Case study An experienced budget analyst at Technica, Inc., has been charged with assessing the firm's financial performance during 2006 and its financial position at year-end 2006. To complete this assignment, she gathered the firm's 2006 financial statements (below). In addition, She obtained the firm's ratio values for 2004 and 2005, along with the 2006 industry average ratios (also applicable to 2004 and 2005). TO DO Q1. Calculate the firm's 2006 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) (13 marks) (1 mark each ratio listed above) Q2. Analyze the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market. (10 marks) (2 marks each categories ) Q3. Summarize the firm's overall financial position on the basis of your findings in part b ( 4 marks) Q4. What ethical issues could confront a financial manger? (3 marks) Technica, Inc, Income Statement for the Year Ended December 31, 2015 Sales revenue $600,000 460,000 $140,000 Less: Cost of goods sold Gross profits Les: Operating expenses General and administrative expenses Depreciation expense Total operating expense $ 30,000 Technica, Inc., Balance Sheets December 31 Assets 2015 2014 Cash $ 15,000 $ 16,000 Marketable securities 7,200 8,000 Accounts receivable 34,100 42,200 Inventories 82,000 50,000 Total current assets $138,300 $116,200 Land and buildings $150,000 $150,000 Machinery and equipment 200,000 190,000 Furniture and fixtures $4,000 50,000 Other 11,000 10,000 Total gross fixed assets $415,000 $400,000 Less: Accumulated depreciation 145,000 115,000 Net fixed assets $270,000 $285,000 Total assets $408,000 $401,200 Liabilities and Stockholders' Equity Accounts payable $ 57,000 $ 49,000 Notes payable 13,000 16,000 Accruals 3,000 6,000 Total current liabilities $ 75,000 $ 71,000 Long-term debe $150,000 $160,000 Common stock equity (shares outstanding $110,200 $120,000 19,500 in 2015 and 20,000 in 2014) Retained earnings 73,100 50,200 Total stockholders' equity $183,300 $170,200 Total liabilities and stockholders' equiry 5408,100 5401,200 Operating profits 30,000 $ 60,000 $ 80,000 10,000 $ 70,000 27,100 $42,900 Lass: Interest expense Net profits before taxes Less Taxes Earnings available for common stockholders Earnings per share (EPS $2.15 Actual 2005 Actual 2006 Industry Average 2006 Ratio Actual 2004 1.7 1.5 1.8 0.9 5 1.2 10.2 5.2 46 50.7 1.5 45.80% 55.8 1.5 54.30% 2 24.50% 1.9 Current ratio quick ratio Inventory turnover Average collection period Total Asset turnover Debt ratio Times interest earned ratio Gross profit margin Net profit margin Return on total assets Return on common equity Price/earnings (P/E) ratio Market /book (M/B) ratio 2.5 26% 2.2 27.50% 1.10% 28% 1% 1.20% 1.70% 1.50% 2.40% 3.10% 3.30% 3.20% 38.7 4340.00% 33.50% 1.1 1.20% 1.00% Case study An experienced budget analyst at Technica, Inc., has been charged with assessing the firm's financial performance during 2006 and its financial position at year-end 2006. To complete this assignment, she gathered the firm's 2006 financial statements (below). In addition, She obtained the firm's ratio values for 2004 and 2005, along with the 2006 industry average ratios (also applicable to 2004 and 2005). TO DO Q1. Calculate the firm's 2006 financial ratios, and then fill in the preceding table. (Assume a 365-day year.) (13 marks) (1 mark each ratio listed above) Q2. Analyze the firm's current financial position from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm's liquidity, activity, debt, profitability, and market. (10 marks) (2 marks each categories ) Q3. Summarize the firm's overall financial position on the basis of your findings in part b ( 4 marks) Q4. What ethical issues could confront a financial manger? (3 marks) Technica, Inc, Income Statement for the Year Ended December 31, 2015 Sales revenue $600,000 460,000 $140,000 Less: Cost of goods sold Gross profits Les: Operating expenses General and administrative expenses Depreciation expense Total operating expense $ 30,000 Technica, Inc., Balance Sheets December 31 Assets 2015 2014 Cash $ 15,000 $ 16,000 Marketable securities 7,200 8,000 Accounts receivable 34,100 42,200 Inventories 82,000 50,000 Total current assets $138,300 $116,200 Land and buildings $150,000 $150,000 Machinery and equipment 200,000 190,000 Furniture and fixtures $4,000 50,000 Other 11,000 10,000 Total gross fixed assets $415,000 $400,000 Less: Accumulated depreciation 145,000 115,000 Net fixed assets $270,000 $285,000 Total assets $408,000 $401,200 Liabilities and Stockholders' Equity Accounts payable $ 57,000 $ 49,000 Notes payable 13,000 16,000 Accruals 3,000 6,000 Total current liabilities $ 75,000 $ 71,000 Long-term debe $150,000 $160,000 Common stock equity (shares outstanding $110,200 $120,000 19,500 in 2015 and 20,000 in 2014) Retained earnings 73,100 50,200 Total stockholders' equity $183,300 $170,200 Total liabilities and stockholders' equiry 5408,100 5401,200 Operating profits 30,000 $ 60,000 $ 80,000 10,000 $ 70,000 27,100 $42,900 Lass: Interest expense Net profits before taxes Less Taxes Earnings available for common stockholders Earnings per share (EPS $2.15 Actual 2005 Actual 2006 Industry Average 2006 Ratio Actual 2004 1.7 1.5 1.8 0.9 5 1.2 10.2 5.2 46 50.7 1.5 45.80% 55.8 1.5 54.30% 2 24.50% 1.9 Current ratio quick ratio Inventory turnover Average collection period Total Asset turnover Debt ratio Times interest earned ratio Gross profit margin Net profit margin Return on total assets Return on common equity Price/earnings (P/E) ratio Market /book (M/B) ratio 2.5 26% 2.2 27.50% 1.10% 28% 1% 1.20% 1.70% 1.50% 2.40% 3.10% 3.30% 3.20% 38.7 4340.00% 33.50% 1.1 1.20% 1.00%