Case 14 - Garden State Container Corporation

(also cited as Case 36 in original casebook)

Topic - Financial Analysis and Forecasting

(15^th edition - textbook)

(Revised)

Omit 9, 10.

Change 1993 cost of goods sold from 82.5 to 70 percent and 1994 cost of goods sold from 80 to 60 percent on page 64 in casebook.

1. 62-78. Please fill in Xs. Divide accounts by total assets in Table 1 to get Xs in Table 3 for 1992. Also, please do long-term debt in Table 3 for 1992 (which is blankshould have an X). Example: In Table 3 for 1992, accounts receivable = 30.19% = 58,714/194,465

Divide accounts by net sales in Table 2 to get Xs in Table 4 for 1992. Examples: In Table 4 for 1992, cost of goods sold = 342,016/401,251 = 85.24%; depreciation = 4,080/401,251 = 1.02%

Subtract accounts in 1992 from 1991 in Table 1 to get Xs in Table 5 for 1992.These are either increases/decreases (uses/sources) in cash.Example: In Table 5, increase in receivables = 58,714 (1992) - 36,924 (1991) = (-21,790).For other numbers, add/subtract numbers in Table 5. Example: in Table 5, cash cost of goods = (342,016) (cost of goods sold) (() usually denotes negative numbers or subtraction) + (28,623) (increase in inventories) + 18,984 (increase in accounts payable) + 4,462 (increase in accruals) = ($347,193).

For Table 6, see 68 and 74 for income statement and balance sheet examples. Example: in Table 6, current ratio = 163,249/91,124 = 1.79 (see Tables 1 and 2 in casebook), 108 and 129 (all ratios) in textbook; debt ratio - 116; total assets turnover - 113; return on total assets - 119

Altman Z factor - see casebook footnote d in Table 6 - (first 4 factors (X1-X4) are in % - move decimal 2 places to the right - ex. - .012 becomes 1.2). For 1992 as an example - 1.2 X (163,249 - 91124) (net working capital = current assets - current liabilities) / 194465 + 1.4 X 32041 / 194465 + 3.3 X 9943/194465 + 0.6 X 3.74 X 7000 (26180 - see Table 1 in casebook - footnotes a and b - market value = market price of shares X shares) / 115,886 + .999 X 401251/194465 = 3.04See Tables 1 and 2 in casebook.

1. DuPont Equation - 124. 105-35 - Chapter 4.

1. Your opinion / no textbook example

1. Fill in the Xs. Do income statement first. Fill in blanks in order that you can figure them out. I suggest you do them in the following order on the balance sheet: accounts receivable, inventory, short term bank loans, current liabilities, total liabilities, retained earnings, total equity, total liabilities and equity, current assets, cash and marketable securities.

In Table 1 in casebook on page 67, change most 1993 and 1994 numbers to (some do not change):

Table 1

Historical and Pro Forma Balance Sheets

19931994

ASSETS

Cash and marketable securities$X$X

Accounts receivableXX

InventoryXX

Current assetsXX

Land, buildings plant and equipment57,03658,746

Accumulated depreciation(18,234)(21,880)

Net fixed assets38,80236,866

Total assets248,479X

_____________

LIABILITES AND EQUITIES

Short-term bank loansXX

Accounts payable31,99033,590

Accruals18,60223,252

Current liabilitiesXX

Long-term bank loans20,08220,082

Mortgage4,2083,788

Long-term debt24,29023,870

Total liabilitiesXX

Common stock (7 million shares)46,53846,538

Retained earningsXX

Total equityXX

Total liabilities and equityXX

_____________

In Table 2 in casebook on page 68, change most 1993 and 1994 numbers to (some do not change):

Historical and Pro Forma Income Statements

Table 2

19931994

Net Sales$441,376$507,583

Cost of goods sold308,963X

Gross profit132,413203,033

Administration and selling expensesXX

Depreciation4,8463,646

Miscellaneous expensesX6,345

Total operating expensesXX

EBIT84,533X

Interest on short term loans5,9065,906

Interest on long term loans1,9121,912

Interest on mortgage379341

Total interest8,1978,159

Before-tax earningsX146,815

TaxesX58,726

Net incomeXX

___________

Dividends on stock0X

Additions to retained earningsXX

___________

EPS (7,000,000 shares)6.5412.58

________

Examples: Net sales 1993 = 401251 X 1.1 = $441,376 (10% increase)

Cost of goods sold 1993 = 441,376 X .7 = $308,963

Administrative and selling expenses 1993 = 441,376 X .08 = $35,310

Miscellaneous expenses 1993 = 441,376 X 0.0175 = 7,724

Addition to retained earnings 1993 = 45,802 - 0 = $45,802

Accounts receivable 1993 = (441,376 X 32) / 360 = $39,233

Inventory 1993 = 308,963/5.7 = $54,204

Short-term bank loans 1993 = 36,466 + 12750 = $49,216

Current assets 1993 = total assets - net fixed assets = 248,479 - 38,802 = 209,677

Retained earnings 1993 = 32041 + 45,802 = 77,843

Example:in Table 6, 1993 current ratio = 209,677 / 99808 = 2.10.See Tables 1 and 2 in casebook.108 and 129 in textbook.For 1994, current ratio = 305,532 / 106058 = 2.88.

In Table 6 in casebook on page 72, change most 1993 and 1994 ratios to (some do not change):

Pro Forma

19931994

Liquidity Ratios:

Current ratioXX

Quick ratio1.56X

Debt Management Ratios:

Debt RatioX37.94%

TIE coverageX18.99

Asset Management Ratios:

Inventory turnover (cost):5.75.7

Inventory turnover (sales)XX

Fixed asset turnover11.3813.77

Total asset turnover1.78X

Days sales outstanding (ACP)X32

Profitability Ratios:

Profit marginXX

Gross profit margin30%40

Return on total assets18.44%25.73%

ROEXX

Other Ratios:

Altman Z factor6.5210.05

Payout ratio0.00%X

For pro forma ratios

Current ratio - page 108

Quick ratio - page 110

Debt ratio - 116

TIE coverage - 116

Inventory turnover (sales) - 111

Total assets turnover - 113

DSO (ACP) - 112

Profit margin - 118

Gross profit margin = gross profit / sales

ROE - 119

Payout ratio - casebook or dividends / net income

Altman Z factor -- use P/Es (given in case for 1993and 1994) X net income to get market value of stock - see table 6 footnote d on page 72

1. Example: optimal cash balance 1993 = 441,376 X .05 = $22,069. Excess funds invested in marketable securities = 116,240 - 22069 = $94,171.

1. See 1993 balance sheet for amount owed and answer to question 5could use excess funds.

1. Your opinion/no textbook example

1. 131-3

1. Your opinion / no textbook example