CASH FLOW STATEMENT OPERATING ACTIVITIES Profit before Tax Finance Charges Depreciation EBITDA + or changes in Stock Trade Debtors Trade Creditors Accruals Net Change in Working Capital (sub-total) NET CASH FLOW FROM OPERATING ACTIVITIES Year 2 RETURN ON INVESTMENT AND SERVICING OF FINANCE Interest paid Taxes paid CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Net Capital Expenditure (Expenditure minus sale of assets) NET CASH INFLOW/OUTFLOW BEFORE FINANCING Change in Short-term Debt Change in Long-term Debt Equity Dividends Sub-total Financing INCREASE (DECREASE) IN CASH Beginning Cash Beginning Overdraft ENDING CASH (LESS OVERDRAFT) Debt Service Coverage Ratio: (Operating Cash Flow - taxes - maintenance Capex)/(interest paid and current portion of long-term debt) Year ended 31 December Sales Cost of Goods Sold Gross Profit Selling and Administrative Costs Depreciation Operating Profit Interest Expense Profit before tax Taxation (25%) Profit for the year Year 1 Year 2 3,432,000 3,850,000 - 2,864,000 3,250,000 568,000 600,000 340,000 430,300 18,900 20,000 209,100 149,700 62,500 76,000 146,600 73,700 36,650 18,425 109,950 55,275 Other Data Share price @31 December Number of shares issued Dividends per share GBP 8.5 6.0 100,000 100,000 0.27 0.33 Operating Lease Expenses (incl. in Selling and Admin) 40,000 40,000 Depreciation 18,900 20,000 Year ended 31 December Year 1 Year 2 Cash Trade Debtors Stock Total Current Assets 57,600 52,000 351,200 402,000 715,200 836,000 1,124,000 1,290,000 Gross Fixed assets 491,000 527,000 less accumulated depreciation 146,200 166,200 Net Fixed Assets 344,800 360,800 TOTAL ASSETS 1,468,800 1,650,800 Bank Debt 200,000 225,000 Trade Creditors 145,600 175,200 Taxes Payable 32,000 15,000 Accrued Expenses 104,000 125,000 Total Current Liabilities 481,600 540,200 Long-Term Debt Share Capital Retained Earnings Total Equity 323,432 424,557 460,000 460,000 203,768 226,043 663,768 686,043 TOTAL LIABILITIES AND EQUITY 1,468,800 1,650,800 Asset Turnover Asset Leverage Ratio Analysis Year 1 Year 2 Industry average ROE 16.56% 8.06% 18.2% ROS 3.20% 1.44% 3.5% 2.34 2.33 2.60 2.21 2.41 2.00 Sales and Profitability Change in sales% 12.18% Gross profit margin % 16.55% 15.58% 16.00% Operating profit margin % 6.09% 3.89% 4.30% EBITDA margin % 6.64% 4.41% 7.00% Pre-tax profit margin 4.27% 1.91% 2.00% ROA 7.49% 3.35% 9.10% Asset Management Debtor days 37.4 38.1 Stock days 91.1 93.9 Trade Creditor days 18.6 19.7 32 33 61 25 Accrued Expenses days 13.3 14.0 Net Working Capital/Sales% 23.80% 24.36% 19.0% Fixed Asset Turnover x 9.95 10.67 10.7 Total Asset turnover x 2.34 2.33 2.6 Capex/Sales 0.9% 3.0% Capital Structure Current Ratio 2.33 2.39 2.70 Quick Ratio 0.85 0.84 1.00 Total Liabilities/Equity 1.21 1.41 1.20 Debt/Equity 0.79 0.95 1.00 Debt/EBITDA 2.30 3.83 2.00 EBIT/Interest 3.35 1.97 1.50 Market Ratios EPS 1.10 0.55 1.10 PE 7.73 10.85 14.20 Market/Book 1.28 0.87 1.40 Star Electronics Assignment Star Electronics is a small manufacturer of specialised, top of the range, electronic components (such as power switches, modems and server parts) used in the assembly and manufacture of business computer systems. The company has recently been under pressure from its bankers and has requested you, as an independent consultant, to review its performance, and suggest what they might be able to do to improve its financial position. Please start your research by answering the following questions: Sales and profitability 1. What is your view of Star's profitability relative to the previous year, and relative to peers? 2. Does the company appear to have any problems in respect of sales and profitability? Asset management 3. How well does the company utilise its assets and how does this compare to the industry? 4. What conclusions can you draw about the company's asset efficiency? Funding 5. What is your view of the company's debt structure? Which ratios can you use to indicate the company's financial strength? 6. What are Star's current and quick ratios? What do they tell you about the company's liquidity position? 7. What are the limitations of ratio analysis? 8. Please derive the cash flow statement for the company and assess debt service capability.