Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street.
You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm's
clients.
Your boss has developed the following set of questions you must answer.
Income Statements and Balance Sheet Balance Sheet
2012
2013
Cash
$9,000
$7,282
Short-term investments
48,600
20,000
Accounts receivable
351,200
632,160
Inventories
715,200
1,287,360
Total current assets
$1,124,000
$1,946,802
Gross fixed assets
491,000
1,202,950
Less: Accumulated depreciation
146,200
263,160
Net fixed assets
$344,800
$939,790
Total assets
$1,468,800
$2,886,592
Liabilities and Equity
Accounts payable
$145,600
$324,000
Notes payable
200,000
720,000
Accruals
136,000
284,960
Total current liabilities
$481,600
$1,328,960
Long-term debt
323,432
1,000,000
Common stock (100,000 shares)
460,000
460,000
Retained earnings
203,768
97,632
Total equity
$663,768
$557,632
Total liabilities and equity
$1,468,800
$2,886,592
Income Statements
2012
2013
Sales
$3,432,000
$5,834,400
Cost of goods sold except depr.
2,864,000
4,980,000
Depreciation and amortization
18,900
116,960
Other expenses
340,000
720,000
Total operating costs
$3,222,900
$5,816,960
EBIT
$209,100
$17,440
Interest expense
62,500
176,000
EBT
$146,600
($158,560)
Taxes (40%)
58,640
-63,424
Net income
$87,960
($95,136)
Other Data
2012
2013
Stock price
$8.50
$6.00
Shares outstanding
100,000
100,000
EPS
$0.88
($0.95)
DPS
$0.22
0.11
Tax rate
40%
40%
Book value per share
$6.64
$5.58
Lease payments
$40,000
$40,000
Ratio Analysis
2012
2013
Current
2.3
1.5
Quick
0.8
0.5
Inventory turnover
4
4
Days sales outstanding
37.3
39.6
Fixed assets turnover
10
6.2
Total assets turnover
2.3
2
Debt ratio
35.60%
59.60%
Liabilities-to-assets ratio
54.80%
80.70%
TIE
3.3
0.1
EBITDA coverage
2.6
0.8
Profit margin
2.60%
-1.6%
Basic earning power
14.20%
0.60%
ROA
6.00%
-3.3%
ROE
13.30%
-17.1%
Price/Earnings (P/E)
9.7
-6.3
Price/Cash flow
8
27.5
Market/Book
1.3
1.1
1. What is the free cash flow for 2013?
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 2013 current 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 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.
5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios.
What can you conclude from these ratios?
6. Calculate the 2013 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 2013 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
2013.
9. What are the firm's major strengths and weaknesses