Ratio Analysis

Before Chysler merged to become DaimlerChrysler AG, they were presented with a takeover bid of $55 per share by MGM billionaire irk erkorian and former Chrysler chairman !ee "acocca# irk erkorian was a stockholder in Chrysler and an e$perienced takeover financier who apparently fo%nd Chrysler to be a good b%y# Chrysler re&ected the offer, however, stating that the firm was not for sale# '%rther, many (all )treet e$perts felt that erkorian co%ld not come %p with the $*+ billion necessary to complete the deal# After Chrysler re&ected irk erkorian,s bid of $55 per share, erkorian decided to have his people repeat the analysis of the firm,s financial performance over the two most recent years to determine if he sho%ld increase his bid in this friendly takeover attempt# -o meas%re the financial performance of Chrysler over the past two years, key financial ratios will have to be comp%ted and compared with ind%stry averages# -o help in this endeavor, Chrysler,s financial statements are fo%nd on the following pages# Chrysler Corporation's Balance Sheet for the year ending December 31 (in millions)
Assets Current Assets Cash and cash equivalents Marketable securities Accounts receivable !nventories "re#aid ta$es %inance receivables &otal Current Assets "ro#ert( ) equi#*ent +ess, Accu*ulated -e#reciation .et "lant ) /qui#*ent 0ther Assets 1#ecial tools !ntan2ible assets -e3erred ta$ assets 0ther assets &otal Assets Liabilities Current +iabilities Accounts #a(able 1hort4ter* debt Accrued liabilities 0ther #a(*ents &otal Current +iabilities +on24ter* +iabilities +on24ter* debt Accrued e*#lo(ee bene3its 0ther non4current liabilities &otal +on24ter* +iabilities &otal +iabilities Stockholder's Equity "re3erred stock Co**on stock 5at $1 #ar6 Additional #aid4in ca#ital 7etained earnin2s &reasur( stock This year $ 5,543 $ 2,582 $ 2,003 $ 4,448 $ 85 $13,623 $2 ,184 $20,468 $ ',8'3 $12,5 5 $ 3,566 $ 2,082 $ 4 0 $ 5,83 $53,'56 Last year $ 5,145 $ 3,226 $ 1,6 5 $ 3,356 $ 1,330 $12,433 $2',185 $18,281 $ ',208 $11,0'3 $ 3,643 $ 2,162 $ 3 5 $ 5,081 $4 ,53

$ 8,2 0 $ 2,6'4 $ ',032 $ 1,661 $1 ,65' $ ,858 $ ,21' $ 4,065 $23,140 $42,' ' $ 0 $ 408 $ 5,506 $ 6,280 5$1,2356

$ ',826 $ 4,645 $ 5,582 $ 811 $18,864 $ ',650 $ 8,5 5 $ 3,'36 $1 , 81 $38,845 $ 2 $ 364 $ 5,536 $ 5,006 5$ 2146

&otal 1hareholder8s /quit( &otal +iabilities and 1hare9 /quit(

$10, 5 $53,'56

$10,6 4 $4 ,53

Chrysler Corporation's Income Statement for the year ending December 31 (in millions)
1ales revenue +ess, Cost o3 2oods sold :ross #ro3its +ess, 0#eratin2 e$#enses 1ellin2 ) ad*in9 $4,064 "ension $ 405 .on#ension #ost ret9 $ '58 -e#reciation $1,100 A*ort9 o3 tools $1,120 &otal o#eratin2 e$#enses 0#eratin2 #ro3its +ess, !nterest e$#enses .et #ro3it be3ore ta$es +ess, &a$es 540;6 .et #ro3it a3ter ta$es This year $53,1 5 $41,304 $11,8 1 $3, 33 $ '14 $ 834 $ 4 $ 61 Last year $52,235 $38,032 $14,203

$ $ $ $ $ $

',44' 4,444 5 3,44 1,380 2,06 Last year

$ $ $ $ $ $

',436 6,'6' 3' 5,830 2,332 3,4 8

Ind!stry A"erage #inancial ratios this year and last year

Liquidity .et <orkin2 Ca#ital Current 7atio =uick 7atio 5Acid &est6 Activity !nventor( &urnover Avera2e A2e o3 !nventor( Avera2e Collection "eriod %i$ed Asset &urnover &otal Asset &urnover Debt -ebt &i*es !nterest /arned Profitability :ross "ro3it Mar2in .et "ro3it Mar2in 7eturn on &otal Assets 7eturn on /quit( This year $5,056 19'8 1955 '941 9021 2298 1954 98 '5; 694 24; 49'; 496; 209'; This year Liquidity .et <orkin2 Ca#ital Current 7atio =uick 7atio 5Acid &est6 Activity !nventor( &urnover Avera2e A2e o3 !nventor( Avera2e Collection "eriod %i$ed Asset &urnover &otal Asset &urnover Debt -ebt &i*es !nterest /arned Profitability :ross "ro3it Mar2in .et "ro3it Mar2in $5,056 19'8 1955 '941 9021 2298 1954 98 '5; 694 24; 49'; $4,8 2 196 1951 '958 9021 2394 1962 9 1 ''; '90 28; 49 ; 49'; 3398; Last year $4,8 2 196 1951 '958 9021 2394 1962 9 1 ''; '90 28; 49 ;

Ind!stry A"erage #inancial ratios this year and last year

7eturn on &otal Assets 7eturn on /quit(

496; 209';

49'; 3398;

. #Comp%te Chrysler,s financial ratios for the past two years# * #Compare these ratios to the ind%stry,s average# Comment on Chrysler,s strengths and weaknesses by ratio category#

/# )ho%ld erkorian have p%rs%ed the p%rchase of Chrysler0

1# "f erkorian did not want to takeover Chrysler, what other reasons might he have had for trying to convince other people that Chrysler was a takeover candidate0