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Donna Jamison was recently hired as a financial anaylst by Computeon Industries, a manufacturer of electronic components. Her first task was ri cinduct a financial
Donna Jamison was recently hired as a financial anaylst by Computeon Industries, a manufacturer of electronic components. Her first task was ri cinduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data.
Balance sheets 2015 2016
Assets
Cash $52,000. 57,600
Accounts receivable. $402,000. 351,200
Inventories. 836,000. 715,200
Total current assets. $1,290,000. 1,124,000
Gross fixed assets. 527,000. 491,000
Less accumlated
depreciation. $166,200. 146,200
Net fixed assets. 360,800. 344,800
Total assets. $1,650,800. 1,468,800
Liabilities and equity
Accounts payable. $175,200. 145,600
Notes payable. 225,000. 200,000
Accurals. 140,000. 136,000
Total current liabilities. 540,200. 481,600
Long term debt. 424,612. 323,432
Commonstock (100,000
shares. 460,000. 460,000
Retained earnings. 225,988. 203,768
Total equity. 685,988. 663,768
Total liabilities and equity. 1,650,800. 1,468,800
Income statements. 2016. 2015
Sales. $3,850,000. 3,432,000
Cost of goods sold. (3,250,000). (2,864,000)
Other expenses. (430,300). (340,000)
Depreciation. (20,000). (18,900)
Total operating costs. $3,700,300. 3,222,900
EBIT. 149,700. 209,100
Interest expense. (76,000). (62,500)
EBIT. 73,700. 146,600
Taxes (40%). (29,480). (58,640)
Net income. 44,220. 87,960
EPS. 0.442. 0.880
Statement of cash Flows (2016)
Operating Activities
Net income. 44,220
Other additions (source of
cash
Depreciation. 20,000
Increase in accounts
payable. 29,600
Increase in accruals. 4,000
Subtractions (uses of cash)
Increase in accounts receivable (50,800)
Increase in inventorties. (120,800)
Net cash flow from operations (73,780)
Long Term Investing Activities
Investment in fixed assets. (36,000)
Financing Activities
Increasebin notes payable. $25,000
Increase in long-term debt. $101,180
Paymentbof cash dividends. (22,000)
Net cash flow from financing. $104,180
Net reductionbin cash accoont. (5,600)
Cash at beginning of year. 57,600
Cash at end of year. 52,000
Other Data. 2016. 2015
Decenber 31 stock price. $6.00. $8.50
Number of shares. 100,000. 100,000
Dividends per share. $.0.22. $0.22
Lease payments. $40,000. $40,000
Industry average data for 2016.
Ratio. Industry Average
Current. 2.7x
Quick. 1.0x
Inventory turnover. 6.0x
Days sales outstanding (DSO). 32.0 days
Fixed assets turnover. 10.7x
Total assets turnover. 2.6x
Debt ratio. 50.0%
TIE. 2.5x
Fixed charge coverage. 2.1x
Net profit margin. 3.5%
ROA. 9.1%
ROE. 18.2%
Price/earnings. 14.2x
Market/book. 1.4x
Assume that you are Donna Jamisons assistant and that she has asked you to help her prepare a report that evaluates the companys financial condition. Answer the following questions:
a. What can you conclude about the cimpanys financial condition from its statement of cash flows?
b. What is the purpose of financial ratio analysis, and what are the five major categories of ratios?
c. What are Computrons current and quick ratios? What do they tell you about the companys liquidity position?
d. What is Computrons inventory turnover, days sales outstanding, fixed assets turnover and total assets turnover ratios? How doesnthe firms utilization of assetz stack up against that of the industry?
e. What are the firms debt, times-interest-earned, and fixed charge coverage ratios? How does Computron comparebto the industry with respect to financial leverage? What conclusions can you drawnfrom these ratios?
f. Calculate and discussnthe firms profitability ratios- that is, its net profit margin, return on assets (ROA), and return on equity (ROE).
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