INTEGRATED CASE D'LEON INC., PART I FINANCIAL STATEMENTS AND TAXES Part I of this case, D'Leon Inc., a regional snack foods presented in Chapter 3, discussed the producer, after an expansion program. D'Leon had ind 4-26 " Thus far, sales pacity and not been up to the forecasted level; costs have been higher than undertaken a major marketing campaign in an attempt to "go na were projected; and a large loss occurred the firm's survival. ms xpected profit. As a result, its managers, directors, and investors are concerned company back into together with p 2015 and 2016 financial rati amison was brought in as assistant to Fred Campo, D'Leon's chairman, who had the task of ojections for 2017, are given in Tables IC 4.1 and IC 4.2. In addition, Table IC 4.3 gives the o a sound financial position. D'Leon's 2015 and 2016 balance sheets and income statements os, together with industry average data. The 2017 projected financial statement da that some new financing is arranged to get represent Jamison's and Campo's best guess for 2017 results, assuming that some new the company "over the hump. Jamison examined monthly data for 2016 (not given in the case), and she detected an improving pattern during rising, costs were falling, and large losses in the early months had turmed to a small the year. Monthly sales were t by December. Thus, the annual data look somewhat worse than final monthly data. Also, it appears to be aking longer for the advertising program to get the message out, for the new sales offices to generate sales, and the new manufacturing facilities to operate efficiently. In other words, the lags between spending money and deriving benefits were longer than D'Leon's managers had anticipated. For these reasons, Jamison and Campo see hope for the company provided it can survive in the short run. Jamison 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 a. Why are ratios useful? What are the five major categories b. Calculate D'Leon's 2017 current and quick ratios based o e ance eheet and income statement data. What can you say about the company's liquddsty pe often think of ratios as being useful (1) to mana and (3) to stockholders for stock valuation, Would tes l company's liquidity ratios? Explain your answer n and as projected for 2017? We to bankers for credit analysis, . .. , s ,., rur,as have an equal interest in the onh c Calculate the 2017 inventory turnover, days sales otlaning (DS0), ixed assets turnover, and total assets turnover. How does D'Leon's utilization of assets stack up against other firms in the industry? industry with respect to financial leverage? What can you conclude from these ratios? on equity (ROE), and returm on invested capital (ROIC). What can you say about these ratios? expected to have a high or low opinion of the company? d. Calculate the 2017 debt-to-capital and times-interest-earned ratios. How does D'Leon compare with the e. Calculate the 2017 operating margin, profit margin, basic eaning power (BEP), return on assets (ROA), return f. Calculate the 2017 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are g Use the DuPont equation to provide a summary and overview of D'Leon's financial condition as projected for 2017. What are the firm's major strengths and weaknesses? h. Use the following simplified 2017 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change "ripple through" the financial statements (shown in thousands below) and influence the stock price? INTEGRATED CASE D'LEON INC., PART I FINANCIAL STATEMENTS AND TAXES Part I of this case, D'Leon Inc., a regional snack foods presented in Chapter 3, discussed the producer, after an expansion program. D'Leon had ind 4-26 " Thus far, sales pacity and not been up to the forecasted level; costs have been higher than undertaken a major marketing campaign in an attempt to "go na were projected; and a large loss occurred the firm's survival. ms xpected profit. As a result, its managers, directors, and investors are concerned company back into together with p 2015 and 2016 financial rati amison was brought in as assistant to Fred Campo, D'Leon's chairman, who had the task of ojections for 2017, are given in Tables IC 4.1 and IC 4.2. In addition, Table IC 4.3 gives the o a sound financial position. D'Leon's 2015 and 2016 balance sheets and income statements os, together with industry average data. The 2017 projected financial statement da that some new financing is arranged to get represent Jamison's and Campo's best guess for 2017 results, assuming that some new the company "over the hump. Jamison examined monthly data for 2016 (not given in the case), and she detected an improving pattern during rising, costs were falling, and large losses in the early months had turmed to a small the year. Monthly sales were t by December. Thus, the annual data look somewhat worse than final monthly data. Also, it appears to be aking longer for the advertising program to get the message out, for the new sales offices to generate sales, and the new manufacturing facilities to operate efficiently. In other words, the lags between spending money and deriving benefits were longer than D'Leon's managers had anticipated. For these reasons, Jamison and Campo see hope for the company provided it can survive in the short run. Jamison 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 a. Why are ratios useful? What are the five major categories b. Calculate D'Leon's 2017 current and quick ratios based o e ance eheet and income statement data. What can you say about the company's liquddsty pe often think of ratios as being useful (1) to mana and (3) to stockholders for stock valuation, Would tes l company's liquidity ratios? Explain your answer n and as projected for 2017? We to bankers for credit analysis, . .. , s ,., rur,as have an equal interest in the onh c Calculate the 2017 inventory turnover, days sales otlaning (DS0), ixed assets turnover, and total assets turnover. How does D'Leon's utilization of assets stack up against other firms in the industry? industry with respect to financial leverage? What can you conclude from these ratios? on equity (ROE), and returm on invested capital (ROIC). What can you say about these ratios? expected to have a high or low opinion of the company? d. Calculate the 2017 debt-to-capital and times-interest-earned ratios. How does D'Leon compare with the e. Calculate the 2017 operating margin, profit margin, basic eaning power (BEP), return on assets (ROA), return f. Calculate the 2017 price/earnings ratio and market/book ratio. Do these ratios indicate that investors are g Use the DuPont equation to provide a summary and overview of D'Leon's financial condition as projected for 2017. What are the firm's major strengths and weaknesses? h. Use the following simplified 2017 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change "ripple through" the financial statements (shown in thousands below) and influence the stock price