Case 1: Review the requirements of the Chapter 3 Mini-Case, parts b through j. Then apply those requirements to do an analysis of Brinker International, which is a real company. Don't complete the minicase itself, just Brinker. Do the analysis on the basis of the figures for the most recent year. For part g, use the 2 most recent years.

Download 10K financial statements for the most recent year for Brinker. A good source is the company's home page. Also compare the Brinker ratios to the industry averages and comment on significant differences.

You'll note that some of the company's ratios you calculate won't agree with those found on the web page. Ratios are calculated in different ways, however, you should use the formulas in the text. Also, you won't find all of the industry averages, but you will find most of them. You'll need the company's stock price for several of the ratios; use the fiscal year end price. The company's stock symbol is EAT.

(Visit Brinker web site) (Links to an external site.) http://www.brinker.com/

(Access industry averages) (Links to an external site.) https://www.investing.com/equities/brinker-international-inc-ratios

Note:

All quantitative work must be done in Excel. Show how each answer is derived. Word is not acceptable.

Include the balance sheet and income statement on the same worksheet as ratio calculations.

Case 1: Review the requirements of the Chapter 3 Mini-Case, parts b through j. Then apply those requirements to do an analysis of Brinker International, which is a real company. Don't complete the minicase itself, just Brinker. Do the analysis on the basis of the figures for the most recent year. For part g, use the 2 most recent years. Download 10K financial statements for the most recent year for Brinker. A good source is the company's home page. Also compare the Brinker ratios to the industry averages and comment on significant differences. You'll note that some of the company's ratios you calculate won't agree with those found on the web page. Ratios are calculated in different ways, however, you should use the formulas in the text. Also, you won't find all of the industry averages, but you will find most of them. You'll need the company's stock price for several of the ratios; use the fiscal year end price. The company's stock symbol is EAT. (Visit Brinker web site) (Links to an external site.) http://www.brinker.com/ (Access industry averages) (Links to an external site.) https://www.investing.com/equities/brinkerinternational-inc-ratios Note: All quantitative work must be done in Excel. Show how each answer is derived. Word is not acceptable. Include the balance sheet and income statement on the same worksheet as ratio calculations. b. calculate the 2017 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2015, 2016, and as projected for 2017? We often think of rations as being useful 1. To managers to help run the business, 2. To bankers for credit analysis, and 3. To stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios? c. Calculate the 2017 inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover. How does Brinker utilization of assets stack up against that of other firms in its industry? d. calculate the 2017 debt ratio, liabilities to assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Brinker compare with the industry with respect to financial leverage: what can you conclude from these ratios: e. Calculate the 2017 profit margin, basic earning power, return on assets, and return on equity. What can you say about these ratios? f. Calculate the 2017 price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate the 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 Brinker? h. use the extended DuPont equation to provide a summary and overview of Brinker's financial condition as projected for 2017. What are the firm's major strengths and weaknesses? 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. A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 B C D E F Chapter 3 Mini Case The first part of the case, presented in Chapter 2, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2016, 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, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Input Data: 2015 $8.50 100,000 40% $40,000 2016 $6.00 100,000 40% $40,000 2017E $12.17 250,000 40% $40,000 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Gross Fixed Assets Less Accumulated Dep. Net Fixed Assets Total Assets 2015 $9,000 $48,600 $351,200 $715,200 $1,124,000 $491,000 $146,200 $344,800 $1,468,800 2016 $7,282 $20,000 $632,160 $1,287,360 $1,946,802 $1,202,950 $263,160 $939,790 $2,886,592 2017E $14,000 $71,632 $878,000 $1,716,480 $2,680,112 $1,220,000 $383,160 $836,840 $3,516,952 Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock (100,000 shares) Retained earnings Total common equity Total liabilities and equity $145,600 $200,000 $136,000 $481,600 $323,432 $805,032 $460,000 $203,768 $663,768 $1,468,800 $324,000 $720,000 $284,960 $1,328,960 $1,000,000 $2,328,960 $460,000 $97,632 $557,632 $2,886,592 $359,800 $300,000 $380,000 $1,039,800 $500,000 $1,539,800 $1,680,936 $296,216 $1,977,152 $3,516,952 2015 $3,432,000 $2,864,000 $18,900 $340,000 $3,222,900 $209,100 $62,500 $146,600 $58,640 $87,960 $0.880 $0.220 $6.638 2016 $5,834,400 $4,980,000 $116,960 $720,000 $5,816,960 $17,440 $176,000 ($158,560) ($63,424) ($95,136) ($0.951) $0.110 $5.576 2017E $7,035,600 $5,800,000 $120,000 $612,960 $6,532,960 $502,640 $80,000 $422,640 $169,056 $253,584 $1.014 $0.220 $7.909 Year-end common stock price Year-end shares outstanding Tax rate Lease payments Balance Sheets Income Statements Net sales Costs of Goods Sold Except Depr. Depreciation and amortization Other Expenses Total Operating Cost Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (40%) Net Income before preferred dividends EPS DPS Book Value Per Share Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers. a. Why are ratios useful? What three groups use ratio analysis and for what reasons? Answer: See Chapter 03 Mini Case Show b. (1.) Calculate the current and quick ratios based on the projected balance sheet and income statement data. Calculated Data: Ratios Liquidity ratios Current Ratio Quick Ratio 2015 2016 2017E Industry Average 2.33 0.85 1.46 0.50 2.58 0.93 2.70 1.00 78 79 80 (2.) What can you say about the company's liquidity position? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios? Answer: See Chapter 03 Mini Case Show 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 c. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry? Asset Management ratios Inventory Turnover Days Sales Outstanding Fixed Asset Turnover Total Asset Turnover 2015 4.03 37.4 9.95 2.34 2016 3.96 39.5 6.21 2.02 2017E 3.45 45.5 8.41 2.00 Industry Average 6.10 32.00 7.00 2.50 d. Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios? Industry Debt Management ratios 2015 2016 2017E Average Debt Ratio 35.6% 59.6% 22.7% 32.0% Liabilities-to-assets Ratio 54.8% 80.7% 43.8% 50.0% Times Interest Earned 3.35 0.10 6.28 6.20 EBITDA Coverage Ratio 2.61 0.81 5.52 8.00 e. Calculate the profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? Industry Profitability ratios 2015 2016 2017E Average Net Profit Margin 2.6% -1.6% 3.6% 3.6% Operating Margin 6.1% 0.3% 7.1% 7.1% Gross Profit Margin 16.6% 14.6% 17.6% 15.5% Basic Earning Power 14.2% 0.6% 14.3% 17.8% Return on Assets 6.0% -3.3% 7.2% 9.0% Return on Equity 13.3% -17.1% 12.8% 18.0% f. Calculate the price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Industry Market Value ratios 2015 2016 2017E Average Price-to Earnings Ratio 9.66 -6.31 12.00 14.20 Price-to-Cash Flow Ratio 7.95 27.49 8.14 7.60 Market-to-Book Ratio 1.28 1.08 1.54 2.90 Book Value Per Share 6.64 5.58 7.91 na g. Perform a common size analysis and percent change analysis. What do these analyses tell you about Computron? See the worksheet with the TAB "Common Size and % Change" h. 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? DuPont Analysis Computron 2015 Computron 2016 Computron 2017E Industry Average ROE = 13.3% -17.1% 12.8% 18.00% P.M. X 2.6% -1.6% 3.6% 3.6% T.A.T.O. X 2.3 2.0 2.0 2.5 Equity Multiplier 2.21 5.18 1.78 2.00 i. What are some potential problems and limitations of financial ratio analysis? Answer: See Chapter 03 Mini Case Show j. What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance? Answer: See Chapter 03 Mini Case Show Common Common Size Size Analysis Analysis and and Percent Percent Change Change Analysis Analysis In In common common size size analysis, analysis, all all income income statement statement items items are are divided divided by by sales, sales, and and all all balance balance sheet sheet items items are are divided by total assets. divided by total assets. In In percent percent change change analysis, analysis, all all items items are are expressed expressed as as aa percent percent change change from from the the first first year, year, called called the the base base year, year, of of the the analysis. analysis. Common Size Statements Balance Sheets 2015 2016 2017E Industry Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total Current Assets Net Fixed Assets Total Assets 0.6% 3.3% 23.9% 48.7% 76.5% 23.5% 100.0% 0.3% 0.7% 21.9% 44.6% 67.4% 32.6% 100.0% 0.4% 2.0% 25.0% 48.8% 76.2% 23.8% 100.0% 0.3% 0.3% 22.4% 41.2% 64.1% 35.9% 100.0% Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total common equity Total liabilities and equity 9.9% 13.6% 9.3% 32.8% 22.0% 45.2% 100.0% 11.2% 24.9% 9.9% 46.0% 34.6% 19.3% 100.0% 10.2% 8.5% 10.8% 29.6% 14.2% 56.2% 100.0% 11.9% 2.4% 9.5% 23.7% 26.3% 50.0% 100.0% Income Statements 2015 2016 2017E Industry Net sales COGS except depr. Depreciation Other Expenses EBIT Less interest Pre-tax earnings Taxes (40%) 100.0% 83.4% 0.6% 9.9% 6.1% 1.8% 4.3% 1.7% 100.0% 85.4% 2.0% 12.3% 0.3% 3.0% -2.7% -1.1% 100.0% 82.4% 1.7% 8.7% 7.1% 1.1% 6.0% 2.4% 100.0% 84.5% 4.0% 4.4% 7.1% 1.1% 5.9% 2.4% Net Income before preferred dividends 2.6% -1.6% 3.6% 3.6% Percentage Change Analysis Balance Sheets 2015 2016 2017E Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total Current Assets Net Fixed Assets Total Assets 0% 0% 0% 0% 0% 0% 0% -19.1% -58.8% 80.0% 80.0% 73.2% 172.6% 96.5% 55.6% 47.4% 150.0% 140.0% 138.4% 142.7% 139.4% Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total common equity Total liabilities and equity 0% 0% 0% 0% 0% 0% 0% 122.5% 260.0% 109.5% 175.9% 209.2% -16.0% 96.5% 147.1% 50.0% 179.4% 115.9% 54.6% 197.9% 139.4% 2015 2016 2017E 0% 0% 0% 0% 0% 0% 0% 0% 0% 70.0% 73.9% 518.8% 111.8% -91.7% 181.6% -208.2% -208.2% -208.2% 105.0% 102.5% 534.9% 80.3% 140.4% 28.0% 188.3% 188.3% 188.3% Income Statements Net sales Costs of Goods Sold Depreciation Other Expenses EBIT Less interest Pre-tax earnings Taxes (40%) Net Income before preferred dividends d all all balance balance sheet sheet items items are are the the first first year, year, called called the the base base year, year, Problems 1 and 2 BALANCE SHEET Assets Cash and Equivalents Accounts Receivable Inventory Total Current Assets Gross Fixed Assets Less Accumulated Depreciation Net Fixed Assets Total Assets 2015 $ $ INCOME STATEMENT Sales Revenue Cost of Sales Gross Profits Total Operating Profit Less: Interest Expense Net Profits Before Taxes Less Taxes (40%) Net Profits After Taxes $ $ $ 237,500.00 592,500.00 607,500.00 1,437,500.00 $ $ 1,062,000.00 2,500,000.00 $ $ $ $ $ $ 222,500.00 422,500.00 217,500.00 862,500.00 470,000.00 1,332,500.00 $ $ $ $ 637,500.00 530,000.00 1,167,500.00 2,500,000.00 $ $ $ 3,360,000.00 2,724,960.00 635,040.00 $ 462,400.00 $ $ $ $ $ 172,640.00 31,200.00 141,440.00 56,576.00 84,864.00 1,250,000.00 187,500.00 Liabilities and Equity Current Liabilities Accounts Payable Notes Payable Accruals Total Current Liabilities Long Term Debt Total Liabilities Stockholder's Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities & Equity Less: Operating Expenses Selling Expense General S&A Depreciation Total Operating Expenses $ $ $ $ 251,200.00 163,200.00 48,000.00 LIQUIDITY RATIOS Current Ratio Quick Ratio Operating Cash Flow ASSET MANAGEMENT RATIOS Inventory Turnover Average Collection Period Fixed Asset Turnover Total Asset Turnover DEBT MANAGEMENT RATIOS Debt Ratio Times Interest Earned PROFITABILITY RATIOS Gross Profit Margin Operating Profit Margin Net Profit Margin Return on Investment Return on Equity End of worksheet 2013 1.5 0.9 n/a 2014 1.7 1 2015 Industry Average 1.6 0.9 2014 5 50 2015 Industry Average 8.4 40 n/a 2013 6 40 n/a n/a 1.5 1.5 1.75 2013 60% 2.5 2014 56% 3.5 2015 Industry Average 50% 4 2013 20% 4.70% 2% 3.00% 7.50% 2014 19.70% 4.80% 2.30% 3.50% 7.95% 2015 Industry Average 20% 6% 3% 5.25% 10.50% ndustry Average ndustry Average ndustry Average ndustry Average INSTRUCTIONS: Analyze the firm's performance from both time-series and cross-sectional points of view using the key financial ratios provided. PROVIDE YOUR WRITTEN ANALYSIS IN THIS COLUMN. Problem 3 INSTRUCTIONS: Calculate the operating cash flow based on your review of the firm's income statement. How does operating cash flow (OCF) compare to free cash flow (FCF)? Why is the free cash flow so meaningful to management and investors? = [EBIT (1 - T)] + depreciation OCF EBIT = EARNINGS BEFORE INTEREST AND TAXES T = TAX RATE FCF = OCF - net fixed asset investment* - net current asset investment** PLEASE PROVIDE YOUR ANSWERS HERE. Problem 4 INSTRUCTIONS: Calculate the sustainable growth rate based on your calculations of return on equity (ROE) and assuming a its sustainable growth rate? PLEASE PROVIDE YOUR ANSWERS HERE. tions of return on equity (ROE) and assuming a 60 percent dividend-payout ratio. How can a company increase Problem 5 INSTRUCTIONS: Evaluate the firm's overall financial condition and performance based on your analysis and then address th Is the company improving or deteriorating over this three-year period? How does your ratio analysis justify your interpretation? PLEASE PROVIDE YOUR ANSWERS HERE. your analysis and then address these questions