Financial Management Ch:3 Mini Case

The first part of the case, presented in Chapter 3, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2013, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firms survival.

Jenny Cochran was brought in as assistant to Gary Meissner, Computrons chairman, who had the task of getting the company back into a sound financial position. Computrons 2012 and 2013 balance sheets and income statements, together with projections for 2014, are shown in the following tables. The tables also show the 2012 and 2013 financial ratios, along with industry average data. The 2014 projected financial statement data represent Cochrans and Meissners best guess for 2014 results, assuming that some new financing is arranged to get the company over the hump.

Cochrane must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers.

G. Perform a Common Size Analysis and Percent change analysis. What do these analyses tell you about Computron?

Balance Sheets Assets 2012 2013 2014e Cash 7,282 $ 20,000 632,160 1,287,360 S 1,124,000 $ 1,946,802 $ 2,680,112 9,000 $ 14,000 71,632 878,000 1,716,480 Short-Term Investments. 48,600 Accounts Receivable 351,200 715,200 Inventories Total Current Assets Gross Fixed Assets 491,000 146,200 344,800 939,790 S S 1,468,800 $ 2,886,592 $ 3,516,952 1,202,950 263,160 1,220,000 383,160 836,840 Less: Accumulated Depreciation Net Fixed Assets Total Assets Liabilities And Equity Accounts Payable Notes Payable 2011 2012 2013e 145,600 $ 324,000 $ 200,000 136,000 481,600 $ 1,328,960 $ 1,039,800 323,432 460,000 203,768 663,768 S 557,632 $ 1,977,152 S 1,468,800 $ 2,886,592 $ 3,516,952 359,800 300,000 380,000 720,000 Accruals 284,960 Total Current Liabilities Long-Term Debt Common Stock (100,000 Shares) Retained Earnings Total Equity Total Liabilities And Equity 500,000 1,680,936 296,216 1,000,000 460,000 97,632 A Income Statements 2014e 2012 2013 3,432,000 $ 5,834,400 $ 7,035,600 5,800,000 120,000 612,960 $ 5,816,960 $ 6,532,960 Sales COGS except depr Depreciation Other Expenses Total Operating Costs S 3,222,900 2,864,000 18,900 340,000 4,980,000 116,960 720,000 209,100 $ 62,500 $ EBIT 17,440 $ 502,640 80,000 422,640 169,056 Interest Expense 176,000 146,600 S (158,560) $ 58,640 EBT Taxes (40% (63,424) 87,960 S (95,136) $ Net Income 253,584 Other Data 2012 2013 2014e Stock Price 6.00 $ 8.50 $ 12.17 Shares Outstanding 100,000 (0.951) $ 0.110 S 100,000 250,000 EPS 0.880 $ 1.014 0.220 $ DPS 0.220 40% 40% 40% Tax Rate Book Value Per Share 6.638 $ 5.576 S 7.909 Lease Payments 40,000 $ 40,000 $ 40,000 EA A Ratio Analysis 2014e Industry Average 2012 2013 2.58 Current 2.3 1.5 2.7 Quick Inventory Turnover Days Sales Outstanding Fixed Assets Turnover 0.5 0.8 0.93 1.0 4.0 3.45 4.0 6.1 39.5 32.0 37.4 45.5 10.0 6.2 8.41 7.0 Total Assets Turnover 2.3 2.0 2.00 2.5 Debt Ratio 59.6% 35.6% 22.7% 32.0% Liabilities/Assets Ratio 80.7% 54.8% 43.8% 50.0% TIE 3.3 0.1 6.3 6.2 EBITDA Coverage Profit Margin Basic Earning Power 5.5 2.6 0.8 8.0 3.6% 2.6% -1.6% 3.6% 14.2% 0.6% 14.3% 17.8% -3.3% 9.0% ROA 6.0% 7.2% ROE 13.3% -17.1% 12.8% 17.9% Price/Earnings (P/E) Price/Cash Flow 16.2 9.7 -6.3 12.0 8.0 27.5 8.1 7.6 Market/Book 1.3 1.1 1.5 2.9