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).