Comprehensive$/$Spreadsheet Problem

Andersen Corporation's December $31$ Balance Sheets

Assets $20202019$

Cash $ $72,000$ $ $65,000$

Accounts receivable $439,000328,000$

Inventories $894,000813,000$

Total current assets $ $1,405,000$ $ $1,206,000$

Land and building $238,000271,000$

Machinery $132,000133,000$

Other fixed assets $61,00057,000$

Total assets $ $1,836,000$ $ $1,667,000$

Liabilities and equity

Accounts payable $ $80,000$ $ $72,708$

Accrued liabilities $45,01040,880$

Notes payable $476,990457,912$

Total current liabilities $ $602,000$ $ $571,500$

Long$-$term debt $404,290258,898$

Common stock $575,000575,000$

Retained earnings $254,710261,602$

Total liabilities and equity $ $1,836,000$ $ $1,667,000$

Andersen Corporation's December $31$ Income Statements

$20202019$

Sales $ $4,240,000$ $ $3,635,000$

Cost of goods sold $3,680,0002,980,000$

Gross operating profit $ $560,000$ $ $655,000$

General admin. and selling expenses $303,320297,550$

Depreciation $159,000154,500$

EBIT $ $97,680$ $ $202,950$

Interest $67,00043,000$

EBT $ $30,680$ $ $159,950$

Taxes $(40\%)12,27263,980$

Net income $ $18,408$ $ $95,970$

Per$-$Share Data $20202019$

EPS $$0\mathrm{.}80$ $$4\mathrm{.}17$

Cash dividends $$1\mathrm{.}10$ $$0\mathrm{.}95$

Market price $($average$)$ $$12\mathrm{.}34$ $$23\mathrm{.}57$

P$/$E ratio $15\mathrm{.}425\mathrm{.}65$

Number of shares outstanding $23,00023,000$

Once we have this information set, we can calculate the necessary ratios for this analysis.

Ratio Analysis $20202019$ Industry Avga

Liquidity

Current ratio $2\mathrm{.}112\mathrm{.}7$

Asset Management

Inventory turnoverb $4\mathrm{.}477\mathrm{.}0$

Days sales outstandingc $32\mathrm{.}9432$

Fixed assets turnoverb $7\mathrm{.}8913\mathrm{.}0$

Total assets turnoverb $2\mathrm{.}182\mathrm{.}6$

Profitability

Return on assets $5\mathrm{.}76\%9\mathrm{.}1\%$

Return on equity $11\mathrm{.}47\%18\mathrm{.}2\%$

Return on invested capital $7\mathrm{.}84\%14\mathrm{.}5\%$

Profit margin $2\mathrm{.}64\%3\mathrm{.}5\%$

Debt Management

Debt$-$to$-$capital ratiod $46\mathrm{.}14\%50\mathrm{.}0\%$

Market Value

P$/$E ratio $5\mathrm{.}656\mathrm{.}0$

a Industry average ratios have been constant for the past $4$ years.

b Based on year$-$end balance sheet figures.

c Calculation is based on a $365-$day year.

d Measured as $($Short$-$term debt $+$ Long$-$term debt$)/($Short$-$term debt $+$ Long$-$term debt $+$ Common equity$).$

Why are ratios useful? What are the five major categories of ratios?

a$.$ How does Andersen's liquidity position compare over time and with peers?

b$.$ How does Andersen's asset management position compare over time and with peers?

c$.$ How does Andersen's debt management position compare over time and with peers?

d$.$ How do Andersen's profitability ratios compare over time and with peers?

e$.$ How do Andersen's market value ratios and its valuation compare over time and with peers?

f$.$ Calculate Andersen's ROE as well as the industry average ROE using the DuPont equation.

From this analysis, how does Andersen's financial position compare with the industry

average numbers?

ROE $=$ PM x TA Turnover x Equity Multiplier

$20200\mathrm{.}00\%0\mathrm{.}00\%0\mathrm{.}002\mathrm{.}21$

$20190\mathrm{.}00\%$

Industry Avg. $18\mathrm{.}20\%$

g$.$ How would the ratios change if the company initiated cost$-$cutting measures to decrease the levels

of inventory and cost of goods sold? Which ones would change?

What recommendations would you make to Andersen?