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ews Translate CASE O The first part of the case, presented in the previous chapter, discussed the situation of Computron Industries after an expansion program. A large loss occurred rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival. Jenny Cochran was brought in as assistant to Computron's chairman, who had the task of getting the company back into a sound financial position. Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers. Use the recent and projected financial information shown next. Balance Sheets (Millions of Dollars) 2018 2019 2020E Assets $ 60 Cash and equivalents Short-term investments. $ 50 $ 60 100 10 50 Accounts receivable 400 520 530 Inventories 620 820 660 Total current assets $ 1,180 $1,400 $1,300 2,900 3,500 3,700 Net fixed assets Total assets $4,080 $4,900 $5,000 Liabilities and equity Accounts payable $ 300 $ 400 $ 330 Notes payable 50 250 100 Accruals 200 240 270 Total current liabilities $ 550 $ 890 $ 700 800 Long-term bonds 1,100 1.100 Total liabilities. $1,350 $1,990 $1,800 Common stock (100,000 shares) 1,000 1,000 1,000 1,730 Retained earnings 1,910 2.200 $2,730 $2,910 $3,200 Total common equity $5,000 Total liabilities and equity $4,900 $4,080 Note: "E" denotes the "estimated forecast." Income Statements (Millions of Dollars). Om tv 134 of 114 a Chapter 3 Analysis of Financial Statements Other Data Per Share Information EPS DPS Book value per share Additional Information Dividends (millions) Additions to retained earnings (millions) Year-end shares outstanding (millions) Year-end common stock price Lease payments (millions) Tax rate Note: "E" denotes the "estimated forecast." Ratio Analysis Ratio 2018 Profit margin Operating profit margin Basic earning power ROA ROE Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Current Quick Debt ratio Debt-to-equity ratio Liabilities-to-assets ratio 6.7% 10.2% 13.7% 9.0% 13.5% 7.4 26.5 1.9 1.348 2.1 1.0 20.8% 0.31 33.196 2018 $ 3.69 $ 0.90 $27.30 $ 90 $ 279 100 $50.00 $ 20 25% 2019 4.4% 7.7% 9.4% 5.4% 9.1% 6.2 31.6 1.7 1.224 1.6 0.7 27.6% 0.46 40.6% 2019 $ 2.64 $ 0.84 $29.10 $ 84 $ 180 100 $30.00 $ 20 25% 2020E 135 2020E $ 3.90 $ 1.00 $32.00 $ 100 $ 290 100 $49.00 $ 20 25% Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.4 15.0% 0.22 30.0% 135 of 1188 mute. verive une vue e Ratio Analysis Ratio 2018 2019 Profit margin 6.7% 4.4% Operating profit margin 10.2% 7.7% Basic earning power 13.7% 9.4% ROA 9.0% 5.4% ROE 13.5% 9.1% Inventory turnover 7.4 6.2 Days sales outstanding 26.5 31.6 Fixed assets turnover 1.9 1.7 1.348 1.224 Total assets turnover Current 2.1 1.6 Quick 1.0 0.7 Debt ratio 20.8% 27.6% 0.31 0.46 Debt-to-equity ratio Liabilities-to-assets ratio 33.1% 40.6% Earnings multiplier 1.5 1.7 TIE 8.2 4.3 13.0 EBITDA coverage 9.9 6.3 17.2 Price/earnings (P/E) 13.6 11.4 16.8 Market/book 1.8 1.0 2.6 Note: "E" denotes the "estimated forecast." a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the projected profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? c. Calculate the projected inventory turnover, days sales outstanding (DSO), fixed as- sets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry? y heppened on the flook ane Chapt tige Besed Mayot be copied, sand, or depind, in whole or in put. De to tie igles, so third party dly at the all kuning experimes. Cngage Leasing mees the right reserve al con any of 2020E Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.4 15.0% 0.22 30.0% 1.5 pin & Profiles Tab Window Help Unit 2: Analysis of Financi. X C Chegg eReader X Solve 09730/161/ Translate Q Part 1 The Company and Its Environmen d. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? e. Calculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you con- clude from these ratios? f. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron? h. Use the extended DuPont equation to provide a breakdown of Computron's projecte return on equity. How does the projection compare with the previous years and with the industry's DuPont equation? i. What are some potential problems and limitations of financial ratio analysis? j. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance? DDITIONAL CASES er many of the concepts discussed in www.p ews Translate CASE O The first part of the case, presented in the previous chapter, discussed the situation of Computron Industries after an expansion program. A large loss occurred rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival. Jenny Cochran was brought in as assistant to Computron's chairman, who had the task of getting the company back into a sound financial position. Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers. Use the recent and projected financial information shown next. Balance Sheets (Millions of Dollars) 2018 2019 2020E Assets $ 60 Cash and equivalents Short-term investments. $ 50 $ 60 100 10 50 Accounts receivable 400 520 530 Inventories 620 820 660 Total current assets $ 1,180 $1,400 $1,300 2,900 3,500 3,700 Net fixed assets Total assets $4,080 $4,900 $5,000 Liabilities and equity Accounts payable $ 300 $ 400 $ 330 Notes payable 50 250 100 Accruals 200 240 270 Total current liabilities $ 550 $ 890 $ 700 800 Long-term bonds 1,100 1.100 Total liabilities. $1,350 $1,990 $1,800 Common stock (100,000 shares) 1,000 1,000 1,000 1,730 Retained earnings 1,910 2.200 $2,730 $2,910 $3,200 Total common equity $5,000 Total liabilities and equity $4,900 $4,080 Note: "E" denotes the "estimated forecast." Income Statements (Millions of Dollars). Om tv 134 of 114 a Chapter 3 Analysis of Financial Statements Other Data Per Share Information EPS DPS Book value per share Additional Information Dividends (millions) Additions to retained earnings (millions) Year-end shares outstanding (millions) Year-end common stock price Lease payments (millions) Tax rate Note: "E" denotes the "estimated forecast." Ratio Analysis Ratio 2018 Profit margin Operating profit margin Basic earning power ROA ROE Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Current Quick Debt ratio Debt-to-equity ratio Liabilities-to-assets ratio 6.7% 10.2% 13.7% 9.0% 13.5% 7.4 26.5 1.9 1.348 2.1 1.0 20.8% 0.31 33.196 2018 $ 3.69 $ 0.90 $27.30 $ 90 $ 279 100 $50.00 $ 20 25% 2019 4.4% 7.7% 9.4% 5.4% 9.1% 6.2 31.6 1.7 1.224 1.6 0.7 27.6% 0.46 40.6% 2019 $ 2.64 $ 0.84 $29.10 $ 84 $ 180 100 $30.00 $ 20 25% 2020E 135 2020E $ 3.90 $ 1.00 $32.00 $ 100 $ 290 100 $49.00 $ 20 25% Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.4 15.0% 0.22 30.0% 135 of 1188 mute. verive une vue e Ratio Analysis Ratio 2018 2019 Profit margin 6.7% 4.4% Operating profit margin 10.2% 7.7% Basic earning power 13.7% 9.4% ROA 9.0% 5.4% ROE 13.5% 9.1% Inventory turnover 7.4 6.2 Days sales outstanding 26.5 31.6 Fixed assets turnover 1.9 1.7 1.348 1.224 Total assets turnover Current 2.1 1.6 Quick 1.0 0.7 Debt ratio 20.8% 27.6% 0.31 0.46 Debt-to-equity ratio Liabilities-to-assets ratio 33.1% 40.6% Earnings multiplier 1.5 1.7 TIE 8.2 4.3 13.0 EBITDA coverage 9.9 6.3 17.2 Price/earnings (P/E) 13.6 11.4 16.8 Market/book 1.8 1.0 2.6 Note: "E" denotes the "estimated forecast." a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the projected profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? c. Calculate the projected inventory turnover, days sales outstanding (DSO), fixed as- sets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry? y heppened on the flook ane Chapt tige Besed Mayot be copied, sand, or depind, in whole or in put. De to tie igles, so third party dly at the all kuning experimes. Cngage Leasing mees the right reserve al con any of 2020E Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.4 15.0% 0.22 30.0% 1.5 pin & Profiles Tab Window Help Unit 2: Analysis of Financi. X C Chegg eReader X Solve 09730/161/ Translate Q Part 1 The Company and Its Environmen d. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? e. Calculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you con- clude from these ratios? f. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron? h. Use the extended DuPont equation to provide a breakdown of Computron's projecte return on equity. How does the projection compare with the previous years and with the industry's DuPont equation? i. What are some potential problems and limitations of financial ratio analysis? j. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance? DDITIONAL CASES er many of the concepts discussed in www.p