Assume that you recently graduated and have just reported to work as an investment advisor at one of the firms on Wall Street. You have been presented and asked to review the following income Statement and Balance Sheet of one of the firm's clients. Your boss has developed the following set of questions you must answer.
Please see the attached Income Statements and Balance Sheet and answer the following:
1) What is the free cash flow for 2014?
2) Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?
3) Calculate the 2014 curent and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2013?
4) Calculate the 2014 inventory turnover, days sales outstanding (DSO), fixed assets turnoever, and total assets turnover.
5) Calculate the 2014 debt ratio, liabilities to asset ratio, times interest earned, and EBITDA coverage ratios. What can you conclude from these ratios?
6) Calculate the 2014 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
7) Calculate the 2014 price/earnings ratio, price/cash flow ratio, and market/book ratio.
8) Use the extended DuPont equation to provide a summary and overview of company's financial condition as projected for 2014. What are the firm's major strengths and weaknesses?
Please make sure ALL of the answers to the questions are there and that the wording is formatted properly.
| Balance Sheet |
2012 |
2013 |
2014 |
| CASH |
$ 9,000.00 |
$ 7,282.00 |
$ 14,000.00 |
| SHORT TERM INVEST |
$ 48,600.00 |
$ 20,000.00 |
$ 71,632.00 |
| A/R |
$ 351,200.00 |
$ 632,160.00 |
$ 878,000.00 |
| INVENTORY |
$ 715,200.00 |
$ 1,287,360.00 |
$ 1,716,480.00 |
| TOTAL CURRENT ASSET |
$ 1,124,000.00 |
$ 1,946,802.00 |
$ 2,680,112.00 |
| GROSS FIXED ASSET |
$ 491,000.00 |
$ 1,202,950.00 |
$ 1,220,000.00 |
| LESS ACCUM DEPREC |
$ 146,200.00 |
$ 263,160.00 |
$ 383,160.00 |
| NET FIXED ASSET |
$ 344,800.00 |
$ 939,790.00 |
$ 836,840.00 |
| TOTAL ASSETS |
$ 1,468,800.00 |
$ 2,886,592.00 |
$ 3,516,952.00 |
| |
|
|
|
| Liabilities and Equity |
|
|
|
| A/P |
$ 145,600.00 |
$ 324,000.00 |
$ 359,800.00 |
| NOTES PAYABLE |
$ 200,000.00 |
$ 720,000.00 |
$ 300,000.00 |
| ACCRUALS |
$ 136,000.00 |
$ 284,960.00 |
$ 380,000.00 |
| TOTAL CURRENT LIAB |
$ 481,600.00 |
$ 1,328,960.00 |
$ 1,039,800.00 |
| LONG TERM DEBT |
$ 323,432.00 |
$ 1,000,000.00 |
$ 500,000.00 |
| COMMON STOCK (100000 SHARES) |
$ 460,000.00 |
$ 460,000.00 |
$ 1,539,800.00 |
| RETAINED EARNINGS |
$ 663,768.00 |
$ 557,632.00 |
$ 296,216.00 |
| TOTAL LIAB AND EQUITY |
$ 1,468,800.00 |
$ 2,886,592.00 |
$ 1,977,152.00 |
| |
|
|
|
| Income Statements |
|
|
|
| SALES |
$ 3,432,000.00 |
$ 5,834,400.00 |
$ 7,035,600.00 |
| COST GOODS SOLD EXCEPT DEPR |
$ 2,864,000.00 |
$ 4,980,000.00 |
$ 5,800,000.00 |
| DEPREC AND AMORTIZATION |
$ 18,900.00 |
$ 116,960.00 |
$ 120,000.00 |
| OTHER EXPENSES |
$ 340,000.00 |
$ 720,000.00 |
$ 612,960.00 |
| TOTAL OPERATING COSTS |
$ 3,222,900.00 |
$ 5,816,960.00 |
$ 6,532,960.00 |
| EBIT |
$ 209,100.00 |
$ 17,440.00 |
$ 502,640.00 |
| INTEREST EXPENSE |
$ 62,500.00 |
$ 176,500.00 |
$ 80,000.00 |
| EBT |
$ 146,600.00 |
$ (158,560.00) |
$ 422,640.00 |
| TAXES (40%) |
$ 58,640.00 |
-63424 |
$ 169,056.00 |
| NET INCOME |
$ 87,960.00 |
$ (95,136.00) |
$ 253,584.00 |
| |
|
|
|
| OTHER DATA |
|
|
|
| STOCK PRICE |
$ 8.50 |
$ 6.00 |
$12.17 |
| SHARES OUTSTANDING |
100000 |
100000 |
250000 |
| EPS |
$ 0.88 |
$ (0.95) |
1.104 |
| DPS |
$ 0.22 |
$ 0.11 |
$ 0.22 |
| TAX RATE |
40% |
40% |
40% |
| BOOK VALUE PER SHARE |
$ 6.64 |
$ 5.58 |
7.909 |
| LEASE PAYMENTS |
$ 40,000.00 |
$ 40,000.00 |
$ 40,000.00 |