Analysis of Financial Statements

Balance Sheets

EXHIBITS: INPUT DATA (XYZ)

Table 1 Balance Sheets

Assets	2013E	2012	2011
cash	$ 85,632	$7,282	$57,600
Acount Receivable	878,000	632,160	351,200
Inventories	1,716,480	1,287,360	715,200
Total current assets	$2,680,112	$1,926,802	$ 1,124,000
Gross fixed assets	1,197,160	1,202,950	491,000
Less: accumulated depreciation	380,120	263,160	146,200
Net fixed assets	$ 817,040	$ 939,790	$ 344,800
Total assets	$3,497,152	$2,866,592	$ 1,468,800
Liabilities and equity
Accounts payable	$ 436,800	$ 524,160	$ 145,600
Notes payable	300,000	636,808	200,000
Accruals	408,000	489,600	136,000
Total current liabilities	$1,144,800	$1,650,568	$ 481,600
Long term bonds	400,000	723,432	323,432
Total debt	$1,544,800	$2,374,000	$ 805,032
Common stock (100,000 shares)	1,721,176	460,000	460,000
Retained earnings	231,176	32,592	203,768
Total common equity	$1,952,352	$ 492,592	$ 663,768
Total liabilities and equity	$3,497,152	$2,866,592	$ 1,468,800

Analysis of Financial Statements

Income Statements

Table 2

Income Statements

	2013E	2012	2011
Sales	$7,035,600	$6,034,000	$ 3,432,000
Cost of goods sold	5,875,992	5,528,000	2,864,000
Other expenses	550,000	519,988	358,672
Total operating exp. excl. depreciation and amortization	$6,425,992	$6,047,988	$ 3,222,672
EBITDA	$ 609,608	$(13,988)	$ 209,328
Depreciation and amortization	116,960	116,960	18,900
Earnings before interest and taxes (EBIT)	$492,648	$(130,948)	$190,428
Interest expense	70,008	136,012	43,828
Earnings before taxes (EBT)	$ 422,640	$ (266,960)	$ 146,600
Taxes (40%)	169,056	(106,784)	58,640
Net Income	$ 253,584	$ (160,176)	$ 87,960
Earnings per share (EPS)	$ 1.014	$ (1.602)	$ 0.880
Dividends per share (DPS)	$ 0.220	$ 0.110	$ 0.220
Book value per share (BVPS)	$ 7.809	$ 4.926	$ 6.638
Stock price	$ 12.17	$ 2.25	$ 8.50
Shares outstanding	250,000	100,000	100,000
Tax rate	40.00%	40.00%	40.00%
Lease payments	$ 40,000	$ 40,000	$ 40,000
Sinking fund payments	0	0	0

Analysis of Financial Statements

Ratio Analysis

	2013E	2012	2011	Industry Average
Current ratio	*	1.2	2.3	2.7
Quick ratio	*	0.4	0.8	1.0
Inventory turnover	*	4.7	4.8	6.1
Days sales outstanding (DSO)	*	38.2	37.4	32.0
Fixed assets turnover	*	6.4	10.0	7.0
Total assets turnover	*	2.1	2.3	2.6
Debt-to- assets ratio	*	82.8%	54.8%	50.0%
Times interest earned (TIE)	*	-1.0	4.3	6.2
Operating margin	*	-2.2%	5.6%	7.3%
Profit margin	*	-2.7%	2.6%	3.5%
Basic earning power (BEP)	*	-4.6%	13.0%	19.1%
Return on assets(ROA)	*	-5.6%	6.0%	9.1%
Return on equity (ROE)	*	-32.5%	13.3%	18.2%
Price/earnings (P/E)	*	-1.4	9.7	14.2
Market/book (M/B)	*	0.5	1.3	2.4
Book value per share (BVPS)	*	$4.93	$6.64	n.a.

Requiremnts:

Questions number 1,2 has been already completed answering , please awating for the rest of the questions 3 to 7:

3. Calculate the 2013 debt-to-assets and times-interest-earned ratios.

4. Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).

5. Calculate the 2013 price/earnings ratio, and market/book ratio.

6. Use the extended DuPont equation to provide a summary and overview of XYZs financial condition as projected for 2013.

7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change ripple through the financial statements (shown in thousands below) and influence the stock price?

Accounts receivable $878 Debt $1,545

Other current assets 1,802

Net fixed assets 817 Equity 1,952

Total assets $3,497 Liabilities plus equity $3,497

First, we need to calculate XYZs daily sales.

Daily sales = Sales / 365

Daily sales = $7,035,600 / 365

Daily sales = $19,275.62

Target A/R = Daily sales Target DSO

Target A/R = $19,276 32

Target A/R = $616,820

Freed-up cash = old A/R new A/R

Freed-up cash = $878,000 $616,820

Freed-up cash = $261,180