Case Study: Company X Financial Analysis

Company X is a medium-sized manufacturing company that has been operating for the past five years. The company produces electronic gadgets and has experienced steady growth during this period. To make informed financial decisions and assess their current financial health, Company X's management has provided you with the following financial data for the last fiscal year:

Income Statement (in thousands of dollars):

Revenue: $5,000

Cost of Goods Sold (COGS): $3,000

Gross Profit: $2,000

Operating Expenses: $1,200

Net Income: $800

Balance Sheet (in thousands of dollars):

Total Assets: $4,000

Total Liabilities: $2,000

Shareholders' Equity: $2,000

Current Assets: $1,500

Current Liabilities: $1,000

Additional Information:

Company X is considering an investment project that requires an initial outlay of $500,000 and is expected to generate annual cash flows of $150,000 for five years. The company's cost of capital is 10%.

Tasks:

1. Financial Statement Analysis:

Calculate the following financial ratios for Company X:

Current Ratio

Debt-to-Equity Ratio

Profit Margin

2. Net Present Value (NPV) Analysis:

Calculate the NPV of the proposed investment project. Determine whether it is financially viable for Company X.

3. Risk Assessment:

Discuss the potential risks associated with the investment project, considering factors such as market volatility and competition. How should Company X address these risks in its decision-making process?

4. Strengths and Weaknesses:

Identify and explain two financial strengths and two weaknesses of Company X based on the provided financial data.