2019 Balance Sheet LSUS Corporation Current liabilities Current assets $44,461,550 6,123,200 $11,119,700 18,681,500 20,149,650 1,172.200 Accounts payable Accrued expenses Total current liabilities Cash and equivalents Accounts receivable Inventory S 50,584,750 Other $51,123,050 Total current assets $169.260,000 $169,260,000 Long-term debt Total long-term liabilities Fixed assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Intangible assets and others $457,509,600 (113,845,900) $343,663,700 6,772.000 $350,435.700 Stockholders' equity Preferred stock S1,970,000 37,583,700 28,116,300 Total fixed assets Common stock Capital surplus Accumulated retained 161,564,000 carnings (47,520,000) Less treasury stock Total equity Total liabilities and shareholders equity S181.714.000 $401.558.750 $401.558.750 Total assets LSUS Corporation Industry Ratios LOWER QUARTILE MEDIAN UPPER QUARTILE 1.51 1.97 86 Current ratio 1.01 1.46 1643 22.43 75 43 Quick ratio 1.27 Total asset turnover 14.38 17.65 12.18 Inventory turnover 10.25 Receivables turnover 56 61 32 Debi ratio Debt equity ratio Equity maltiplier 113 2.13 144 83 L83 2.44 10 83 8.21 5.72 Interest coverage 7.48% 9.05% 502% Profit margin 10.67 14.16 705% Return on assets 19.32 26.41% Return on cquity 14 06 Choice 2: Ratios and Financial Planning After Han's analysis of LSUS corporation' cash flow, Amanda, the CEO of the company, approached Han about the company's performance and future growth plans. First, Amanda wants to find out how LSUS corporation is performing relative to its peers. Additionally, she wants to find out the future financing necessary to fund the company's growth. In the past, LSUS corporation experienced difficulty in financing its growth plan, in large part because of poor planning. In fact, the company had to turn down several large jobs because its facilities were unable to handle the additional demand. Amanda hoped that Han would be able to estimate the amount of capital the company would have to raise next year so that LSUS corporation would be better prepared to fund its expansion plans. To get Han started with his analyses, Amanda provided the following financial statements. Han then gathered the industry ratios for the LSUS Corporation industry 2019 Income Statement LSUS Corporation Sales $611,582,000 Cost of goods sold Selling, general, and administrative Depreciation EBIT 431.006,000 73.085.700 19.958 400 S 87,531,900 Interest expense 11000,900 $76.531.000 EBT es 30,612.400 Net income $ 45.918.600 $ 17.374.500 Dividends Retained earnings $ 28,544,100 corporatron s expansion plans? 6. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts since it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy'" fixed cost structure. Assume that the LSUS corporation is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new line at a cost of $95,000,000. Prepare the pro forma income statement and balance sheet. What is the new EFN with these assumptions? What does this imply about capacity utilization for LSUS corporation next year? Before examining the case questions below, research on how the corporate financial policies could affect corporate outcomes such as profits, risks etc. Use proper references. 1. LSUS corporation uses a small percentage of preferred stock as a source of finaacing. In calculating the ratios for the company, should preferred stock be included as part of the company's total equity? 2. Calculate all of the ratios listed in the industry table for LSUS corporation 3. Compare the performance of LSUS corporation to the industry as a whole. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How would you interpret this ratio? How does LSUS corporation compare to the industry average for this ratio? 4. Calculate the sustainable growth rate for LSUS corporation. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming growth at precisely this rate. Recalculate the ratios in the previous question. What do you observe? 5. As a practical matter, LSUS corporation is unlikely to be willing to raise external equity capital, in part because the shareholders don't want to dilute their existing ownership and control positions. However, LSUS corporation is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of LSUS corporation's expansion plans? 6. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts since it is impossible, as a practical matter, to buy part of a new plant or machine, In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume that the LSUS corporation is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new line at a cost of $95,000,000. Prepare the pro forma income statement and balance sheet. What is the new EFN with these assumptions? What does this imply about capacity utilization for LSUS corporation next year? 2019 Balance Sheet LSUS Corporation Current liabilities Current assets $44,461,550 6,123,200 $11,119,700 18,681,500 20,149,650 1,172.200 Accounts payable Accrued expenses Total current liabilities Cash and equivalents Accounts receivable Inventory S 50,584,750 Other $51,123,050 Total current assets $169.260,000 $169,260,000 Long-term debt Total long-term liabilities Fixed assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Intangible assets and others $457,509,600 (113,845,900) $343,663,700 6,772.000 $350,435.700 Stockholders' equity Preferred stock S1,970,000 37,583,700 28,116,300 Total fixed assets Common stock Capital surplus Accumulated retained 161,564,000 carnings (47,520,000) Less treasury stock Total equity Total liabilities and shareholders equity S181.714.000 $401.558.750 $401.558.750 Total assets LSUS Corporation Industry Ratios LOWER QUARTILE MEDIAN UPPER QUARTILE 1.51 1.97 86 Current ratio 1.01 1.46 1643 22.43 75 43 Quick ratio 1.27 Total asset turnover 14.38 17.65 12.18 Inventory turnover 10.25 Receivables turnover 56 61 32 Debi ratio Debt equity ratio Equity maltiplier 113 2.13 144 83 L83 2.44 10 83 8.21 5.72 Interest coverage 7.48% 9.05% 502% Profit margin 10.67 14.16 705% Return on assets 19.32 26.41% Return on cquity 14 06 Choice 2: Ratios and Financial Planning After Han's analysis of LSUS corporation' cash flow, Amanda, the CEO of the company, approached Han about the company's performance and future growth plans. First, Amanda wants to find out how LSUS corporation is performing relative to its peers. Additionally, she wants to find out the future financing necessary to fund the company's growth. In the past, LSUS corporation experienced difficulty in financing its growth plan, in large part because of poor planning. In fact, the company had to turn down several large jobs because its facilities were unable to handle the additional demand. Amanda hoped that Han would be able to estimate the amount of capital the company would have to raise next year so that LSUS corporation would be better prepared to fund its expansion plans. To get Han started with his analyses, Amanda provided the following financial statements. Han then gathered the industry ratios for the LSUS Corporation industry 2019 Income Statement LSUS Corporation Sales $611,582,000 Cost of goods sold Selling, general, and administrative Depreciation EBIT 431.006,000 73.085.700 19.958 400 S 87,531,900 Interest expense 11000,900 $76.531.000 EBT es 30,612.400 Net income $ 45.918.600 $ 17.374.500 Dividends Retained earnings $ 28,544,100 corporatron s expansion plans? 6. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts since it is impossible, as a practical matter, to buy part of a new plant or machine. In this case, a company has a "staircase" or "lumpy'" fixed cost structure. Assume that the LSUS corporation is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new line at a cost of $95,000,000. Prepare the pro forma income statement and balance sheet. What is the new EFN with these assumptions? What does this imply about capacity utilization for LSUS corporation next year? Before examining the case questions below, research on how the corporate financial policies could affect corporate outcomes such as profits, risks etc. Use proper references. 1. LSUS corporation uses a small percentage of preferred stock as a source of finaacing. In calculating the ratios for the company, should preferred stock be included as part of the company's total equity? 2. Calculate all of the ratios listed in the industry table for LSUS corporation 3. Compare the performance of LSUS corporation to the industry as a whole. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How would you interpret this ratio? How does LSUS corporation compare to the industry average for this ratio? 4. Calculate the sustainable growth rate for LSUS corporation. Calculate external funds needed (EFN) and prepare pro forma income statements and balance sheets assuming growth at precisely this rate. Recalculate the ratios in the previous question. What do you observe? 5. As a practical matter, LSUS corporation is unlikely to be willing to raise external equity capital, in part because the shareholders don't want to dilute their existing ownership and control positions. However, LSUS corporation is planning for a growth rate of 20 percent next year. What are your conclusions and recommendations about the feasibility of LSUS corporation's expansion plans? 6. Most assets can be increased as a percentage of sales. For instance, cash can be increased by any amount. However, fixed assets often must be increased in specific amounts since it is impossible, as a practical matter, to buy part of a new plant or machine, In this case, a company has a "staircase" or "lumpy" fixed cost structure. Assume that the LSUS corporation is currently producing at 100 percent of capacity and sales are expected to grow at 20 percent. As a result, to expand production, the company must set up an entirely new line at a cost of $95,000,000. Prepare the pro forma income statement and balance sheet. What is the new EFN with these assumptions? What does this imply about capacity utilization for LSUS corporation next year