Financial Statement Analysis Donna Bacon was recently hired as a financial analyst by Computsad Industries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data. \begin{tabular}{lcc} Income Statements & 2020 & 2019 \\ \hline Sales & $3,850,000 & $3,432,000 \\ Cost of goods sold & (3,250,000) & (2,864,000) \end{tabular} Statement of Cash Flows (2020) Operating Activities Net income $44,220 Other additions (sources of cash) Depreciation 20,000 Increase in accounts payable 29,600 Increase in accruals 4,000 Subtractions (uses of cash) Increases in accounts receivable _(50,800) Increase in inventories (120,800) Net cash flow from operations 5(73,780) Long-Term Investing Activities Investment in fixed assets S(36nn) Financing Activities Increase in notes payable \$ 25,000 Increase in lona-term debt 101.180 Increase in iong-term debr 101,180 Payment of cash dividends (22,000) Net cash flow from financing $104,180 Net reduction in cash account s( 5,600) Cash at beginning of year 57,600 Cash at end of year $52,000 (continued) \begin{tabular}{lrr} Other Data & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{2019} \\ \hline December 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 \end{tabular} Industry average data for 2020 : Ratio Industry Average Current 2.7x Increase in iong-term debr 101,180 Payment of cash dividends (22,000) Net cash flow from financing $104,180 Net reduction in cash account s( 5,600) Cash at beginning of year 57,600 Cash at end of year $52,000 (continued) \begin{tabular}{lrr} Other Data & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{2019} \\ \hline December 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 \end{tabular} Industry average data for 2020 : Ratio Industry Average Current 2.7x Assume that you are Donna Bacon's assistant and that she has asked you to help her prepare a report that evaluates the company's financial condition. Answer the following questions: a. What can you conclude about the company's 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 Computton's current and quick ratios? What do they tell you about the company's liquidity position? d. What is Computron's inventory turnover, day's sales outstanding, fixed assets turnover and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times-interest-earned, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? f. Calculate and discuss the firm's profitability ratios - that is, its net profit margin, return on assets (ROA), and return on equity (ROE). g. Calculate Computsro's market value ratios_that is, its price/earnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses? Financial Statement Analysis Donna Bacon was recently hired as a financial analyst by Computsad Industries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data. \begin{tabular}{lcc} Income Statements & 2020 & 2019 \\ \hline Sales & $3,850,000 & $3,432,000 \\ Cost of goods sold & (3,250,000) & (2,864,000) \end{tabular} Statement of Cash Flows (2020) Operating Activities Net income $44,220 Other additions (sources of cash) Depreciation 20,000 Increase in accounts payable 29,600 Increase in accruals 4,000 Subtractions (uses of cash) Increases in accounts receivable _(50,800) Increase in inventories (120,800) Net cash flow from operations 5(73,780) Long-Term Investing Activities Investment in fixed assets S(36nn) Financing Activities Increase in notes payable \$ 25,000 Increase in lona-term debt 101.180 Increase in iong-term debr 101,180 Payment of cash dividends (22,000) Net cash flow from financing $104,180 Net reduction in cash account s( 5,600) Cash at beginning of year 57,600 Cash at end of year $52,000 (continued) \begin{tabular}{lrr} Other Data & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{2019} \\ \hline December 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 \end{tabular} Industry average data for 2020 : Ratio Industry Average Current 2.7x Increase in iong-term debr 101,180 Payment of cash dividends (22,000) Net cash flow from financing $104,180 Net reduction in cash account s( 5,600) Cash at beginning of year 57,600 Cash at end of year $52,000 (continued) \begin{tabular}{lrr} Other Data & \multicolumn{1}{c}{2020} & \multicolumn{1}{c}{2019} \\ \hline December 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 \end{tabular} Industry average data for 2020 : Ratio Industry Average Current 2.7x Assume that you are Donna Bacon's assistant and that she has asked you to help her prepare a report that evaluates the company's financial condition. Answer the following questions: a. What can you conclude about the company's 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 Computton's current and quick ratios? What do they tell you about the company's liquidity position? d. What is Computron's inventory turnover, day's sales outstanding, fixed assets turnover and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times-interest-earned, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? f. Calculate and discuss the firm's profitability ratios - that is, its net profit margin, return on assets (ROA), and return on equity (ROE). g. Calculate Computsro's market value ratios_that is, its price/earnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses