholders and creditorsto knowabout financial position

and the earning capacity of that concern.


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A) ON THE BASIS OF STATEMENTS PREPARED

The Classification is based on financial statements prepared i.e. Profit and Loss

and Balance Sheet, where from the information is obtained for calculation ratios.

The ratios under this classification are grouped into three categories, namely :

1. Balance Sheet Ratios:

Those ratios which are calculated to establish relationship between two balance

sheet items. They are-

a) Current Ratio b) Liquid Ratio

c)) Proprietary Ratio d) Debt-Equity Ratio

e) Capital Gearing Ratio


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Current Assets

Current Ratio = -----------------------------

Current Liabilities


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2. Income Statement Ratios:

Those ratios calculated to establish relationship between two P&L a/c items.

They are:

a) Gross Profit Ratio b) Operating Ratio

c) Operating Profit Ratio d) Net Profit Ratio

e) Interest Coverage Ratio


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Gross Profit

Gross Profit Ratio = --------------------------- X 100

Net Sales

3 Composite or Mixed Ratios


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3. Composite or Mixed Ratios

Those ratios are calculated to establish relationship between a

P&L a/c item and Balance Sheet item. They are

a) Inventory Turn-Over Ratio b) Debtors Turn-Over Ratio

c) Creditors Turn-Over Ratio d) Working Capital Turn-Over

Ratio

e) Fixed Assets Turn-Over Ratio f) Return on Equity

g) Return on Capital Employed


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Net Sales

Total Asset Turnover Ratio = --------------------------

Total Assets


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a) Liquidity Ratios:

i) Current Ratio ii) Liquid Ratioiii) Absolute Liquid Ratio

b) Deficiency or Activity Ratios :a) Inventory Turn-Over Ratio b) Debtors Turn-Over Ratio

c) Creditors Turn-Over Ratio d) Working Capital Turn-Over Ratio

e) Fixed Assets Turn-Over Ratio

c) Profitability Ratios:a) Gross Profit Ratio b) Operating Ratio

c) Operating Profit Ratio d) Net Profit Ratio

d) Solvency Ratios:a) Debt-Equity Ratio b) Proprietary Ratio c) Solvency Ratio

d) Fixed assets to Net-Worth Ratio e) Current Assets to Net-

Worth Ratio

f) Interest Coverage Ratio g) Capital Gearing Ratio


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Trade Creditors-- Focus on the liquidity of the

firm.

Bondholders-- Focus on the long-term cash

flow of the firm.

Shareholders-- Focus on the profitability and

long-term health of the firm.


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Plan-- Focus on assessing the current financial

position and evaluating potential firm

opportunities.

Control -- Focus on return on investment for

various assets and asset efficiency.

Understand -- Focus on understanding how

suppliers of funds analyze the firm.


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Balance Sheet

A summary of a firms financial position on a

given date that shows total assets = total

liabilities + owners equity.

Income Statement

A summary of a firms revenues and expenses

over a specified period, ending with net incomeor loss for the period.


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Reynolds Balance Sheet (Asset Side)

Reynolds Balance Sheet (thousands) Dec. 31, 2007

a. How the firm stands on aspecific date.

b. What Renolds owned.

c. Amounts owed by

customers.d. Future expense items

already paid.

e. Cash/likely convertible tocash within 1 year.

f. Original amount paid.

g. Acc. deductions for wearand tear.

Cash and C.E. $ 90

Acct. Rec. 394

Inventories 696

Prepaid Exp 5

Accum Tax Prepay 10Current Assets $ 1,195

Fixed Assets (@Cost) 1030

Less: Acc. Depr. (329)

Net Fix. Assets $ 701

Investment, LT 50Other Assets, LT 223

Total Assets $ 2,169


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Reynolds Balance Sheet (Liability Slide)

Reynolds Balance Sheet (thousands) Dec. 31, 2007

a. Note, Assets = Liabilities + Equity.

b. What Renolds owed and

ownership position.

c. Owed to suppliers for goods and

services.

d. Unpaid wages, salaries, etc.

e. Debts payable < 1 year.

f. Debts payable > 1 year.

g. Original investment.

h. Earnings reinvested.

Notes Payable $ 290

Acct. Payable 94

Accrued Taxes 16

Other Accrued Liab. 100

Current Liab. $ 500Long-Term Debt 530

Shareholders Equity

Com. Stock ($1 par) 200

Add Pd in Capital 729

Retained Earnings 210

Total Equity $ 1,139

Total Liab/Equity $ 2,169

R ld I St t t


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Reynolds Income StatementReynolds Statement of Earnings (in thousands) for Year Ending December 31, 2007

a. Measures profitability over atime period.

b. Received, or receivable, from

customers.

c. Sales comm., adv., officerssalaries, etc.

d. Operating income.

e. Cost of borrowed funds.

f. Taxable income.

g. Amount earned for

shareholders.

Net Sales $ 2,211

Cost of Goods Sold 1,599

Gross Profit $ 612

SG&A Expenses 402

EBIT $ 210Interest Expense 59

EBT $ 151

Income Taxes 60

EAT

$ 91Cash Dividends 38

Increase in RE $ 53


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Use of Financial Ratios

A Financial Ratio is an index that relates two

accounting numbers and is obtained by dividingone number by the other.

Types of Comparisons

Internal Comparisons

External Comparisons


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External Comparisons and Sources of Industry Ratios

This involves comparing the ratios of one firm withthose ofsimilarfirms or with industry averages.

Similarityis important as one should compare applesto

apples.


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Liquidity Ratios

Current Ratio

Current Assets

Current Liabilities

For ReynoldsDecember31, 2007

Shows a firms ability tocover its current

liabilities with its current

assets.

$1,195

$500= 2.39

Balance Sheet Ratios

Liquidity Ratios


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Current Ratio

The current ratio of a firm measures its short tem solvency that is its

ability to meet short term obligations. As a measure of short term/

current financial liquidity, it indicates the rupees of current assets

available for each rupee of current liability or obligations. The

higher is the current ratio, the larger is the amount of rupees

available per rupee of current liability, and more is the firms

ability to meet current obligations, and the greater is the safety of

the funds of short term creditors.


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Liquidity Ratio Comparisons

Reynolds Industry

2.39 2.15

2.26 2.09

1.91 2.01

Year

2007

2006

2005

CurrentRatio

Ratio is stronger than the industry average.

Rationale: The higher the current ratio, the higher is the amount of

rupees available per rupee of current liability, The more is the firmsability to meet current obligations and the greater is the safety of

funds of short-term creditors.

Standard : 2:1


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Acid Test Ratio

It is rigorous measure of firmsability to serve short term

liabilities. The usefulness of the ratio lies in the fact that it

is widely accepted as the best available test of liquidity

position of a firm. The ratio provides, in a sense, a check

on thee liquidity position of a firm. Yet it is not conclusive

test. Both the current and quick ratios should be

considered in relation to the industry average to inferwhether the firms short term financial position is

satisfactory or not.

Liquidity Ratios


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Liquidity Ratios

Acid-Test (Quick)

Current AssetsInv.+ Prepaid Exp.Current Liabilities

For ReynoldsDecember 31, 2007

Shows a firms ability to meetcurrent liabilities with its most

liquid assets.


Liquidity Ratios

$1,195 - $696

$500= 1.00


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Liquidity Ratio Comparisons

Reynolds Industry

1.00 1.25

1.04 1.231.11 1.25

Year

2007

20062005

Summary of the Liquidity Ratio Comparisons


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Summary of the Liquidity Ratio Comparisons

Strong current ratio and weak acid-test ratioindicates a potential problem in the inventoriesaccount.

Note that this industry has a relatively high level ofinventories.

Ratio Reynolds Industry

Current 2.39 2.15

Acid-Test 1.00 1.25

S f th Li idit T d A l i


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Summary of the Liquidity Trend Analysis

2.The current ratio for the industry has been rising slowly at the

same time the acid-test ratio has been relatively stable.

3.This indicates that INVENTORIESare a significant problem

forReynolds.

1.The current ratio for Reynoldshas been rising at the same

time the acid-test ratio has been declining.

Debt to Equity Ratio


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It is an important tool of financial analysis to appraise the

financial structure of a firm. It has important implications

from the view point of the creditors, owners business in its

financing. A high ratio shows a large share offinancing by

the creditors of the firm. A low ratio implies a smaller

claim of creditors. The debt equity ratio indicates the margin

of safety to creditors. If, for instance, the debt equity ratio is

1:2, it implies that for every rupee of outside liability, the

firm has two rupees of owners capital or the stake of the

creditors is one half of the owners.


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Debt-to-Equity

Total DebtShareholders Equity


Shows the extent to

which the firm isfinanced by debt.


Financial Leverage

Ratios

$1,030

$1,139= .90

Total Debt=Short Term Debt + Long Term Debt

=500 + 530

= 1030


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Reynolds Industry

.90 .90

.88 .90

.81 .89

Year

20072006

2005

Reynolds has average debt

utilization relative to the industry

average.



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The Debt Asset ratio measures the extent to which borrowedfunds support the firms assets. It is Defined as

The numerator of this ratio includes alldebt, shortterm as well as long-term, and the denominator of this

ratio is the total of all assets.

Total Debt

Total Assets


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Debt-to-Total-Assets

Total Debt

Total Assets

For ReynoldsDecember

31, 2007

Shows the percentage of the

firms assets that are

supported by debtfinancing.


Financial Leverage

Ratios

$1,030

$2,169= .47


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Reynolds Industry

.47 .47

.47 .47

.45 .47

Year

2007

2006

2005

Debt-to-Total-Asset Ratio

Reynolds has average debt utilization

relative to the industry average.


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Financial Leverage RatiosTotal Capitalization

Long-term Debt

Total Capitalization

For Reynolds December

31, 2007

Shows the relative

importance of long-term debt

to the long-term financing of

the firm.


Financial Leverage Ratios

$530

$1,669= .32

(i.e., LT-Debt + Equity)


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Financial Leverage Ratio omparisons

Reynolds Industry

.32 .30

.32 .31

.37 .32

Year

20072006

2005

Total Capitalization Ratio

Reynolds has average long-term debt utilization relative to the

industry average.


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Interest Coverage Ratio

Components:

The numerator considers the profits before interest on both term

and working capital borrowings. In this connection, it should be

noted that income tax should be added while computing the profits

because, it is calculated after paying the interest. The denominator

considers the interest charges which is in the form of interest on longterm borrowing and not the interest on working capital facilities.

EBIT

Interest Charges

Indications:


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This ratio indicates the protection available to

the lenders of long term capital in the form of funds

available to pay the interest charges i.e. profits.

Normally a high ratio will be desirablebut too

high a ratio may indicate under utilization of the

borrowing capacityof the organization, where as toolow ratio may indicate excessive long term

borrowingsor inefficient operations.


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Coverage Ratios

Interest Coverage

EBIT

Interest Charges


31, 2007

Indicates a firms ability

to cover interest charges.

Income Statement

Ratios

$210

$59

= 3.56

Coverage Ratio

Interest Coverage

EBIT

Interest Charges


31, 2007


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Coverage Ratio Comparisons

Reynolds Industry

3.56 5.19

4.35 5.02

10.30 4.66

Year

2007

2006

2005

Interest Coverage Ratio

Reynolds has below average interest

coverage relative to the industry average.

S f Th C T d A l i


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Summary of The Coverage Trend Analysis

This indicates that low earnings (EBIT) may be a

potential problem for Reynolds.

Note, we know that debt levels are in line with

the industryaverages.

The interest coverage ratio for Reynolds has been

falling since 2005. It has been below industry

averages for the past two years.


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ctivity Ratios

Receivable Turnover

Annual Net Credit Sales

Receivables

For Reynolds December 31, 2007

Indicates quality ofreceivables and how successful

the firm is in its collections.

Income Statement

/Balance Sheet Ratios

$2,211$394 = 5.61

(Assume all sales are credit sales.)

ctivity Ratio

Receivables Turnover Ratio

Avg. Collection Period


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The average collection period ratio represents the average

number of days for which a firm has to wait before its receivables are

converted into cash. It measures the quality of debtors. Generally,

the shorter the average collection period the better is the quality of

debtors as a short collection period implies quick payment by

debtors. Similarly the higher collection period as inefficient

collection performance which in turn adversely affect the liquidity

or short term paying capacity of the firm out of its current liabilities.

A ti it R ti


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Activity Ratios


Days in the Year

Receivable Turnover


Average number of daysthat receivables are

outstanding.(or RT in days)

Income Statement /Balance

Sheet Ratios

Activity Ratios

365

5.61= 65 days



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Activity Ratio Comparisons

Reynolds Industry

65.0 65.7

71.1 66.3

83.6 69.2

Year2007

2006

2005

Reynoldshas improved the average collection period to

that of the industry average.


Activity Ratios


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Activity Ratios

Payable Turnover (PT)

Annual Credit Purchases

Accounts Payable


Indicates the promptness of

payment to suppliers by the firm.

Income Statement /BalanceSheet Ratios

Activity Ratios

$1551

$94= 16.5

(Assume annual credit purchases = $1,551.)


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Activity Ratios

PT in Days

Days in the Year

Payable Turnover

For Reynolds December 31,

2007

Average number of days thatpayables are outstanding.


Sheet Ratios

Activity Ratios

365

16.5= 22.1 days


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BW Industry

22.1 46.725.4 51.1

43.5 48.5

Year

20072006

2005

Payable Turnover in Days

Reynolds has improved the PT in Days.

Inventory Turnover Ratio


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A High Inventory Turnover Ratio indicates that Maximum Sales

Turnover is achieved with the Minimum Investment In Inventory. As such, as

a general rule, High Inventory Turnover Ratio Is Desirable. However, the

high inventory turnover ratio should be viewed from some more angles.Firstly, it May Indicates that there is Under Investments In Inventory where

by the organization May Loose Customer Patronage if it is unable to

maintain the delivery schedule. Secondly, High Inventory Turnover ratio

may Not Necessarily Indicate Profitable Situation. An organization, in Order

To Achieve A Large Sales Volume, may sometimes Scarifies On Profit, whereby a high inventory ratio may not result into high amount of profits.

on the other hand, a Low Inventory Turnover ratio may

indicate Over Investment In Inventory, existence of excessive or

obsolete/non moving inventory, improper inventory management,accumulation of inventories at the year end in anticipation of increased

prices of sales volume in near future and so on.

There can be no standard inventory turnover ratio which may

be considered to be ideal. IT MAY DEPEND ON NATURE OF INDUSTRY AND

MARKETING STRATEGIES FOLLOWED BY THE ORGANIZATION.


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Activity Ratios

Inventory Turnover

Cost of Goods Sold

Inventory


Indicates the effectiveness ofthe inventory management

practices of the firm.

Income Statement /


Activity Ratios

$1,599$696

= 2.30

A ti it R ti C i


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Reynolds Industry

2.30 3.452.44 3.76

2.64 3.69

Year

20072006

2005

Inventory Turnover Ratio

Reynolds has a very poor inventory turnover ratio.


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ActivityRatios

Total Asset Turnover

Net Sales

Total Assets

ForReynoldsDecember 31,

2007Indicates the overall effectiveness of

the firm in utilizing its assets togenerate sales.

Income Statement /Balance Sheet

Ratios

Activity Ratios

$2,211

$2,169= 1.02


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ctivity Ratio Comparisons

Reynolds Industry

1.02 1.171.03 1.14

1.01 1.13

Year

20072006

2005

Total Asset Turnover Ratio

REYNOLDSHAS A WEAK TOTAL ASSET TURNOVER RATIO.


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Gross Profit


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Gross Profit

The net sales consists of sales after deducting the sales

return if any. The G.P indicates the difference between net sales on

one hand and either of the following on the other hand.a. Manufacturing cost or factory cost or production cost in case of

manufacturing concerns.

b. Cost of purchases, expenses directly related to purchases and the

adjustments for stock variations if any, in cases of trading concerns.

Indications


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The G.P ratio indicates the relation between production

cost and sales and the efficiency with which the goods areproduced or purchased. A high G.P ratio may indicate that

the organization is able to produce or purchase at relatively

lower cost. As such, a high G.P ratio will be desirable. G.P

may be increased by any of the following methods:a. Increase sales price, production cost remaining the same.

b. Reduce production cost, sales price remaining the same.

c. Increase sales price, reduce production cost.d. Increase volume of products high gross profit margin.

An undue increase in G.P ratio as well as an undue decrease in


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G.P ratio should be carefully investigated.

Undue Increase in G.P ratio may indicate

1.Over- valuation of closing stock.2. Non- Consideration of purchase invoices

3. Consideration of Non- Sales transactions as sales transactions e.g.

Goods sent on Consignment basis.

Undue Decrease in G.P Ratio May Indicate1. Under- Valuation of Closing Stock.

2. Non- Consideration of Sales invoices.

3. Inability of management to control the cost or increase the sales.

4. Improper utilization of infrastructural Facilities.

Profitability Ratios


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Gross Profit Margin

Gross Profit

Net Sales

ForReynoldsDecember 31, 2007

Indicates the efficiencyof operations and firm

pricing policies.

Income Statement /Balance Sheet

Ratios


$612

$2,211= .277

Profitability


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Profitability

Ratio Comparisons

Reynolds Industry

27.7% 31.1%28.7 30.8

31.3 27.6

Year

20072006

2005

Gross Profit Margin

Reynolds has a weak Gross Profit Margin.

Net Profit Ratio


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Measures the percentage of each sales rupee remaining

after all costs and expenses including interest and taxes have

been deducted. Net Profit Ratio is also known as net margin.This measures the relationship between net profits and sales

of a firm.

The net profit margin is indicative of managements

ability to operate the business with sufficient success notonly to recover from revenues of the period, the cost of

merchandise or services, the expenses of operating the

business and the cost the borrowed funds, but also to leave a

Net Profit

N.P Ratio= -----------------------*100Net Sales

margin of reasonable compensation to the owners for

providing their capital at risk The ratio of net profit to sales


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providing their capital at risk. The ratio of net profit to sales

essentially expresses the cost price effectiveness of the

operation. A high net profit margin would ensure adequate

return to the owners as well as enable a firm to withstand

adverse economic conditions when selling price is declining

, cost of production is rising and demand for the product is

falling.The net profit indicates that portion of sales available to

the owners after the consideration of all types of expenses

and cost either operating or non-operating or normal or

abnormal. A high net profit ratio indicates higherprofitability of the business. As such a high net profit ratio

will be desirable.



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Net Profit Margin

Net Profit after Taxes

Net Sales


Indicates the firms

profitability after takingaccount of all expenses and

income taxes.


Sheet Ratios


= .041$91

$2,211

Profitability Ratio Comparisons


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Reynolds Industry

4.1% 8.2%4.9 8.1

9.0 7.6

Year

20072006

2005

Net Profit Margin

Reynoldshas a poor Net Profit Margin.


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Return on Investment


Total Assets


31, 2007Indicates the profitabilityon the assets of the firm

(after all expenses and

taxes).

Income Statement

/Balance Sheet Ratios


$91

$2,160= .042


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Reynolds Industry

4.2% 9.8%5.0 9.1

9.1 10.8

Year

20072006

2005

Return on Investment

Reynolds has a poor Return on Investment.


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Return on Equity


Shareholders Equity

ForReynolds December 31, 2007

Indicates the profitability to the

shareholders of the firm (after all

expenses and taxes).


Sheet Ratios


$91

$1,139= .08

Profitability Ratio Comparisons


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Reynolds Industry

8.0% 17.9%9.4 17.2

16.6 20.4

Year

20072006

2005

Return on Equity

Reynoldshas a poor Return on Equity.


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The profitability ratios for ReynoldshaveALLbeen

falling since 2005. Each has been below theindustry averages for the past three years.

This indicates that COGSandadministrative costs

may both be too high and a potential problem forReynolds.

Note, this result is consistent with the low interest

coverage ratio.


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Inventories are too high.

May be paying off creditors (accounts

payable) too soon. COGS may be too high.

Selling, general, and administrative costs

may be too high.

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Statements Corporate Org. &Balance Sheet

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