MINI CASE:

The first part of the case, presented in Chapter 7, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2012, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.

Jenny Cochran was brought in as assistant to Gary Meissner, Computron's chairman, who had the task of getting the company back into a sound financial position. Computron's 2011 and 2012 balance sheets and income statements, together with projections for 2013, are shown in the following tables. The tables also show the 2011 and 2012 financial ratios, along with industry average data. The 2013 projected financial statement data represent Cochran's and Meissner's best guess for 2013 results, assuming that some new financing is arranged to get the company over the hump.

Cochran 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!!!!

Mini Case: (Chapter 7). Financial Statement below:

Balance Sheet
	2011		2012		2013
Assets
Cash	$9,000		$7,282		$14,000
Short-term investments	48,000		20,000		71,632
Accounts receivable	351,200		632,160		878,000
Inventories	751,200		1,287,360		1,716,480
Total current assets	$1,124,000		$1,946,802		$2,680,112
Gross fixed assets	491,000		1,202,950		1,220,000
Less: Accumulated depreciation	146,200		263,160		383,160
Net fixed assets	$344,800		$39,790		$36,840
Total assets	$1,468,800		$2,886,592		$,516,952
	2011		2012		2013
Liabilities & Equity
Accounts payable	$145,600		$324,000		$359,800
Notes payable	200,000		720,000		300,000
Accruals	136,000		284,960		380,000
Total current liabilities	$481,600		$1,328,960		$1,039,800
Long-term debt	323,432		1,000,000		500,000
Common stock (100,000 shares)	460,800		460,000		1,680,936
Retained earnings	203,768		97,632		296,216
Total equity	$663,768		$557,632		$1,977,152
Total liabilities & Equity	$1,468,800		$2,886,592		$3,516,952
Note: E denotes, estimated; the 2013 data for forecasts.
Income Statement
	2011		2012		2013
Sales	$3,432,000		$5,834,400		$7,035,600
Cost of goods sold	2,864,000		4,980,000		5,800,000
Other expenses	340,000		720,000		612,960
Depreciation & Amortization	18,900		116,960		120,000
Total operating Cost	$3,222,900		$5,816,960		$6,532,962
EBIT	$209,100		$17,440		$502,640
Interest expense	62,500		176,000		80,000
EBT	$146,600		($158,560)		$422,640
Taxes (40%)	58,640		(63,424)		169,056
Net Income	$87,960		($95,136)		$253,584
Other Data
Stock price	$8.50		$6.00		$12.17
Shares outstanding	100,000		100,000		250,000
	2011		2012		2013E
EPS	$0.880		($0.951)		$1.014
DPS	$0.220		0.110		0.220
Tax rate	40%		40%		40%
Book value per share	$6.638		$5.576		$7.909
Lease payment	$40,000		$40,000		$40,000
Note: E denotes estimated; the 2013 data are forecasts.
Ratio Analysis
	2011	2012		2013E		Industry Average
Current	2.3	1.5		------------------		2.7
Quick	0.8	0.5		------------------		1.0
Inventory turnover	4.8	4.5		------------------		6.1
Days sales outstanding	37.3	39.6		------------------		32.0
Fixed assets turnover	10.0	6.2		-----------------		7.0
Total assets turnover	2.3	2.0		---------------		2.5
Debt ratio	54.8%	80.7%		--------------		50.0%
TIE	3.3	0.1		--------------		6.2
EBITDA Coverage	2.6	0.8		--------------		8.0
Profit margin	2.6%	-1.6%		--------------		3.6%
Basic earning power	14.2%	0.6%		--------------		17.8%
ROA	6.0%	-3.3%		--------------		9.0%
ROE	13.3%	-17.1%		--------------		17.9%
Price / Earnings (P/E)	9.7	-6.3		--------------		16.2
Price / Cash flow	8.0	27.5		-------------		7.6
Market / Book	1.3	1.1		-------------		2.9
Note: E denotes estimated.

Cochran 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 three groups use ratio analysis and for what reasons?

b. Calculate the 2013 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2011, 2012, and as projected for 2013? We often think of ratios as being useful (1) to managers to help run business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?

c. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets 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 2013 debt, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?

e. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

f. Calculate the 2013 price/earnings ratio, price/cash flow 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 Du Pont equation to provide a summary and overview of Computron's financial condition as projected for 2013. What are the firm's major strengths and weaknesses?

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?

Answer each question complete and accurate as possible Please!