CASE ONE FINANCIAL STATEMENTS You have been hired to perform an analysis of a small, specialized firm in a competitive industry. To get you started, you are provided with the following financial statements. You are also given the industry ratios in which this firm competes.

2013 Income Statement

Sales - 234,300,000, Cost of goods sold - 165,074,000 , Other expenses- 27,991,000, Depreciation - 7,644,000 , EBIT - 33,591,000, Interest - 4,212,600, Taxable Income - 29,378,400 Taxes (40%) -11,751,360, Net Income -17,627,040, Dividends: 5,288,112, Add to RE - $12,338,928

2013 Balance Sheet

Current Assets Current Liabilities

Cash 3,650,700 Accounts Payable 7,753,000

Receivables 6,567,600 Notes Payable 15,936,300

Inventory 7,363,700

Total 17,582,000 Total 23,689,300

Fixed Assets Long Term Debt 40,480,000

Net P & E 112,756,900

Shareholders equity

Common stock -6,200,000

Retained Earnings 59,969,600

Total Equity 66,169,600

Total Assets 130,338,900 Total Liability and Equity 130,338,900

Industry Ratios Lowest Quartile Median Highest Quartile

Current 0.50 1.43 1.89

Quick 0.21 0.38 0.62

Total asset turnover 0.68 0.85 1.38

Inventory turnover 6.85 9.15 16.13

Receivable turnover 6.27 11.81 21.45

Debt 0.44 0.52 0.61

Debt-equity 0.79 1.08 1.56

Equity multiplier 1.79 2.08 2.56

Interest coverage 5.18 8.06 9.83

Profit margin 4.05% 6.98% 9.87%

Return on assets 6.05% 10.53% 15.83%

Return on equity 9.93% 16.54% 28.14%

You need to:

1. Calculate all of the ratios listed in the industry table for your clients firm.

2. Compare the performance of the firm to the industry as a whole. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you interpret this ratio? How does you client compare to the industry average?

3. Calculate the sustainable growth rate of your clients firm.

4. As a practical manner, your client refused to raise external equity capital, in part because she doesnt want to dilute her existing ownership and control positions. However, she still plans for a 20% growth rate for next year. What are your conclusions and recommendations about the feasibility of her expansion plan?