Note: E indicates estimated. The 2020 data are forecasts. Datio Amaluncic Note: E indicates est Income Statements Balance Sheets Note: E indicates estimated. The 2020 data are forecasts. f. Calculate the 2020 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. Use the DuPont equation to provide a summary and overview of D'Leon's financial condition as projected for 2020 . What are the firm's major strengths and weaknesses? h. Use the following simplified 2020 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 in the following table) and influence the stock price? 1. Does it appear that inventories could be adjusted? If so, how should that adjustment affect D'Leon's profitability and stock price? j. In 2019 , the company paid its suppliers much later than the due dates; also, it was not maintaining financial ratios at levels called for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D'Leon on credit? (You could demand cash on delivery - that is, sell on terms of COD -but that might cause D'Leon to stop buying from your company.) Similarly. if you were the bank loan officer, would you recommend renewing the loan or demanding its repayment? Would your actions be influenced if, in early 2020, D'Leon showed you its 2020 projections along with proof that it was going to raise more than $1.2 million of new equity? k. In hindsight, what should D'Leon have done in 2018? 1. What are some potential problems and limitations of financial ratio analysis? m. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance? Note: E indicates estimated. The 2020 data are forecasts. Datio Amaluncic Note: E indicates est Income Statements Balance Sheets Note: E indicates estimated. The 2020 data are forecasts. f. Calculate the 2020 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. Use the DuPont equation to provide a summary and overview of D'Leon's financial condition as projected for 2020 . What are the firm's major strengths and weaknesses? h. Use the following simplified 2020 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 in the following table) and influence the stock price? 1. Does it appear that inventories could be adjusted? If so, how should that adjustment affect D'Leon's profitability and stock price? j. In 2019 , the company paid its suppliers much later than the due dates; also, it was not maintaining financial ratios at levels called for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D'Leon on credit? (You could demand cash on delivery - that is, sell on terms of COD -but that might cause D'Leon to stop buying from your company.) Similarly. if you were the bank loan officer, would you recommend renewing the loan or demanding its repayment? Would your actions be influenced if, in early 2020, D'Leon showed you its 2020 projections along with proof that it was going to raise more than $1.2 million of new equity? k. In hindsight, what should D'Leon have done in 2018? 1. What are some potential problems and limitations of financial ratio analysis? m. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance
