Document1 Word Review View Help Search E ALI A AaBbccdd AaBbccdd AaBbc AaBbCcc AaB 1 Normal 1 No Spac... Heading 1 Heading 2 Title Paragraph Styles Question 2 James Madison was brought in as assistant to Computron's chairman, who had the task of getting the company back into a sound financial position. Madison must prepare an analysis of where the company is now, what must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? c. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry? d. Calculate the current and quick ratios based on the projected balance sheet and I income statement data. What can you say about the company's liquidity position and its trend? e Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios? f Calculate the pricelearnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses? h. What are some potential problems and limitations of financial ratio analysis? i. What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance? (C) Display Sert AutoSave Off Question 2 - Analysis ale Home Insert Page Layout Formulas Data Review View Help Search Cambria 11 Gend y & Cut In Copy aste Format Painter A A == OA EEE a Wrap Text Merge & Center BIU V Clipboard Font 5 Alignment 1 f 1 A B C D E F G Computron's Balance Sheets (Millions of Dollars) 2018 Projection 2020E 2019 s 10,000 52,600 250,600 837,982 $ 1,151,182 882,982 $ 2,034,164 s 7,782 25,000 542,460 1,546,252 $ 2,121,494 1,164,085 $ 3,285,579 $ 15,500 72,632 85,700 1,779,572 $ 1,953,404 1,785,600 $ 3,739,004 Assets Cash and equivalents Short-term investments - Accounts receivable 3 Inventories Total current assets L0 Net Fixed Assets 11 Total Assets 12 13 Liabilities and equity 14 Accounts payable 15 Notes payable 16 Accruals Total current liabilities 18 Long-term bonds 19 Total liabilities 20 Common stock (100,000 shares) 21 Retained earnings 22 Total common equity 23 Total liabilities and equity 24 25 26 Income Statements (Millions of Dollars) 27 28 Net sales 29 Cost of goods sold (Excluding depr.) Question 2 17 s 154,600 250,000 142,000 $ 546,600 245,000 S 791,600 1,000,000 242,564 $ 1,242,564 $ 2,034,164 $ 382,500 S 620,000 254,700 $ 1,257,200 $ 800,000 $ 2,057,200 $ 1,000,000 228,379 $ 1.228,379 S $ 3,285,579 S 452,300 450,000 352,000 1,254,300 700,000 1,954,300 1,000,000 784,704 1,784,704 3,739,004 2018 $ 3,532,000 $ 2,547,000 2019 $ 5,648,500 $ 4,687,500 Projection 2020E $ 7,453,600 $ 5,750,000 Start Type here to search IT 2018 S 3,532,000 $ 2,547,000 S 16,500 S 385,000 $ 583,500 $ 65,200 S 518,300 S 129,575 S 388,725 2019 $ 5,648,500 $ 4,687,500 $ 187,500 S 625,000 $ 148,500 S 156,000 S (7,500) $ (1,875) $ (5,625 Projection 2020E $ 7,453,600 $ 5,750,000 $ 150,000 $ 723,500 $ 830,100 $ 75,000 s 755,100 $ 188,775 $ 566,325 25 26 Income Statements (Millions of Dollars) 27 28 Net sales 29 Cost of goods sold (Excluding depr.) 30 Depreciation 31 Other operating expenses 32 Earnings before interest and taxes (EBIT) 33 Less interest 34 Pre-tax earnings 35 Taxes (25%) 36 Net Income 37 38 Notes: 39 "Computron has no amortization charges. 40 41 Additional Information 42 43 Year-end common stock price 44 Shares outstanding (millions) 45 Common dividends (millions) 46 Tax rate 47 Additions to retained earnings (millions) 48 Lease payments (millions) 49 50 51 Per Share Information 2018 $8.50 100,000 $9,500 25% $379,225 $35,000 2019 $7.50 100,000 $8,560 25% -S14,185 $35,000 Projection 2020E $11.15 100,000 $10,000 25% $556,325 $35,000 Font 2 Alignment 71 fr D E G 2018 $3.89 $0.10 $12.43 2019 -$0.06 $0.09 $12.28 F Projection 2020E $5.66 $0.10 $17.85 2018 2019 2020E A B 1 Per Share Information 2 3 EPS 4 DPS 5 Book Value Per Share 6 7 8 .9 0 Ratio Analysis 51 52 Profit margin 53 Operating profit margin 54 Basic earning power 65 ROA 66 ROE 67 Inventory turnover 68 Days sales outstanding 69 Fixed assets turnover 70 Total assets turnover 71 Current 72 Quick 73 Debt ratio 74 Debt-to-equity ratio 75 Liabilities-to-assets ratio 76 TIE 77 EBITDA coverage 78 Price/earnings (P/E) 79 Market/book 80 81 82 "Note "E" denotes "estimated" Question 2 11.0% 16.5% 28.7% 19.1% 31.3% 3.1 25.9 4.0 1.736 2.1 0.6 24.3% 0.40 38.9% 8.9 6.3 2.2 0.7 -0.1% 2.6% 4.5% -0.2% -0.5% 3.2 35.1 4.9 1.719 1.7 0.5 43.2% 1.16 62.6% 1.0 1.9 -133.3 0.6 Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.9 15.0% 0.22 32.0% 13.0 17.2 16.8 2.7 Document1 Word Review View Help Search E ALI A AaBbccdd AaBbccdd AaBbc AaBbCcc AaB 1 Normal 1 No Spac... Heading 1 Heading 2 Title Paragraph Styles Question 2 James Madison was brought in as assistant to Computron's chairman, who had the task of getting the company back into a sound financial position. Madison must prepare an analysis of where the company is now, what must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the profit margin, operating profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? c. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry? d. Calculate the current and quick ratios based on the projected balance sheet and I income statement data. What can you say about the company's liquidity position and its trend? e Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios? f Calculate the pricelearnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses? h. What are some potential problems and limitations of financial ratio analysis? i. What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance? (C) Display Sert AutoSave Off Question 2 - Analysis ale Home Insert Page Layout Formulas Data Review View Help Search Cambria 11 Gend y & Cut In Copy aste Format Painter A A == OA EEE a Wrap Text Merge & Center BIU V Clipboard Font 5 Alignment 1 f 1 A B C D E F G Computron's Balance Sheets (Millions of Dollars) 2018 Projection 2020E 2019 s 10,000 52,600 250,600 837,982 $ 1,151,182 882,982 $ 2,034,164 s 7,782 25,000 542,460 1,546,252 $ 2,121,494 1,164,085 $ 3,285,579 $ 15,500 72,632 85,700 1,779,572 $ 1,953,404 1,785,600 $ 3,739,004 Assets Cash and equivalents Short-term investments - Accounts receivable 3 Inventories Total current assets L0 Net Fixed Assets 11 Total Assets 12 13 Liabilities and equity 14 Accounts payable 15 Notes payable 16 Accruals Total current liabilities 18 Long-term bonds 19 Total liabilities 20 Common stock (100,000 shares) 21 Retained earnings 22 Total common equity 23 Total liabilities and equity 24 25 26 Income Statements (Millions of Dollars) 27 28 Net sales 29 Cost of goods sold (Excluding depr.) Question 2 17 s 154,600 250,000 142,000 $ 546,600 245,000 S 791,600 1,000,000 242,564 $ 1,242,564 $ 2,034,164 $ 382,500 S 620,000 254,700 $ 1,257,200 $ 800,000 $ 2,057,200 $ 1,000,000 228,379 $ 1.228,379 S $ 3,285,579 S 452,300 450,000 352,000 1,254,300 700,000 1,954,300 1,000,000 784,704 1,784,704 3,739,004 2018 $ 3,532,000 $ 2,547,000 2019 $ 5,648,500 $ 4,687,500 Projection 2020E $ 7,453,600 $ 5,750,000 Start Type here to search IT 2018 S 3,532,000 $ 2,547,000 S 16,500 S 385,000 $ 583,500 $ 65,200 S 518,300 S 129,575 S 388,725 2019 $ 5,648,500 $ 4,687,500 $ 187,500 S 625,000 $ 148,500 S 156,000 S (7,500) $ (1,875) $ (5,625 Projection 2020E $ 7,453,600 $ 5,750,000 $ 150,000 $ 723,500 $ 830,100 $ 75,000 s 755,100 $ 188,775 $ 566,325 25 26 Income Statements (Millions of Dollars) 27 28 Net sales 29 Cost of goods sold (Excluding depr.) 30 Depreciation 31 Other operating expenses 32 Earnings before interest and taxes (EBIT) 33 Less interest 34 Pre-tax earnings 35 Taxes (25%) 36 Net Income 37 38 Notes: 39 "Computron has no amortization charges. 40 41 Additional Information 42 43 Year-end common stock price 44 Shares outstanding (millions) 45 Common dividends (millions) 46 Tax rate 47 Additions to retained earnings (millions) 48 Lease payments (millions) 49 50 51 Per Share Information 2018 $8.50 100,000 $9,500 25% $379,225 $35,000 2019 $7.50 100,000 $8,560 25% -S14,185 $35,000 Projection 2020E $11.15 100,000 $10,000 25% $556,325 $35,000 Font 2 Alignment 71 fr D E G 2018 $3.89 $0.10 $12.43 2019 -$0.06 $0.09 $12.28 F Projection 2020E $5.66 $0.10 $17.85 2018 2019 2020E A B 1 Per Share Information 2 3 EPS 4 DPS 5 Book Value Per Share 6 7 8 .9 0 Ratio Analysis 51 52 Profit margin 53 Operating profit margin 54 Basic earning power 65 ROA 66 ROE 67 Inventory turnover 68 Days sales outstanding 69 Fixed assets turnover 70 Total assets turnover 71 Current 72 Quick 73 Debt ratio 74 Debt-to-equity ratio 75 Liabilities-to-assets ratio 76 TIE 77 EBITDA coverage 78 Price/earnings (P/E) 79 Market/book 80 81 82 "Note "E" denotes "estimated" Question 2 11.0% 16.5% 28.7% 19.1% 31.3% 3.1 25.9 4.0 1.736 2.1 0.6 24.3% 0.40 38.9% 8.9 6.3 2.2 0.7 -0.1% 2.6% 4.5% -0.2% -0.5% 3.2 35.1 4.9 1.719 1.7 0.5 43.2% 1.16 62.6% 1.0 1.9 -133.3 0.6 Industry Average 7.2% 10.4% 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.5 2.5 1.9 15.0% 0.22 32.0% 13.0 17.2 16.8 2.7