Can somebody solve this for me? Due tonight at 9:00
ACCOUNTING 202 evening edition Module 6 Case Study Your Future and Plush Carpet Mills Case Setting: It is Spring 2013 and you are looking for full-time employment. Plush Carpet Mill, Inc. (PCM) has offered you a position as manager of its San Antonio, Texas production facility. Before accepting the job, however, you want to evaluate PCM's financial performance to make sure it is a sound company. PCM has provided you a copy of its year-end 2010, 2011 and 2012 balance sheets and income statements, and you have obtained the most recent industry data from the internet. Your task now is to assess the financial condition of PCM through both: a 2010-12 trend (Comparison over time) analysis and a peer group (Comparison to industry) analysis using 2012 data for PCM and the data for the carpet mill industry. Remember: In doing your analysis you are essentially telling a story about PCM's financial performance over the last few years and relative to other similar-sized firms in the industry. The relevant source data has been assembled in a Microsoft Excel template but will require your refinement. The Statement of Cash Flows and available industry benchmark data are included in the template. Required: In Thursday May 30 Class we will complete the construction of the excel spreadsheet by: 1) Use cell-referenced equations to construct common-size balance sheets and income statements for each of the three years and, 2) Produce financial ratios for each of the three years 3) You must assign qualitative assessments of Good, OK/Good, OK, OK/Poor, or Poor to the trends in each of the firm's financial ratios as well as to the degree to which the firm's financial ratios compare to available industry ratios. 4) In addition to the Excel requirements outlined above, you must answer the following set of analytical questions on the several areas of financial performance liquidity, asset management, financing of assets, profitability, and cash flowand then pull all of your analysis together to give an overall evaluation of the firm. This assignment will serve as the Chapter 12 End of Chapter Test and the In The News writing assignment for Module 6. It will be due in Angel by 9:45 pm Tuesday June 4. 1 ACCOUNTING 202 evening edition Module 6 Case Study In answering these questions, do not forget to look at the firm's common-size balance sheet and income statement items, including trends over 2010 - 12 and the relationship of 2012 commonsize ratios to industry data. Oftentimes, you will see patterns in the common-size ratios that reinforce and further explain patterns in the financial ratios, and vice versa. Be sure your response includes what that particular ratio means and the impact it has on the overall financial health of PCM. By 9:45 pm June 4th you will upload to an Angel Dropbox your word processed responses as an attachment to the analysis questions that follow. This will serve as the Chapter 12 End of Chapter Test and the In The News writing assignment for Module 6. Class will not be held June 4. LIQUIDITY 1. Look at the current ratio and the quick (acid-test) ratio of PCM. What trends do you notice over 2010 - 12, and what does this suggest about PCM's liquidity? How does PCM's liquidity in 2012 compare with the industry average? 2. Now study the accounts receivables turnover, average collection period, inventory turnover, and average days of inventory for PCM. What do these patterns suggest about the firm's conversion of accounts receivable and inventories to cash? 3. Considering your answers to the two questions above, what is your overall assessment of PCM's liquidity position? What two major factors account for your assessment? 4. What is your assessment of the manner in which PCM is managing its assets? Pay attention to both trends and industry averages. SOLVENCY (Financing of Assets) 5. What is your assessment of the manner in which PCM is financing its assets? Pay attention to both trends and industry averages. What is the relationship between the debt to equity ratio and times interest earned as these relate to PCM? And is there any other possible explanation (outside of the firm's financial statements) for the observed trend in times interest earned? PROFITABILITY 6. What can you say about PCM's gross profit ratio and net profit ratio? Explain any patterns observed. 7. How are PCM's net profit ratio, and asset turnover ratio affecting the firm's pre-tax return on assets (ROA) and return on equity (ROE)? What is your overall assessment of the firm's profitability, including its earnings per share (EPS)? CASH FLOW 8. Referring to PCM's statement of cash flow for 2011 and 2012, assess PCM's cash flow situation noting both inflows and outflows? 2 ACCOUNTING 202 evening edition Module 6 Case Study OVERALL EVALUATION 9. Based on your answers to the questions above, what is your overall evaluation of PCM's financial condition? (Pull all your analysis together in answering this question.) 10. What is the market's assessment of PCM's financial condition? Explain. Does the market's assessment confirm or refute your analysis? 11. Based on your evaluation of PCM and the market's assessment of the firm, would you accept employment with the company? Explain. By 9:45 pm June 4th you will upload to an Angel Dropbox your word processed responses as an attachment to the analysis questions that follow. You should limit your response to one wellconstructed paragraph (another if absolutely necessary). This will serve as the Chapter 12 End of Chapter Test and the In The News writing assignment for Module 6. Class will not be held June 4. Sample Format For Submission 3 Exhibit Assembled Financial Data Plush Carpet Mills Inc Balance Sheet ($000) Dec 31 Balance Sheet (000) 2010 $ Assets Current assets Cash Accounts receivable Inventories Prepaid expenses Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Intangible assets All other noncurrent assets Total Assets Liabilities and Stockholders Equity Current liabilities Notes payable Current maturities--L.T.D. Accounts payable Income taxes payable Accruals Total current liabilities Long-term debt Total Liabilities Stockholder's equity Common stock Paid-in capital Retained earnings Total stockholders' equity Total liabilities & equity Market price per common share Income Statement Sales Revenue (All Sales are on account) Less Cost of Goods Sold Gross Profit Less Operating Expenses Gen & Admin and Selling Depreciation Expense Total Operating Expenses Operating Income (EBIT) Less Interest Expense Earnings before taxes (EBT) Less Income Taxes (34%) Net Income Common Stock Dividends (000) Number shares common stock (000) Earnings per Common Share (EPS) Market price per common share Financial Ratios Liquidity Accounts receivables turnover (times) Average Collection Period (days) Inventory turnover (times) Average days in inventory (days) Current ratio (times) Quick or Acid-test ratio (times) Solvency Debt to Equity Ratio Times interest earned (times) Profitability Gross profit ratio (%) Profit margin (%) [before tax] Asset Turnover Return on assets (%) [before tax] Return on equity (%) [before tax] Price to earnings ratio Cash Flow Statement Cash, beginning of year % of TA $ 2011 % of TA $ 2012 % of TA 1,512 6,237 4,536 3,780 16,065 6,300 2,050 4,250 567 1,323 22,205 1,176 10,271 7,838 5,140 24,425 9,080 2,958 6,122 588 1,790 32,925 1,097 15,919 12,570 6,840 36,426 12,918 4,250 8,668 605 1,985 47,684 1,205 1,008 3,570 84 1,995 7,862 2,940 10,802 3,243 1,460 5,958 336 3,360 14,357 6,100 20,457 6,323 2,246 9,955 336 5,016 23,876 9,350 33,226 3,360 2,100 5,943 11,403 22,205 17.25 3,360 2,100 7,008 12,468 32,925 17.71 3,360 2,100 8,998 14,458 47,684 18.43 2010 $ % of Sales 50,400 35,431 14,969 2011 $ % of Sales 65,100 45,872 19,228 2012 $ % of Sales 81,312 57,098 24,214 12,331 630 12,961 2,008 335 1,673 569 1,104 15,099 908 16,007 3,221 756 2,465 838 1,627 17,296 1,292 18,588 5,626 1,343 4,283 1,456 2,827 314 1,120 562 1,120 17.71 5.46% 13.55% 15.55% 6.59% 41.15% 25.05% 9.15% 24.96% 3.00% 7.32% 100.00% 2.62% 8.39% 20.05% 19.80% 39.84% 60.16% 100.00% Industry Average 837 1,120 17.25 Industry Average 18.43 2010 2011 2012 100 67.50% 32.50% 19.59% 3.43% 23.02% 9.48% 0.83% 8.65% 1.80% 6.85% Industry Average 7.06 51.7 2.05 0.95 0.66 6.85% 1.1 7.52% 12.51% 2011 1,512 2012 1,176 Operating Activities Net Income (EBIT) Plus Depreciation Minus increase in accounts receivable Minus increase in inventory Minus increase in prepaid expenses Plus increase in accounts payable Plus increase in income taxes payable Plus increase in accruals & other cur. Liab. Net Cash from operating activities 3,221 908 (4,034) (3,302) (1,360) 2,388 252 1,458 (469) 5,626 1,292 (5,648) (4,732) (1,700) 3,997 0 1,656 491 Investment Activities Fixed asset acquisitions Change in intangible assets Change in all other noncurrent activities Net Cash from investing activities (2,780) (21) (467) (3,268) (3,838) (17) (195) (4,050) Financing Activities Change in notes payable Change current maturities--L.T.D. Change in long-term debt Change in retained earnings Dividends paid Net Cash from financing Activities Net Change in Cash 2,038 (452) 3,160 1,065 (562) 5,249 (336) 3,080 (786) 3,250 2,827 (1,456) 6,915 (79) Cash, end of year 1,176 1,097 Trend Analysis 2010-12 Evaluation Industry Analysis 2009
