As a financial analyst for a relatively new, highly leveraged ski manufacturer located in the foothills of Cerdanyas Mountains Your firm manufactures only one product, snow boards The company has been operating up to this point without much quantitative knowledge of the business and financial risks it faces With Covid 19 and few clients, ski season just ended, however, David Garcia, the president of the company has started to focus more on the financial aspects of managing the business He has set up a meeting for next week with the CFO, Alvaro Gomez, to discuss matters such as the business and financial risks faced by the company Accordingly, Alvaro has asked you to prepare an analysis to assist him in his discussions with the president As a first step in your work, you compiled the following information regarding the cost structure of the company Output Level 80000 units Operating assets 4000000 euro Operating assets turnover 8 times Return on operating assets 32 Degree of operating leverage 6 times Interest expense 600,000 euro Tax Rate 35 As the next step, you need to determine the break even point in units of output for the company One of your strong points has been that you always prepare supporting work papers, which show how you arrived at your conclusions You know Alvaro would like to see these work papers to facilitate him review of your work Therefore, you will have the information you require to prepare an analytical income statement for the company You are sure that Alvaro would also like to see this statement In addition, you know that you need it to be able to answer the following questions You also know Alvaro expects you to prepare, in a format that is presentable to the president, answers to the following questions to serve as a basis for him discussions with the president a What is the firms break even point in sales euro b If sales should increase by 30 percent (as the president expects), by what percentage would EBT (earnings before taxes) and net income increase c Prepare another income statement, this time to verify the calculations from part (b)

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Posted on Aug 29, 2024

As a financial analyst for a relatively new, highly leveraged ski manufacturer located in the foothills of Cerdanyas Mountains. Your firm manufactures only one product,

As a financial analyst for a relatively new, highly leveraged ski manufacturer located in the foothills of Cerdanyas Mountains. Your firm manufactures only one product, snow boards. The company has been operating up to this point without much quantitative knowledge of the business and financial risks it faces.

With Covid 19 and few clients, ski season just ended, however, David Garcia, the president of the company has started to focus more on the financial aspects of managing the business. He has set up a meeting for next week with the CFO, Alvaro Gomez, to discuss matters such as the business and financial risks faced by the company.

Accordingly, Alvaro has asked you to prepare an analysis to assist him in his discussions with the president. As a first step in your work, you compiled the following information regarding the cost structure of the company:

Output Level	80000 units
Operating assets	4000000 euro
Operating assets turnover	8 times
Return on operating assets	32%
Degree of operating leverage	6 times
Interest expense	600,000 euro
Tax Rate	35%

As the next step, you need to determine the break-even point in units of output for the company. One of your strong points has been that you always prepare supporting work papers, which show how you arrived at your conclusions. You know Alvaro would like to see these work papers to facilitate him review of your work. Therefore, you will have the information you require to prepare an analytical income statement for the company. You are sure that Alvaro would also like to see this statement. In addition, you know that you need it to be able to answer the following questions. You also know Alvaro expects you to prepare, in a format that is presentable to the president, answers to the following questions to serve as a basis for him discussions with the president:

a. What is the firms break-even point in sales euro? b. If sales should increase by 30 percent (as the president expects), by what percentage would EBT (earnings before taxes) and net income increase? c. Prepare another income statement, this time to verify the calculations from part (b).