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Herman Miller (MLHR) Common Size Analysis Project General Guidelines: Each individual should gather data from Edgar.com to create the common size analysis. You can discuss your answers with the group prior to turning in the assignment. Hand in a printout of the ratio page (see tab below) and a printout of this instruction sheet with your completed answers. (You are not required to type your answers but you may type and highlight your answers.) A. Obtain the most recent annual financial report (10-K) for Miller Herman using EDGAR.gov at: http://www.sec.gov/edgar/searchedgar/companysearch.html Under Company Ticker enter MLHR for Herman Miller Locate the most recent 10-K report and click the Interactive Data link on the web page then click Financial Statements. B. Use MLHR's 10-K annual report from Edgar.com to find Financial Information for Common Size analysis 1. Click on the Income Statement tab below and fill in the information from Consolidated Statements of Operations in Edgar.gov to fill in the highlighted area of the spreadsheet. Note use the previous year's information to guide you. Notice the footnote on the bottom of the Income Statement regarding Depreciation Expense. 2. Click on the Balance Sheet tab below and fill in the information from Consolidated Balance Sheet from Edgar.gov. C. Answer the following questions regarding Herman Miller. 1. DuPont Analysis is a great place to start the analysis, because it shows how three major areas interact to determine ROE. (Hint: Click the Ratios tab below to fill in the appropriate ratios to compare MLHR to the industry. 2. What component(s) is(are) improving MLHR's ROE relative to the industry average? (highlight your answer(s)) 3. Based on this DuPont analysis which of the following areas are strengths for MLHR? (could be more than one) 4. Based on this DuPont analysis which of the following areas are weaknesses for MLHR? (could be more than one) 5. How long is the operating cycle for MLHR for the most recent year ending financial information? (See Ratio Page) 6. How long is the cash cycle for MLHR for the most recent year ending financial information? (See Ratio Page) 7. Is the length of the operating cycle a strength or weakness for MLHR compared to the industry? Why? - Answer Succinctly 8. If MLHR's cash cycle increases significantly it would need to: 9. Look at the trends over the past 5 years for the following ratio categories. Identify whether the trend is improving, deteriorating, or neither. (For ratios that fluctuate over time compare 5 years ago with the most recent year.) 10. What account causes the current ratio to be smaller than the industry and the quick ratio to be similar to the industry? 11. Does the amount of time it takes Herman Miller to pay it's suppliers appear to be a problem? (Hint: compare their ratios to the industry) 12. When comparing the assets on the balance sheet to industry averages, what account should the analyst question? 13. What was MLHR's Net Working Capital for the last two years (omit 000's)? 14. How big a factor would you say market conditions played on the performance of MLHR over the past 10 years? 15. Suppose MLHR doubled the amount of time to pay trade creditors. Use the proforma sheet to indicate the impact on the financial statements. (Start with the identical parameters indicated on Ratio page for previous year for Inv, AR, and AP and then double Days Payable.) What are the new plug figure to make the balance sheet balance? State answer omitting the last 000,000's consistent with proforma. (Note one plug is always zero for cells D28 and D41 on the Proforma Spreadsheet) 16. Suppose MLHR Days Payable is at the same level as the prior year. Use the proforma sheet to indicate the impact on the financial statements assuming Days Sales Outstanding and Days in Inventory both double, causing the operating cycle to double in length. What are the new plug figure to make the balance sheet balance? State answer omitting the last 000,000's consistent with proforma. (Note one plug is always zero for cells D28 and D41 on the Proforma Spreadsheet) 17. Using the same parameters as in question 16, what is the proforma Net Income (Loss) (omitting 000,000's)? 18. Suppose all parameter estimates are based on last years results, except Sales is expected to grow at 25%. What would be the impact on Net Income and the Plugs? (Note omit 000,000's and one of the plugs is always zero.) 19. Assuming MLHR is expecting a 25% increase in Sales and they have the plant capacity, what should they do now to prepare for this? Discussion Question: Summarize your advise to management of MLHR based on inferences gained from this common size analysis. Fill in your answers in the yellow Boxes below. The light red arrows indicate the answers you need to provide. For drop-down boxes, choose the appropriate answer. MLHR Industry Operating Cycle in Days = Cash Cycle in Days = a. Liquidity b. Inventory Turnover c. Total Asset Turnover d. Days Sales Outstanding e. Asset Management ROE PM TAT EM 25.9% 4.50% 2.30 2.50 f. Leverage g. Profitability Most Current Year = Previous Year = he financial double Days Payable.) h proforma. a. Cash & Marketable Securities = b. Notes Payable Bank = he financial a. Cash & Marketable Securities = b. Notes Payable Bank = th proforma. Proforma Net Income = Cash & Marketable Securities = Notes Payable Bank = Proforma Net Income = Income Statement Herman Miller Income Statement (000,000's omitted) Sales COGS Gross Margin Selling, Gen & Adm Exp. Research & Design Restr & Impair Exp Depreciation Exp.* Total Operating Exp. EBIT Less Expenses (Income) Interest Expense Interest (Income) Other Expenses (Income) Net Other Expenses (Incom EBT Taxes & Cum Eff of Act Ch Net Income Inputs are highlighted FYE 5/28/2011 1649.2 1111.1 538.1 329.8 45.8 3.0 36.2 414.8 123.3 19.9 (1.5) 2.4 20.8 102.5 31.7 70.8 % FYE % FYE % FYE Chng 6/2/2012 Chng 6/1/2013 Chng 5/31/2014 5% 1724.1 3% 1774.9 6% 1882.0 2% 1133.5 3% 1169.7 7% 1251.0 10% 590.6 2% 605.2 4% 631.0 9% 360.5 10% 394.8 33% 526.5 15% 52.7 14% 59.9 10% 65.9 80% 5.4 -78% 1.2 2108% 26.5 -5% 34.4 0% 34.4 10% 37.8 9% 453.0 8% 490.3 34% 656.7 12% 137.6 -16% 114.9 -122% (25.7) -12% -33% -13% 17% 40% 6% 17.5 (1.0) 1.6 18.1 119.5 44.3 75.2 -2% -60% -2% -19% -35% -9% 17.2 2% (0.4) n/a 0.9 17.7 0% 97.2 -145% 29.0 -173% 68.2 -132% Common Size RMA % FYE % of Ind Chng 5/30/2015 Sales Comp -100% #DIV/0! 100.0% -100% #DIV/0! 71.7% -100% 0.0 #DIV/0! 28.3% -100% #DIV/0! -100% #DIV/0! -100% -100% #DIV/0! -100% 0.0 #DIV/0! 23.8% -100% 0.0 #DIV/0! 4.5% 17.6 -100% (0.4) n/a 0.5 17.7 -100% (43.4) -100% (21.3) -100% (22.1) -100% #DIV/0! #DIV/0! 0.0 0.0 0.0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! * Depretiation Expenses are included in the total Selling, General and Administration Expense. In order to calculate Cash Flow you will need to look for the amount of Depreciation Epense by clicking on the Notes to Financial Statements section on Edgar.com. Under the notes section you will click on Supplemental Disclosure of Cash Flow Information to obtian the Depreciation Expense. You will then need to reduce the amount of total Selling, General & Administration Expenses in Cell J9 above to reflect the amount of Depretiation Expense broken out. (See the formula in Cell H9 for example.) Page 7 Balance Sheet Herman Miller Balance Sheet (000,000's omitted) FYE ASSETS 5/28/2011 Cash & Cash Equivalents 142.2 Acct. Rec., less allowances 193.1 Inventory 66.2 Marketable Securities 11.0 Other Current Assets 59.2 Total Current Assets 471.7 Inputs are highlighted % Chng 21% -17% -10% -13% -3% Net Property, Plant, & Equip Fixed Assets (Net) Goodwill & Intangible Assets Other Assets Total Assets 169.1 169.1 157.9 9.3 808.0 LIABILITIES Notes Payable - Bank Accounts Payable Accruals Current Maturities - LTD Other Current Liabilities Total Current Liabilities 0.0 112.7 153.1 0.0 0.0 265.8 -5% 0.0 115.8 137.9 0.0 0.0 253.7 Long Term Debt (LTD) Other Liabilities Total Liabilities 250.0 87.2 603.0 0% 0% -2% 0.0 #DIV/0! 11.6 1% 218.2 32% (106.8) 33% 82.0 205.0 21% Redeemable Noncontrolling I Common Stock Retained Earnings Accum. Other Comprehen. Additional Paid-In Capital Total Equity Total Liabilities & Equity 808.0 -8% -8% FYE 6/2/2012 172.2 159.7 59.3 9.6 54.5 455.3 18% 4% 3% 4% 156.0 156.0 216.8 11.0 839.1 % FYE Chng 6/1/2013 -52% 82.7 12% 178.4 28% 76.2 13% 10.8 51.2 -12% 399.3 18% 18% Common Size RMA % FYE % FYE % of Industry Chng 5/31/2014 Chng 5/30/2015 Tot Assets Comp 23% 101.5 -100% #DIV/0! 4.5% 15% 204.3 -100% #DIV/0! 40.3% 3% 78.4 -100% #DIV/0! 29.2% 3% 11.1 -100% #DIV/0! 2.0% 56.5 -100% #DIV/0! 13% 451.8 -100% 0.0 #DIV/0! 76.0% 135% 13% 184.1 184.1 337.3 25.8 946.5 195.2 195.2 313.3 30.6 990.9 -100% -100% -100% -100% -100% 19% 5% 12% 16% 0.0 130.1 159.9 5% 6% 0.0 136.9 169.2 50.0 -100% -100% 14% 290.0 23% 356.1 -100% 250.0 87.1 590.8 0% 0% 6% 250.0 87.0 627.0 -20% -28% -1% 200.0 62.7 618.8 -100% -100% -100% 0.0 11.7 288.2 (142.5) 90.9 248.3 ### 0% 15% -11% 13% 29% 0.0 11.7 331.1 (126.2) 102.9 319.5 ### 2% -16% -69% 19% 16% 0.0 11.9 277.4 (39.6) 122.4 372.1 839.1 13% 946.5 5% 990.9 Page 8 6% 6% 0.0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 16.7% 0.0% 7.4% 100.0% 0.0 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 12.5% 18.7% 0.6% 1.3% 8.5% 41.6% 0.0 #DIV/0! #DIV/0! #DIV/0! 6.7% 7.2% 55.5% #DIV/0! -100% -100% -100% -100% -100% - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 44.3% -100% 0.0 #DIV/0! 100.0% 0.0 Herman Miller RATIO ANALYSIS RMA 5/28/2011 6/2/2012 6/1/2013 5/31/2014 5/30/2015 Industry Comparison 1.8 1.5 1.8 1.6 1.4 1.1 1.3 1.0 #DIV/0! #DIV/0! 2.1 0.9 16.8 19.1 15.4 16.0 #DIV/0! 6.2 2.0 2.1 1.9 1.9 #DIV/0! 2.3 43 34 37 40 #DIV/0! 51 22 19 24 23 #DIV/0! 59 37 37 41 40 #DIV/0! 37 27 16 20 23 #DIV/0! 73 6.2 2.9 8.0 7.9 2.4 9.8 6.7 2.0 8.7 -1.5 1.7 0.7 #DIV/0! #DIV/0! #DIV/0! 5.6 1.5 14.24% 34.26% 4.36% 10.27% 34.10% 3.84% -4.38% 33.53% -1.17% #DIV/0! #DIV/0! #DIV/0! 13.40% 28.30% 4.50% DuPont Analysis: ROE = ROA*EM, ROA=PM*TAT ROE (NI / Total Equity) 34.54% 30.29% ROA (NI / Total Assets) 8.76% 8.96% PM (NI / Sales) 4.29% 4.36% Total Asset Turnover 2.04 2.05 Equity Multiplier (A / E) 3.94 3.38 21.35% 7.21% 3.84% 1.88 2.96 -5.94% -2.23% -1.17% 1.90 2.66 #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 25.88% 10.35% 4.50% 2.30 2.50 LIQUIDITY Current Quick ASSET MANAGEMENT Inventory Turnover (COGS / Inventory) Total Asset Turnover DSO (AR Period) (365/AR Turnover) Inventory Period (365/Inventory Turnover) Days in AP (AP Period) (365/[COGS/AP]) Cash Cycle LEVERAGE TIE (EBIT / Interest) Debt / Equity (RMA Debt/Worth) Cash Coverage Ratio PROFITABILITY % Profit BT / Tot Assets 12.69% Gross Profit 32.63% PM (NI/Sales) RMA uses NIBT/Sales 4.29% Management's estimate of the weighted average of the minimum equity and debt returns required by the providers of capital. Reevaluated every year and adjusted when necessary to reflect the current rate environment and capital structure. * Proforma Herman Miller Proformas (000,000's are omitted all numbers are in millions) Sales FYE 5/30/2015 - Inputs are highlighted CS % of Sales #DIV/0! Proforma #DIV/0! #DIV/0! #DIV/0! Cost of Goods Sold(COGS) Gross Profit Operating Expense Research & Dev. & Non Recu Depreciation Expense EBIT Less (Expenses) Income Interest (Expense) Interest Income - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! - #DIV/0! #DIV/0! Other (Expenses) Income Net Other Expenses (Income) NIBT - #DIV/0! #DIV/0! #DIV/0! #DIV/0! Income taxes Net Income - #DIV/0! #DIV/0! #DIV/0! #DIV/0! Dividends Retained Earnings - #DIV/0! #DIV/0! #DIV/0! Herman Miller Balance Sheet (000's) ASSETS Cash & Mkt Securties (plug) Accounts Receivable Inventory Prepaids Other Current Assets - Step 1: Input Parameter Estimates Parameters & Ratios Days Sales Outstanding #DIV/0! Days in Inventory #DIV/0! Days in Accounts Payable #DIV/0! Growth Rate on Sales 0% Interest & Tax Rate Parameters Marketable Sec. 0.50% Long Term Invest. 7.00% NP - Bank 4.00% Long Term Debt 6.90% Tax Rate 42.00% FYE CS % of 5/30/2015 Tot Assets #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Total Current Assets - #DIV/0! Property, Plant, & Equip Notes Receivables - #DIV/0! #DIV/0! Other Assets Total Assets - #DIV/0! #DIV/0! LIABILITIES Notes Payable - Bank (Plug) Accounts Payable Accruals Current Maturities - LTD Other Current Liabilities Total Current Liabilities Other Liabilities Long Term Debt (LTD) Total Liabilities Common Stock Other Retained Earnings Total Liabilities & Equity - #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Proforma #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Step 2: Balance Sheet Check Make sure your proforma balance sheet is balanced. Use the plugs to force A = L + E. Use the following Balance Sheet Check Total Assets #DIV/0! Total Liabilities & Equity Should be 0: A - (L + E) = If not adjust plug until it is. #DIV/0! #DIV/0