Computer Analytic Technology Systems (CATS) Corporation is a manufacturer of computer components. CATS had recently doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. You have been hired as a consultant and have been asked to answer each question below. Be sure to show all calculations and state any assumptions that you make (though I am not sure you need to make any). Financial statements and other miscellaneous data are provided below. 1. Please answer each question below. a. What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity? b. Construct and then analyze the statement of cash flows for CATS for 2014. c. What is CATS's net operating profit after taxes (NOPAT) for 2013 and 2014? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does CATS have? d. Compute total net operating capital does for CATS for 2013 and 2014 using the investor-supplied capital approach. Verify that you get the same answer as in part c. e. What is free cash flow? Why is it important? What are the five uses of FCF? f. Compute the free cash flow (FCF) for CATS in 2004. What are the "net uses" of FCF for CATS 9. Calculate the return on invested capital (ROIC) for 2013 and 2004. Assume CATS had a 10% WACC for both years. What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think CATS's growth added value? h. Estimate EVA for CATS for 2013 and 2004. Assume the after-tax cost of capital (WACC) was 10% in both years. i. What happened to Market Value Added (MVA) for CATS from 2013 to 2014? BALANCE SHEETS FOR CATS 2013 2014 $ 9,000 48,600 351,200 715,200 $ 1,124,000 491,000 146,200 $ 344,800 $ 1,468,800 7,282 20,000 632,160 1,287,360 $ 1,946,802 1,202,950 263,160 $ 939,790 $ 2,886,592 Assets: Cash Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity: Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $ 1,468,800 $ 324,000 720,000 284,960 $ 1,328,960 1,000,000 460,000 97,632 $ 557,632 $ 2,886,592 INCOME STATEMENTS FOR CATS Sales Cost of goods sold (excluding depreciation) Other expenses Depreciation and amortization Total operating costs EBIT Interest expense Pre-tax earnings Taxes (40%) Net income 2013 $ 3,432,000 2,864,000 340,000 18,900 $3,222,900 $ 209,100 62,500 $ 146,600 58,640 $ 87,960 2014 $5,834,400 4,980,000 720,000 116,960 $ 5,816,960 17,440 176,000 ($ 158,560) (63,424) ($ 95,136) ADDITIONAL DATA $ $ Stock price Shares outstanding Earnings per share (EPS) Dividends per share (DPS) Tax rate 2013 8.50 100,000 0.880 0.220 40% 2014 6.00 100,000 0.951 0.110 40% $ $ $ ta 20y5E Ratio Analysis Current Quick Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Debt ratio Liabilities-to-assets ratio Times interest earned EBITDA coverage Profit margin Basic earning power Return on assets Return on equity Price/earnings (P/E) Price/cash flow Market/Book 20y3 2.33 0.85 4.00 37.3 9.95 2.34 35.6% 54.8% 3.35 3.65 2.6% 14.2% 6.0% 13.3% 2074 1.46 0.50 3.87 39.6 6.21 2.02 59.6% 80.7% 0.10 0.76 -1.6% 0.6% -3.3% -17.1% -6.3 27.5 1.1 Industry Average 2.7 1.0 6.1 32.0 7.0 2.5 32.0% 50.0% 6.2 8.0 3.6% 17.8% 9.0% 17.9% 16.2 7.6 2.9 9.7 8.0 1.3 Other Data Stock price Shares outstanding Tax rate Lease payments 20y3 $8.50 100,000 40% $40,000 2014 $6.00 100,000 40% $40,000 20y5E $7.20 100,000 40% $40,000 | Computer Analytic Technology Systems (CATS) Corporation is a manufacturer of computer components. CATS had recently doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. You have been hired as a consultant and have been asked to answer each question below. Be sure to show all calculations and state any assumptions that you make (though I am not sure you need to make any). Financial statements and other miscellaneous data are provided below. 1. Please answer each question below. a. What effect did the expansion have on sales and net income? What effect did the expansion have on the asset side of the balance sheet? What effect did it have on liabilities and equity? b. Construct and then analyze the statement of cash flows for CATS for 2014. c. What is CATS's net operating profit after taxes (NOPAT) for 2013 and 2014? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does CATS have? d. Compute total net operating capital does for CATS for 2013 and 2014 using the investor-supplied capital approach. Verify that you get the same answer as in part c. e. What is free cash flow? Why is it important? What are the five uses of FCF? f. Compute the free cash flow (FCF) for CATS in 2004. What are the "net uses" of FCF for CATS 9. Calculate the return on invested capital (ROIC) for 2013 and 2004. Assume CATS had a 10% WACC for both years. What caused the decline in the ROIC? Was it due to operating profitability or capital utilization? Do you think CATS's growth added value? h. Estimate EVA for CATS for 2013 and 2004. Assume the after-tax cost of capital (WACC) was 10% in both years. i. What happened to Market Value Added (MVA) for CATS from 2013 to 2014? BALANCE SHEETS FOR CATS 2013 2014 $ 9,000 48,600 351,200 715,200 $ 1,124,000 491,000 146,200 $ 344,800 $ 1,468,800 7,282 20,000 632,160 1,287,360 $ 1,946,802 1,202,950 263,160 $ 939,790 $ 2,886,592 Assets: Cash Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets Liabilities and Equity: Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $ 1,468,800 $ 324,000 720,000 284,960 $ 1,328,960 1,000,000 460,000 97,632 $ 557,632 $ 2,886,592 INCOME STATEMENTS FOR CATS Sales Cost of goods sold (excluding depreciation) Other expenses Depreciation and amortization Total operating costs EBIT Interest expense Pre-tax earnings Taxes (40%) Net income 2013 $ 3,432,000 2,864,000 340,000 18,900 $3,222,900 $ 209,100 62,500 $ 146,600 58,640 $ 87,960 2014 $5,834,400 4,980,000 720,000 116,960 $ 5,816,960 17,440 176,000 ($ 158,560) (63,424) ($ 95,136) ADDITIONAL DATA $ $ Stock price Shares outstanding Earnings per share (EPS) Dividends per share (DPS) Tax rate 2013 8.50 100,000 0.880 0.220 40% 2014 6.00 100,000 0.951 0.110 40% $ $ $ ta 20y5E Ratio Analysis Current Quick Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Debt ratio Liabilities-to-assets ratio Times interest earned EBITDA coverage Profit margin Basic earning power Return on assets Return on equity Price/earnings (P/E) Price/cash flow Market/Book 20y3 2.33 0.85 4.00 37.3 9.95 2.34 35.6% 54.8% 3.35 3.65 2.6% 14.2% 6.0% 13.3% 2074 1.46 0.50 3.87 39.6 6.21 2.02 59.6% 80.7% 0.10 0.76 -1.6% 0.6% -3.3% -17.1% -6.3 27.5 1.1 Industry Average 2.7 1.0 6.1 32.0 7.0 2.5 32.0% 50.0% 6.2 8.0 3.6% 17.8% 9.0% 17.9% 16.2 7.6 2.9 9.7 8.0 1.3 Other Data Stock price Shares outstanding Tax rate Lease payments 20y3 $8.50 100,000 40% $40,000 2014 $6.00 100,000 40% $40,000 20y5E $7.20 100,000 40% $40,000 |