TECHTRON Questions
1. Selected risk ratios are presented for 2011 and 2010 for Techtron Company. Also, refer to the financial statement data for the company.
|
|
2011
|
2010
|
|
Revenues to Cash Ratio
|
6.8
|
7.7
|
|
Days Revenues Held in Cash
|
54
|
47
|
|
Current Ratio
|
1.5
|
1.5
|
|
Quick Ratio
|
1.1
|
1.1
|
|
Operating Cash Flow to Average Current Liabilities Ratio
|
47.3%
|
55.7%
|
|
Days Accounts Receivable
|
68
|
73
|
|
Days Inventory
|
51
|
68
|
|
Days Accounts Payable
|
47
|
49
|
|
Net Days Working Capital
|
72
|
91
|
|
Liabilities to Assets Ratio
|
0.559
|
0.621
|
|
Liabilities to Shareholders' Equity Ratio
|
1.266
|
1.639
|
|
Long-Term Debt to Long-Term Capital Ratio
|
0.330
|
0.418
|
|
Long-Term Debt to Shareholders' Equity Ratio
|
0.492
|
0.720
|
|
Operating Cash Flow to Total Liabilities Ratio
|
0.243
|
0.242
|
|
Interest Coverage Ratio
|
5.6
|
2.3
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Financial Statements
|
INCOME STATEMENT (in millions)
|
|
|
|
|
|
|
|
|
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Fiscal year end
|
2012
|
2011
|
2010
|
|
Sales
|
$2,500
|
$ 3,139
|
$ 2,816
|
|
Cost of Goods Sold
|
(1,252)
|
(1,288)
|
(1,099)
|
|
Selling, General & Admin. Exp.
|
|
|
|
|
Advertising
|
(387)
|
(364)
|
(297)
|
|
Research and Development
|
(157)
|
(143)
|
(154)
|
|
Royalty Expense
|
(223)
|
(248)
|
(296)
|
|
Other Selling and Administrative
|
(385)
|
(799)
|
(788)
|
|
Interest expense
|
(32)
|
(53)
|
(78)
|
|
Income tax expense
|
(64)
|
(69)
|
(29)
|
|
Net income
|
$ 196
|
$ 175
|
$ 75
|
|
Balance Sheet
|
|
|
|
|
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Fiscal year end
|
2012
|
2011
|
2010
|
2009
|
|
ASSETS (in millions)
|
|
|
|
|
|
Cash
|
$ 625
|
$421
|
$ 496
|
$233
|
|
Accounts Receivable
|
579
|
607
|
555
|
572
|
|
Inventories
|
195
|
169
|
190
|
217
|
|
Prepayments
|
219
|
212
|
191
|
346
|
|
Total current assets
|
$1,618
|
$1,409
|
$1,432
|
$1,368
|
|
Property, plant & equipment
|
207
|
200
|
213
|
236
|
|
Other Assets
|
1,416
|
1,554
|
1,498
|
1,765
|
|
Total assets
|
$3,241
|
$3,163
|
$3,143
|
$3,369
|
|
LIABILITIES
|
|
|
|
|
|
Accounts payable
|
$ 168
|
$ 159
|
$ 166
|
$ 123
|
|
Short-term borrowing
|
342
|
24
|
223
|
36
|
|
Other current liabilities
|
584
|
749
|
578
|
599
|
|
Total current liabilities
|
$1,094
|
$ 939
|
$ 967
|
$ 758
|
|
Long term debt
|
303
|
687
|
857
|
1,166
|
|
Other noncurrent liabilities
|
149
|
141
|
128
|
92
|
|
Total liabilities
|
$1,546
|
$1,767
|
$1,952
|
$2,016
|
|
|
|
|
|
|
|
Common stock
|
$ 105
|
$ 105
|
$ 105
|
$ 105
|
|
Additional Paid-in Capital
|
381
|
398
|
458
|
455
|
|
Retained earnings
|
1,776
|
1,558
|
1,430
|
1,622
|
|
Accumulated Other Comprehensive Income
|
82
|
30
|
(47)
|
(68)
|
|
Treasury Stock
|
(649)
|
(695)
|
(755)
|
(761)
|
|
Total Shareholders' equity
|
$1,695
|
$1,396
|
$1,191
|
$1,353
|
|
Total Liabilities & Shareholders' Equity
|
$3,241
|
$3,163
|
$3,143
|
$3,369
|
|
STATEMENT OF CASH FLOWS (in millions)
|
|
|
|
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Operations
|
2012
|
2011
|
2010
|
|
Net Income
|
$ 196
|
$ 175
|
$ 75
|
|
Depreciation & Amortization
|
146
|
164
|
184
|
|
(Increase) Decrease Accounts Receivables
|
28
|
(52)
|
17
|
|
(Increase) Decrease Inventories
|
(26)
|
21
|
27
|
|
(Increase) Decrease Prepayments
|
7
|
(21)
|
155
|
|
(Decrease) Increase Accounts Payable & Other Current Liabilities
|
(90)
|
17
|
23
|
|
Net Addbacks and Subtractions from operations
|
(147)
|
112
|
221
|
|
Cash flows from operations
|
$ 195
|
$451
|
$480
|
|
Investing
|
|
|
|
|
Property Plant and Equipment acquired
|
($79)
|
($63)
|
($59)
|
|
Other Investing Transactions
|
(6)
|
(2)
|
(3)
|
|
Cash Flows from Investing
|
($85)
|
($65)
|
($62)
|
|
Financing
|
|
|
|
|
Increase in Common Stock
|
0
|
0
|
0
|
|
Increase (Decrease) in Short-term Borrowing
|
(318)
|
199
|
(187)
|
|
Increase (Decrease) in Long-term Borrowing
|
(384)
|
(170)
|
309
|
|
Acquisition of Common Stock
|
(46)
|
60
|
(6)
|
|
Dividends
|
(37)
|
(21)
|
(21)
|
|
Other Financing Transactions
|
879
|
243
|
(250)
|
|
Cash flow from Financing
|
$94
|
($311)
|
($155)
|
|
Change in Cash
|
$204
|
$75
|
$263
|
|
Cash - Beginning of Year
|
421
|
496
|
233
|
|
Cash - End of Year
|
$ 625
|
$ 421
|
$ 496
|
Required:
a. Calculate the amounts of these ratios for 2012.
b. Assess the changes in the short-term liquidity risk of Techtron between 2010 and 2012 and the level of that risk at the end of 2012.
c. Assess the changes in the long-term solvency risk of Techtron between 2010 and 2012 and the level of that risk at the end of 2012.