Paste 9 T C 166 xv fx A B C D E F G H Donna Jamison, a recent UNC graduate with four years of for-profit health management experience, was 3 recently brought in as assistant to the chairman of the board of Computron Diagnostics, a manufacturer of clinical diagnostic equipment. The company had doubled its plant capacity, opened new sales offices outside its 10 home territory, and launched an expensive advertising campaign. Computron's results were not satisfactory. 1 to put it mildly. Its board of directors, which consisted of its president and vice president plus its major 12 stockholders (who were all local business people), was most upset when directors learned how the expansion 13 was going. Suppliers were being paid late and were unhappy, and the bank was complaining about the cut off 14 credit. As a result, Al Watkins, Computron's president, was informed that changes would have to be made, and 15 quickly, or he would be fired. Also, at the board's insistence, Donna Jamison was brought in and given the job of 16 assistant to Fred Campo, a retired banker who was Computron's chairman and largest stockholder. Campo 17 agreed to give up a few of his golfing days and help nurse the company back to health, with Jamison's assistance. 19 Jamison began by gathering financial statements and other data, shown below. The data show the dire situation 20 that Computron Diagnostics was in after the expansion program. Thus far, sales have not been up to the 21 forecasted level, costs have been higher than were projected, and a large loss occurred in Year 2, rather than 22 the expected profit. Jamison examined monthly data for Year 2 (not given in the case), and she detected an 23 improving pattern during the year. Monthly sales were rising, costs were falling, and large losses in the early 24 months had turned to a small profit by December. Thus, the annual data look somewhat worse than final monthly 25 data. Also, it appears to be taking longer for the advertising program to get the message across, for the new 26 sales offices to generate sales, and for the new manufacturing facilities to operate efficiently. In other words, 27 the lags between spending money and deriving benefits were longer than Computron's managers had anticipated. 28 For these reasons, Jamison and Campo see hope for the company-provided it can survive in the short run. 29 Jamison must prepare an analysis of where the company is now, what it must do to regain its financial health, 30 and what actions should be taken. 18 31 32 Computron Diagnostics Statement of Operations Yr 2 Actual Yr 3 Projected 33 34 Yr 1 Actual 35 Revenue: 36 Net patient service revenue $3,432,000 $5,834,400 $7,035,600 37 Other revenue 50 So 38 Total revenues $3,432,000 $5,834,400 $7,035,600 39 Expenses: 40 Salaries and benefits $2,864,000 $4,980,000 $5,800,000 41 Supplies $240,000 5620,000 $512,960 42 Insurance and other $50,000 $50,000 $50,000 43 Drugs $50,000 $50,000 $50,000 44 Depreciation $18,900 $116,960 $120,000 45 Interest 562,500 $176,000 $80,000 46 Total expenses $3,285,400 $5,992,960 $6,612,960 47 Operating Income 48 Provision for income taxes 5146,600 -$158,560 $422,640 $58,640 -563,424 5169,056 49 Net income S87.960 -595.136 $253.584 Ch 13 + Ready Home Insert Page Layout Formulas Data Review View Arial 10 A A Paste B I U 4 A C166 A xvfx B 48 Provision for income taxes 49 Net income 50 51 52 53 C D E F G H $58,640 -$63,424 $169,056 $87,960 -$95,136 $253,584 Computron Diagnostics Balance Sheet Yr 1 Actual Yr 2 Actual Yr 3 Projected 54 Assets 55 Current assets: 56 57 58 59 Cash Marketable securities Net accounts receivable Inventories 60 Total current assets $9,000 $7,282 $14,000 $48,600 $20,000 $351,200 $632,160 $71,632 $878,000 $715,200 $1,287,360 $1,716,480 $1,124,000 $1,946,802 $2,680,112 61 Property and equipment $491,000 $1,202,950 $1,220,000 62 Less accumulated depreciation $146,200 $263,160 $383,160 63 Net property and equipment $344,800 $939,790 $836,840 64 Total assets $1,468,800 $2,886,592 $3,516,952 65 66 Liabilities and shareholders' equity + 67 Current liabilities: 68 Accounts payable $145,600 $324,000 $359,800 69 Accrued expenses $136,000 $284,960 $380,000 70 Notes payable $120,000 $640,000 $220,000 71 Current portion of long-term debt $80,000 $80,000 $80,000 72 Total current liabilities $481,600 $1,328,960 $1,039,800 73 Long-term debt $323,432 $1,000,000 $500,000 74 Shareholders' equity: 75 Common stock $460,000 76 Retained earnings $203,768 77 Total shareholders' equity $663,768 $460,000 $97,632 $557,632 $1,680,936 $296,216 $1,977,152 78 Total liabilities and shareholders' equity $1,468,800 $2,886,592 $3,516,952 79 80 Other data: 81 Stock price 82 Shares outstanding 83 Tax rate 84 Lease payments 85 86 ANSWER 87 $8.50 100,000 40% $40,000 56.00 100,000 $12.17 250,000 40% $40,000 40% $40,000 Paste C166 Arial 10 T A-A- B I U 50 A X fx A B C D E F G H 86 ANSWER 87 88 89 Profitability ratios 90 Total margin 91 Return on assets 92 Return on equity 93 Liquidity ratios 94 Current ratio 95 Days cash on hand 96 Debt management (capital structure) ratios 97 Debt ratio 98 Debt to equity ratio 99 Times-interest-earned ratio 100 Cash flow coverage ratio 101 Asset management (activity) ratios 102 Fixed asset turnover 103 Total asset turnover 104 Days sales outstanding 105 Other ratios 106 Average age of plant 107 Earnings per share 108 Book value per share 109 Price/earnings ratio 110 Market/book ratio 111 112 113 114 115 116 117 Revenue: 118 Net patient service revenue 119 Other revenue 120 Total revenues 121 Expenses: 122 Salaries and benefits 123 Supplies 124 Insurance and other 125 Provision for bad debts Depreciation 126 127 Interest 128 Total expenses Ch 13 + Ready Industry Yr 1 Actual Yr 2 Actual Yr 3 Projected Average 3.6% 9.0% 17.9% 2.70 22.0 50.0% 2.5 6.2 8.00 7.00 2.50 32.0 6.1 n/a n/a 16.20 2.90 Computron Diagnostics Common Size Statement of Operations Industry Yr 1 Actual Yr 2 Actual Yr 3 Projected Average 100.0% 0.0% 100.0% 84.5% 3.9% 0.3% 0.3% 4.0% 1.1% 94.1% Home Paste 8 Insert Page Layout Arial B I U X fx C166 ITZ 113 A 114 115 116 Formulas Data Review View 10 A A B C D G H Computron Diagnostics Common Size Statement of Operations Industry Yr 1 Actual Yr 2 Actual Yr 3 Projected Average 100.0% 0.0% 117 Revenue: 118 Net patient service revenue 119 Other revenue 120 Total revenues 121 Expenses: 122 Salaries and benefits 123 Supplies 124 Insurance and other 125 Provision for bad debts 126 Depreciation 127 Interest 128 Total expenses 129 Operating income 130 Provision for income taxes 131 Net income 132 133 134 135 136 Assets 137 Current assets: 138 Cash 139 Marketable securities 140 Net accounts receivable 141 Inventories 142 Total current assets 143 Property and equipment 144 Less accumulated depreciation 145 Net property and equipment 146 Total assets 147 148 Liabilities and shareholders' equity 149 Current liabilities: 150 Accounts payable 151 Accrued expenses 152 Notes payable 153 Current portion of long-term debt 154 Total current liabilities 155 Lanaform dahe Ch 13 + Ready Computron Diagnostics 100.0% 84.5% 3.9% 0.3% 0.3% 4.0% 1.1% 94.1% 5.9% 2.4% 3.5% Common Size Balance Sheet Industry Yr 1 Actual Yr 2 Actual Yr 3 Projected Average 0.3% 0.3% 22.3% 41.2% 64.1% 53.9% 18.0% 35.9% 100.0% 10.2% 9.5% 2.4% 1.6% 23.7% 76896 Arial Paste C166 B I U Xv fx 10 AA = A A B C D E F 131 Net income 132 133 134 135 136 Assets 137 Current assets: 138 Cash 139 Marketable securities 140 Net accounts receivable 141 Inventories 142 Total current assets 143 Property and equipment 144 Less accumulated depreciation 145 Net property and equipment 146 Total assets 147 148 Liabilities and shareholders' equity mu HU ab T H 3.5% Computron Diagnostics Common Size Balance Sheet Industry Yr 1 Actual Yr 2 Actual Yr 3 Projected Average 0.3% 0.3% 22.3% 41.2% 64.1% 53.9% 18.0% 35.9% 100.0% 149 Current liabilities: 150 Accounts payable 10.2% 151 Accrued expenses 9.5% 152 Notes payable 2.4% 153 Current portion of long-term debt 1.6% 154 157 Common stock 158 Retained earnings Total current liabilities 155 Long-term debt 156 Shareholders' equity: 159 Total shareholders' equity 160 Total liabilities and shareholders' equity 161 162 23.7% 26.3% 20.0% 30.0% 50.0% 100.0%