- Calculate the 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?
- Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses?
A B D E F G Projection 2020E 2019 $ 7,782 25,000 542,460 1,546,252 $2,121,494 1,164,085 $3,285,579 $ 15,500 72,632 85,700 1,779,572 $ 1,953,404 1,785,600 $ 3,739,004 2 Computron's Balance Sheets (Millions of Dollars) 3 2018 2 Assets 5 Cash and equivalents $ 10,000 5 Short-term investments 52,600 7 Accounts receivable 250,600 3 Inventories 837,982 9 Total current assets $ 1,151,182 0 Net Fixed Assets 882,982 1 Total Assets $2,034,164 -2 3 Liabilities and equity 4 Accounts payable $ 154,600 5 Notes payable 250,000 6 Accruals 142,000 -7 Total current liabilities $ 546,600 8 Long-term bonds 245,000 9 Total liabilities $ 791,600 CO Common stock (100,000 shares) 1,000,000 1 Retained earnings 242,564 2 Total common equity $ 1,242,564 3 Total liabilities and equity $ 2,034,164 -4 5 6 Income Statements (Millions of Dollars) 7 2018 8 Net sales $3,532,000 9 Cost of goods sold (Excluding depr.) $2,547,000 0 Depreciation $ 16,500 1 Other operating expenses $ 385,000 2 Earnings before interest and taxes (EBIT) $ 583,500 3 Less interest $ 65,200 4 Pre-tax earnings $ 518,300 5 Taxes (25%) $ 129,575 6 Net Income $ 388,725 7 8 Notes: $ 382,500 $ 452,300 620,000 450,000 254,700 352,000 $ 1,257,200 $ 1,254,300 800,000 700,000 $ 2,057,200 $ 1,954,300 1,000,000 1,000,000 228,379 784,704 $ 1,228,379 $ 1,784,704 $ 3,285,579 $ 3,739,004 Projection 2019 2020E $5,648,500 $ 7,453,600 $4,687,500 $ 5,750,000 $ 187,500 $ 150,000 $ 625,000 $ 723,500 $ 148,500 $ 830,100 $ 156,000 $ 75,000 $ (7,500) $ 755,100 $ (1,875) $ 188,775 $ (5,625) $ 566,325 a Computron has no amortization charges. Additional Information 2018 $8.50 100,000 $9,500 25% $379,225 $35,000 2019 $7.50 100,000 $8,560 Year-end common stock price Shares outstanding (millions) Common dividends (millions) Tax rate Additions to retained earnings (millions) Lease payments (millions) Projection 2020E $11.15 100,000 $10,000 25% $556,325 $35,000 25% -$14,185 $35,000 Per Share Information EPS DPS Book Value Per Share 2018 $3.89 $0.10 $12.43 2019 - $0.06 $0.09 $12.28 Projection 2020E $5.66 $0.10 $17.85 Ratio Analysis 2018 2019 2020E 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 TIE 11.0% 16.5% 28.7% 19.1% 31.3% 3.1 25.9 4.0 1.736 2.1 0.6 24.3% 0.40 38.9% 8.9 -0.1% 2.6% 4.5% -0.2% -0.5% 3.2 35.1 4.9 1.719 1.7 0.5 43.2% 1.16 62.6% 1.0 Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.9 15.0% 0.22 32.0% 13.0 A B C D E F G 2018 $3.89 $0.10 $12.43 2019 -$0.06 $0.09 $12.28 2020E $5.66 $0.10 $17.85 2018 2019 2020E 52 53 EPS 54 DPS 55 Book Value Per Share 56 57 58 59 60 Ratio Analysis 61 62 Profit margin 63 Operating profit margin 64 Basic earning power 65 ROA 66 ROE 67 Inventory turnover 68 Days sales outstanding 69 Fixed assets turnover 70 Total assets turnover 71 Current 72 Quick 73 Debt ratio 74 Debt-to-equity ratio 75 Liabilities-to-assets ratio 76 TIE 77 EBITDA coverage 78 Price/earnings (P/E) 79 Market/book 80 81 82 *Note "E" denotes "estimated" 11.0% 16.5% 28.7% 19.1% 31.3% 3.1 25.9 4.0 1.736 2.1 0.6 -0.1% 2.6% 4.5% -0.2% -0.5% 3.2 35.1 4.9 1.719 1.7 0.5 43.2% 1.16 62.6% 1.0 1.9 -133.3 0.6 Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.9 15.0% 0.22 32.0% 13.0 17.2 16.8 2.7 24.3% 0.40 38.9% 8.9 6.3 2.2 0.7
