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g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron?

h. Use the extended DuPont equation to provide a breakdown of Computron's projected return on equity. How does the projection compare with the previous years and with the industry's DuPont equation?

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Strengths:

Weaknesses:

Balance Sheets (Millions of Dollars) 2018 2019 2020E $ 50 $ 10 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets $ 60 100 400 620 $ 1.180 520 820 $1,400 60 50 530 660 $1,300 2,900 $4,080 3,500 $4,900 3,700 $5,000 2019 $ 300 2021E $ 330 100 50 270 Net fixed assets Total assets Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock (100,000 shares) Retained earnings Total common equity Total liabilities and equity Note: "E" denotes the "estimated forecast." 200 $ 550 800 $1,350 1,000 1,730 $2,730 $4,080 2020 $ 400 250 240 $ 890 1,100 $ 1,990 1,000 1,910 $2,910 $4,900 $ 700 1,100 $1,800 1,000 2,200 $3,200 $5,000 Income Statements (Millions of Dollars) 2018 $5,500 4,300 290 350 2019 $6,000 4,800 2020E $6,600 5,210 370 400 320 420 Net sales Cost of goods sold (excluding depr.) Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net income $ 560 $ 460 $ 620 100 $ 520 $ 352 88 $ 264 130 369 $ 390 Note: "E' denotes the estimated forecast." Also, Computron has no amortization Other Data 2018 2019 2020E Per Share Information EPS DPS Book value per share $ 3.69 $ 0.90 $27.30 $ 2.64 $ 0.84 $ 29.10 $ 3.90 $ 1.00 $32.00 Additional Information Dividends (millions) Additions to retained earnings (millions) Year-end shares outstanding (millions) Year-end common stock price Lease payments (millions) Tax rate Note: "E" denotes the "estimated forecast." $ 90 $ 279 100 $50.00 $ 20 25% $ 84 $ 180 100 $30.00 $ 20 25% $ 100 $ 290 100 $49.00 $ 20 25% Ratio Analysis 2020E Ratio Profit margin Operating profit margin 2018 6.7% 10.2% 2019 4.4% 7.7% Industry Average 7.2% 10.4% 9.4% 5.4% 9.1% 6.2 31.6 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.224 1.5 Basic earning power ROA ROE Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Current Quick Debt ratio Debt-to-equity ratio Liabilities-to-assets ratio Earnings multiplier TIE EBITDA coverage Price/earnings (P/E) Market/book 13.7% 9.0% 13.5% 7.4 26.5 1.9 1.348 2.1 1.0 20.8% 0.31 33.1% 1.5 8.2 9.9 1.6 0.7 27.6% 0.46 40.6% 2.5 1.4 15.0% 0.22 30.0% 1.5 13.0 17.2 16.8 2.6 1.7 4.3 6.3 13.6 11.4 1.0 a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the projected 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 projected inventory turnover, days sales outstanding (DSO), fixed as- sets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry? d. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? e. Calculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you con- clude from these ratios? f. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron? h. Use the extended DuPont equation to provide a breakdown of Computron's projected return on equity. How does the projection compare with the previous years and with the industry's DuPont equation? i. What are some potential problems and limitations of financial ratio analysis? j. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance? Balance Sheets (Millions of Dollars) 2018 2019 2020E $ 50 $ 10 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets $ 60 100 400 620 $ 1.180 520 820 $1,400 60 50 530 660 $1,300 2,900 $4,080 3,500 $4,900 3,700 $5,000 2019 $ 300 2021E $ 330 100 50 270 Net fixed assets Total assets Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Common stock (100,000 shares) Retained earnings Total common equity Total liabilities and equity Note: "E" denotes the "estimated forecast." 200 $ 550 800 $1,350 1,000 1,730 $2,730 $4,080 2020 $ 400 250 240 $ 890 1,100 $ 1,990 1,000 1,910 $2,910 $4,900 $ 700 1,100 $1,800 1,000 2,200 $3,200 $5,000 Income Statements (Millions of Dollars) 2018 $5,500 4,300 290 350 2019 $6,000 4,800 2020E $6,600 5,210 370 400 320 420 Net sales Cost of goods sold (excluding depr.) Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest Pre-tax earnings Taxes (25%) Net income $ 560 $ 460 $ 620 100 $ 520 $ 352 88 $ 264 130 369 $ 390 Note: "E' denotes the estimated forecast." Also, Computron has no amortization Other Data 2018 2019 2020E Per Share Information EPS DPS Book value per share $ 3.69 $ 0.90 $27.30 $ 2.64 $ 0.84 $ 29.10 $ 3.90 $ 1.00 $32.00 Additional Information Dividends (millions) Additions to retained earnings (millions) Year-end shares outstanding (millions) Year-end common stock price Lease payments (millions) Tax rate Note: "E" denotes the "estimated forecast." $ 90 $ 279 100 $50.00 $ 20 25% $ 84 $ 180 100 $30.00 $ 20 25% $ 100 $ 290 100 $49.00 $ 20 25% Ratio Analysis 2020E Ratio Profit margin Operating profit margin 2018 6.7% 10.2% 2019 4.4% 7.7% Industry Average 7.2% 10.4% 9.4% 5.4% 9.1% 6.2 31.6 15.6% 10.8% 15.4% 9.0 28.0 3.0 1.224 1.5 Basic earning power ROA ROE Inventory turnover Days sales outstanding Fixed assets turnover Total assets turnover Current Quick Debt ratio Debt-to-equity ratio Liabilities-to-assets ratio Earnings multiplier TIE EBITDA coverage Price/earnings (P/E) Market/book 13.7% 9.0% 13.5% 7.4 26.5 1.9 1.348 2.1 1.0 20.8% 0.31 33.1% 1.5 8.2 9.9 1.6 0.7 27.6% 0.46 40.6% 2.5 1.4 15.0% 0.22 30.0% 1.5 13.0 17.2 16.8 2.6 1.7 4.3 6.3 13.6 11.4 1.0 a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. Calculate the projected 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 projected inventory turnover, days sales outstanding (DSO), fixed as- sets turnover, and total assets turnover. How does Computron's utilization of assets stack up against that of other firms in its industry? d. Calculate the projected current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position and its trend? e. Calculate the projected debt ratio, debt-to-equity ratio, liabilities-to-assets ratio, times-interest-earned ratio, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you con- clude from these ratios? f. Calculate the projected price/earnings ratio and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company? g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron? h. Use the extended DuPont equation to provide a breakdown of Computron's projected return on equity. How does the projection compare with the previous years and with the industry's DuPont equation? i. What are some potential problems and limitations of financial ratio analysis? j. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance