An experienced budget analyst at Technica, Inc,. , has been charged with assessing the firm's financial performance during 2006 and its financial position at year-end 2006. To complete this assignment, she gathered the firm's 2006 financial statements (below). In addition, She obtained the firm's ratio values for 2004 and 2005, along with the 2006 industry average ratios (also applicable to 2004 and 2005). TO DO Q1. Calculate the firm's 2006 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) (13 marks ) (1 mark each ratio listed above ) Q2. Analyze the firm's current financial position from both a cross-sectional and a time- series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market. (10 marks) ( 2 marks each categories ) Q3. Summarize the firm's overall financial position on the basis of your findings in part b ( 4 marks ) Q4. What ethical issues could confront a financial manger? ( 3 marks ) Income Open with for the Year Ended December 31, 2006 $5,075,000 3,704,000 $1,371,000 $650,000 416,000 152,000 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders 1,218,000 $ 153,000 93,000 $ 60,000 24,000 $ 36,000 3,000 $ 33,000 Earnings per share (EPS) $0.33 Balance Sheets December 31 2006 2005 Assets $ 25,000 805,556 Current assets Cash Accounts receivable Inventories Total current assets Gross fixed assets (at cost) Less: Accumulated depreciation Net fixed assets Total assets 700,625 $1,531,181 $2,093,819 500,000 $1,593,819 $3,125,000 $ 24,100 763,900 763,445 $1,551,445 $1,691,707 348,000 $1,343,707 $2,895,152 Liabilities and Stockholders' Equity $ 400,500 370,000 100,902 $ 871,402 $ 700,000 $1,571,402 Current liabilities Accounts payable $ 230,000 Notes payable 311,000 Accruals 75,000 Total current liabilities $ 616,000 Long-term debt $1,165,250 Total liabilities $1,781,250 Stockholders' equity Preferred stock (2,500 shares, $1.20 dividend) $50,000 Common stock (100,000 shares at $4 par) 400,000 Paid-in capital in excess of par value 593,750 Retained earnings 300,000 Total stockholders' equity $1,343,750 Total liabilities and stockholders' cquity $3,125,000 $ 50,000 400,000 593,750 280,000 $1,323,750 $2,895,152 D The firm's 100,000 outstanding shares of common stock closed 2006 at a price of $11.38 per share. Historical and Industry Average Ratios Actual Actual Actual 2004 2005 2006 Industry average 2006 Ratio 1.5 1.2 10.2 46 days 2.0 24.5% Current ratio Quick ratio Inventory turnover (times) Average collection period Total asset turnover (times) Debt ratio Times interest carncd ratio Gross profit margin Net profit margin Return on total assets (ROA) Return on common cquity (ROE) Price/carnings (P/E) ratio Market/book (M/B) ratio 1.7 1.0 5.2 50.7 days 1.5 45.8% 2.2 27.5% 1.1% 1.7% 3.1% 33.5 1.8 0.9 5.0 55.8 days 1.5 54.3% 1.9 28.0% 1.0% 1.5% 3.3% 38.7 2.5 26.0% 1.2% 2.4% 3.2% 43.4 1.0 1.1 1.2
