PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 1 of 5 Type here to search + ( Page view | A Read aloud Draw Highlight Erase Power Green Industries In early January, 2017, William Wyler, CPA, a senior manager at Myers Norris Penny LLP in Regina, Saskatchewan, was assigned the task of reviewing the financial performance of Power Green Industries (PGI) Ltd., a Canadian-based manufacturer of alternative electrical generating equipment. Before proceeding with the introduction of a revolutionary new product, PGI's board of director thought it prudent to retain an independent consultant to review the company's performance. Despite its rapid sales growth, the board was worried about PGI's financial ability to execute this expansion. Having taken two years of engineering before changing to accounting at university, Wyler feels he has the technical knowledge to understand the company's products, which will aid him in analyzing its financial performance. If this review goes smoothly, Wyler believes he will finally make partner after 10 years at the firm. Company Formation PGI was formed in 2005 by Dr. Maggi McGruder, P.Eng. who had taken a buyout from Natural Resources Canada, a department of the federal government of Canada, after becoming frustrated with the slow rate of implementation of her many ideas. McGruder completed her PhD in electrical engineering in 1997 at the University of Manitoba where her dissertation dealt with home and farm-based energy alternatives such as wind turbines, water turbines, solar panels, geothermal, and bio gas. In the new start-up, she decided to focus on wind and water turbines and solar panels because of her background in electrical engineering. Also, in her opinion, the geothermal and bio gas segments of the alternative energy industry were not cost effective in the long term. McGruder's knowledge of manufacturing and marketing was limited so she recruited two partners, Matthew Wiggins, P.Eng. and Nancy Cranston, CSP. Wiggins had over 30 years of experience supervising manufacturing facilities for companies such as Caterpillar, General Electric, and Nortel while Cranston had been a vice-president of marketing and sales for a number of equipment producers with her most recent position being with Stanley Tools. Each contributed $200,000 for a 25 percent share of the company and the remainder of the seed capital was provided by Wilson Mclvor, a retired Fortune 500 CEO, who had been an angel" to a number of other tech start-ups in Canada. After three rounds of funding from Can Do Venture Capital, each of the three founders' holdings had been reduced to 15 percent. In 2007, the angel and venture capitalists took PGI public in an initial public offering in order to exit the investment. The partners bought enough of the shares to maintain control. Company Expansion 11C Mostly cloudy () I 1 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 2 of 5 Type here to search + ( Page view | A Read aloud Draw Highlight Erase Company Expansion The period from 2005 to 2007 was a troublesome one for PGI. Products took much longer than planned to develop and production processes where difficult to master. Venture capital financing was also difficult to acquire and the owners had to relinquish a much larger portion of the business than hoped to secure the needed funding. By 2008, the products and manufacturing facilities were in place. Despite initial hesitancy, a number of key distributors were recruited. In Canada, both Canadian Tire and Home Hardware agreed to carry PGI's products. Canadian Tire also featured them in one of their advertising campaigns where they stressed their new focus on environmentally-friendly products. The Co-op, a Page 1 farmer cooperative organization and major agricultural supply chain, agreed to sell the products and allowed PGI to promote them at all their membership meetings. In the U.S., Eagle Hardware and a number of regional farmer cooperatives also signed distribution agreements. Sales of PGI's products increased dramatically from 2008 to 2016. Farmers welcomed them as a way to reduce costs in a competitive industry and to avoid frequent power outages that can be problematic especially for dairy and poultry producers. People living in remote areas found them to be a cheaper alternative to burning fossil fuels, while environmentally conscious consumers felt they greatly reduced their ecological footprint. New Product Introduction To expand its product line further, PGI is currently developing an advanced power management system. This includes high-capacity batteries that store electricity to balance differences in generation and consumption as well as a monitoring system that automatically resells power to the local grid when user's needs are met and prices offered by the local public utility are at their highest. The monitoring system also detects faulty storage batteries so they can be quickly replaced. PGI will produce its own batteries using technology licensed from a well-known research firm, but the remainder of this new system is being developed in-house and is considered "leading-edge" by the industry. 11C Mostly cloudy () I 1 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 2 of 5 + ( Page view | A Read aloud Draw Highlight Erase New Product Introduction To expand its product line further, PGI is currently developing an advanced power management system. This includes high-capacity batteries that store electricity to balance differences in generation and consumption as well as a monitoring system that automatically resells power to the local grid when user's needs are met and prices offered by the local public utility are at their highest. The monitoring system also detects faulty storage batteries so they can be quickly replaced. PGI will produce its own batteries using technology licensed from a well-known research firm, but the remainder of this new system is being developed in-house and is considered "leading-edge" by the industry. Financial Data PGI provided Wyler with financial statements for the last five years, which are contained in Exhibit 1 and 2. A detailed breakdown of unit prices and costs and sales quantities for the last five years was also provided in Exhibit 3. Exhibit 1 Income Statements Sales Cost of sales Gross profit 2012 2013 711,100,000 850,762,000 421,650,000 516,212,000 289,450,000 334,550,000 2014 1,625,324,200 1,021,419,200 603,905,000 2015 2016 2,211,360,600 2,651,882,800 1,468,340,150 1,791,102,960 743,020,450 860,779,840 Operating costs Selling and distribution 74,500,300 85,984,000 200,450,300 231,530,000 267,300,200 Research and development 45,890,340 55,689,500 101,230,000 185,640,000 239,560,000 Administration 24,350,300 Amortization 49,557,087 32,534,000 56,830,350 95,608,890 124,890,000 137,450,300 141,468,842 142,920,000 152,885,800 Operating profit 95,151,973 103,512,150 65,146,968 58,040,450 63,583,540 Interest 14,189,065 17,386,710 46,684,825 51,226,136 56,015,189 Earnings before taxes 80,962,908 86,125,440 18,462,143 6,814,314 7,568,351 Taxes 28,337,018 30,143,904 6,461,750 2,385,010 2,648,923 Net income 52,625,890 55,981,536 12,000,393 4,429,304 4,919,428 Page 2 Type here to search iT 11C Mostly cloudy I () 1 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 2 of 5 + ( Page view | A Read aloud Draw Highlight Erase New Product Introduction To expand its product line further, PGI is currently developing an advanced power management system. This includes high-capacity batteries that store electricity to balance differences in generation and consumption as well as a monitoring system that automatically resells power to the local grid when user's needs are met and prices offered by the local public utility are at their highest. The monitoring system also detects faulty storage batteries so they can be quickly replaced. PGI will produce its own batteries using technology licensed from a well-known research firm, but the remainder of this new system is being developed in-house and is considered "leading-edge" by the industry. Financial Data PGI provided Wyler with financial statements for the last five years, which are contained in Exhibit 1 and 2. A detailed breakdown of unit prices and costs and sales quantities for the last five years was also provided in Exhibit 3. Exhibit 1 Income Statements Sales Cost of sales Gross profit 2012 2013 711,100,000 850,762,000 421,650,000 516,212,000 289,450,000 334,550,000 2014 1,625,324,200 1,021,419,200 603,905,000 2015 2016 2,211,360,600 2,651,882,800 1,468,340,150 1,791,102,960 743,020,450 860,779,840 Operating costs Selling and distribution 74,500,300 85,984,000 200,450,300 231,530,000 267,300,200 Research and development 45,890,340 55,689,500 101,230,000 185,640,000 239,560,000 Administration 24,350,300 Amortization 49,557,087 32,534,000 56,830,350 95,608,890 124,890,000 137,450,300 141,468,842 142,920,000 152,885,800 Operating profit 95,151,973 103,512,150 65,146,968 58,040,450 63,583,540 Interest 14,189,065 17,386,710 46,684,825 51,226,136 56,015,189 Earnings before taxes 80,962,908 86,125,440 18,462,143 6,814,314 7,568,351 Taxes 28,337,018 30,143,904 6,461,750 2,385,010 2,648,923 Net income 52,625,890 55,981,536 12,000,393 4,429,304 4,919,428 Page 2 Type here to search iT 11C Mostly cloudy I () 1 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 2 of 5 + ( Page view | A Read aloud Draw Highlight Erase New Product Introduction To expand its product line further, PGI is currently developing an advanced power management system. This includes high-capacity batteries that store electricity to balance differences in generation and consumption as well as a monitoring system that automatically resells power to the local grid when user's needs are met and prices offered by the local public utility are at their highest. The monitoring system also detects faulty storage batteries so they can be quickly replaced. PGI will produce its own batteries using technology licensed from a well-known research firm, but the remainder of this new system is being developed in-house and is considered "leading-edge" by the industry. Financial Data PGI provided Wyler with financial statements for the last five years, which are contained in Exhibit 1 and 2. A detailed breakdown of unit prices and costs and sales quantities for the last five years was also provided in Exhibit 3. Exhibit 1 Income Statements Sales Cost of sales Gross profit 2012 2013 711,100,000 850,762,000 421,650,000 516,212,000 289,450,000 334,550,000 2014 1,625,324,200 1,021,419,200 603,905,000 2015 2016 2,211,360,600 2,651,882,800 1,468,340,150 1,791,102,960 743,020,450 860,779,840 Operating costs Selling and distribution 74,500,300 85,984,000 200,450,300 231,530,000 267,300,200 Research and development 45,890,340 55,689,500 101,230,000 185,640,000 239,560,000 Administration 24,350,300 Amortization 49,557,087 32,534,000 56,830,350 95,608,890 124,890,000 137,450,300 141,468,842 142,920,000 152,885,800 Operating profit 95,151,973 103,512,150 65,146,968 58,040,450 63,583,540 Interest 14,189,065 17,386,710 46,684,825 51,226,136 56,015,189 Earnings before taxes 80,962,908 86,125,440 18,462,143 6,814,314 7,568,351 Taxes 28,337,018 30,143,904 6,461,750 2,385,010 2,648,923 Net income 52,625,890 55,981,536 12,000,393 4,429,304 4,919,428 Page 2 Type here to search iT 11C Mostly cloudy I () 1 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 3 of 5 Type here to search + ( Page view | A Read aloud Draw Highlight Erase Exhibit 2 Balance Sheets 2012 Cash Accounts receivable Parts inventory WIP inventory Finished goods inventory 75,340,000 31,650,000 2013 76,800,300 45,320,000 2014 2015 2016 96,670,000 150,320,000 95,630,000 65,340,000 245,320,600 55,320,100 75,800,300 15,430,300 95,300,000 339,760,200 423,340,000 46,789,180 145,300,530 Total current assets 395,749,710 65,354,460 210,360,300 548,155,060 Land, plant, and equipment, net 445,230,840 489,300,500 Intangibles Total assets 50,340,030 891,320,580 79,003,000 1,116,458,560 86,650,675 271,530,200 764,471,475 1,317,388,220 97,300,200 2,179,159,895 124,532,030 145,673,800 314,580,400 909,993,030 389,640,200 1,069,384,300 1,318,350,000 1,402,870,000 110,850,000 2,339,193,030 125,988,000 2,598,242,300 Accounts payable 68,700,400 Current portion of long-term debt 23,453,000 Total current liabilities 92,153,400 Long-term debt 234,530,000 95,620,000 26,790,000 122,410,000 267,900,000 167,500,300 69,575,000 237,075,300 695,750,000 240,650,430 320,640,430 73,453,020 79,567,030 314,103,450 400,207,460 734,530,200 795,670,300 Shareholders' equity 564,637,180 Total liabilities and equities 891,320,580 726,148,560 1,246,334,595 1,116,458,560 1,290,559,380 1,402,364,540 2,179,159,895 2,339,193,030 2,598,242,300 Exhibit 3 Sales Analysis 2012 2013 2014 2015 2016 Wind turbines Unit price 9,500 9,500 9,500 9,500 9,500 Unit cost 5,750 5,932 6,010 6,230 6,500 Quantity 15,000 21,000 55,560 62,500 85,600 Water turbines Unit price 5,400 5,400 5,400 5,400 5,400 Unit cost 3,900 4,100 4,200 4,350 4.450 Quantity 2,500 3,100 4,560 6,509 7,848 Solar panels Unit price 8,540 8,540 8,540 8,540 8,540 Unit cost 5,010 5,100 5,320 5,670 5,704 Quantity 65,000 74,300 125,630 185,300 210,340 Financial Benchmarks Exhibit 4 contains industry average information secured from Statistics Canada. Exhibit 4 11C Mostly cloudy 1 I 6:47 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 3 of 5 Type here to search + ( Page view | A Read aloud Draw Highlight Erase Exhibit 2 Balance Sheets 2012 Cash Accounts receivable Parts inventory WIP inventory Finished goods inventory 75,340,000 31,650,000 2013 76,800,300 45,320,000 2014 2015 2016 96,670,000 150,320,000 95,630,000 65,340,000 245,320,600 55,320,100 75,800,300 15,430,300 95,300,000 339,760,200 423,340,000 46,789,180 145,300,530 Total current assets 395,749,710 65,354,460 210,360,300 548,155,060 Land, plant, and equipment, net 445,230,840 489,300,500 Intangibles Total assets 50,340,030 891,320,580 79,003,000 1,116,458,560 86,650,675 271,530,200 764,471,475 1,317,388,220 97,300,200 2,179,159,895 124,532,030 145,673,800 314,580,400 909,993,030 389,640,200 1,069,384,300 1,318,350,000 1,402,870,000 110,850,000 2,339,193,030 125,988,000 2,598,242,300 Accounts payable 68,700,400 Current portion of long-term debt 23,453,000 Total current liabilities 92,153,400 95,620,000 26,790,000 122,410,000 Long-term debt 234,530,000 267,900,000 167,500,300 69,575,000 237,075,300 695,750,000 240,650,430 320,640,430 73,453,020 79,567,030 314,103,450 400,207,460 734,530,200 795,670,300 Shareholders' equity 564,637,180 Total liabilities and equities 891,320,580 726,148,560 1,246,334,595 1,116,458,560 1,290,559,380 1,402,364,540 2,179,159,895 2,339,193,030 2,598,242,300 Exhibit 3 Sales Analysis 2012 2013 2014 2015 2016 Wind turbines Unit price 9,500 9,500 9,500 9,500 9,500 Unit cost 5,750 5,932 6,010 6,230 6,500 Quantity 15,000 21,000 55,560 62,500 85,600 Water turbines Unit price 5,400 5,400 5,400 5,400 5,400 Unit cost 3,900 4,100 4,200 4,350 4.450 Quantity 2,500 3,100 4,560 6,509 7,848 Solar panels Unit price 8,540 8,540 8,540 8,540 8,540 Unit cost 5,010 5,100 5,320 5,670 5,704 Quantity 65,000 74,300 125,630 185,300 210,340 Financial Benchmarks Exhibit 4 contains industry average information secured from Statistics Canada. Exhibit 4 11C Mostly cloudy 1 6:47 PM 10/9/2021 ( Page view | A Read aloud Draw Highlight Erase PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 4 of 5 + Page 3 Type here to search Exhibit 4 Industry Averages Financial Ratios Current ratio Cash ratio Industry Averages 2016 4.90x .11x Parts inventory turnover in days WIP inventory turnover in days 33.71 days 15.93 days FG inventory turnover in days Accounts receivable turnover in days 51.98 days 30.44 days Accounts payable turnover in days 19.13 days Cash conversion cycle 112.93 days Fixed assets turnover 2.42x Total assets turnover 1.22x Debt ratio 32% Long-term debt total capitalization 29% Times interest earned 9.47x Cash flow coverage 2.66x Gross profit margin 40.66% Operating profit margin Net profit margin 14.04% 8.16% 6.46% 14.51% O Sales Cost of sales Gross profit Return on assets Return on equity Vertical Analysis (%) Income Statement 2016 100.00 59.34 40.66 Operating costs Selling and distribution 9.32 Research and development 7.02 Administration 4.83 Depreciation 5.45 11C Mostly cloudy I () 1 6:48 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 4 of 5 Page 4 Type here to search + O ( Page view | A Read aloud Draw Highlight Erase Return on equity 14.51% Vertical Analysis (%) Income Statement 2016 Sales 100.00 Cost of sales 59.34 Gross profit 40.66 Operating costs Selling and distribution 9.32 Research and development 7.02 Administration 4.83 Depreciation 5.45 Operating profit 14.04 Interest 1.48 Earnings before taxes 12.56 Taxes 4.40 Net income 8.16 Vertical Analysis (%) Balance Sheet 2016 Cash 10.95 Accounts receivable 10.15 Parts inventory 6.67 WIP inventory 3.15 Finished goods inventory 10.28 Total current assets 41.21 Land, plant, and equipment, net 50.31 Other assets 8.48 Total assets 100.00 Accounts payable 3.78 Current portion of long-term debt 4.62 Total current liabilities 8.41 Long-term debt 23.12 Shareholders' equity 68.47 Total liabilities and equities 100.00 11C Mostly cloudy () 1 I 6:48 PM 10/9/2021 PDF Case 1 - Power Green Industries X PDF Case 1 Power Green Industries X + C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20(2).pdf 4 of 5 Page 4 Type here to search + O ( Page view | A Read aloud Draw Highlight Erase Return on equity 14.51% Vertical Analysis (%) Income Statement 2016 Sales 100.00 Cost of sales 59.34 Gross profit 40.66 Operating costs Selling and distribution 9.32 Research and development 7.02 Administration 4.83 Depreciation 5.45 Operating profit 14.04 Interest 1.48 Earnings before taxes 12.56 Taxes 4.40 Net income 8.16 Vertical Analysis (%) Balance Sheet 2016 Cash 10.95 Accounts receivable 10.15 Parts inventory 6.67 WIP inventory 3.15 Finished goods inventory 10.28 Total current assets 41.21 Land, plant, and equipment, net 50.31 Other assets 8.48 Total assets 100.00 Accounts payable 3.78 Current portion of long-term debt 4.62 Total current liabilities 8.41 Long-term debt 23.12 Shareholders' equity 68.47 Total liabilities and equities 100.00 11C Mostly cloudy () 1 I 6:48 PM 10/9/2021 1 (D Page view | A Read aloud Draw Highlight Erase PDF Case 1 Power Green Industries X PDF Case 1 - Power Green Industries X Over A Period Of Time, A Manufa+ C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20-%20Student%20Instructions%20(2).pdf of 3 Case 1: Power Green Industries Student Instructions 1. Prepare the following financial exhibits for 2013 through 2016: Ratio table Vertical analysis of income statements and balance sheets Horizontal analysis (index numbers) of income statements and balance sheets Cash flow statements 5-part analysis of ROE 2. Assuming the role of William Wyler, CPA, prepare a 2-page memorandum that analyzes the financial condition of PGI and makes recommendations relating to the company's financial performance and proposed new product introduction. The memo should be divided into sections describing liquidity, asset management, long-term debt paying ability, profitability, and recommendations. The memo should be single spaced and use the 12-point Calibri font with .7 inch margins. Submit both the Excel and Word files through the course Moodle site. Type here to search O 11C Mostly cloudy () I 1 6:48 PM 10/9/2021 2 PDF Case 1 Power Green Industries X PDF Case 1 - Power Green Industries X Over A Period Of Time, A Manufa+ C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20-%20Student%20Instructions%20(2).pdf of 3 + Page view | A Read aloud Draw Highlight Erase Ratio Tables Liquidity Current ratio Cash ratio Asset Management Parts inventory turnover in days Work-in-progress turnover in days Finished goods turnover in days Accounts receivable turnover in days Accounts payable turnover in days Cash conversion cycle Fixed assets turnover Total asset turnover Long-term Debt Paying Ability Debt ratio Long-term debt to total capitalization Times interest earned Cash flow coverage Profitability Gross margin Operating profit margin Net profit margin ROA ROE 2013 2014 2015 2016 Industry Average Analysis of ROE - 5-Part Total Asset EBIT/Sales EBT/EBIT NI/EBT Turnover Debt Ratio ROE 2013 2014 2015 2016 Type here to search 11C Mostly cloudy () I 1 6:48 PM 10/9/2021 2 PDF Case 1 Power Green Industries X PDF Case 1 - Power Green Industries X Over A Period Of Time, A Manufa+ C File C:/Users/PC%201/Downloads/Case%201%20-%20Power%20Green%20Industries%20-%20Student%20Instructions%20(2).pdf of 3 Type here to search + Cash flow coverage Profitability Gross margin Page view | A Read aloud Draw Highlight Erase Operating profit margin Net profit margin ROA ROE Page 2 Analysis of ROE - 5-Part Total Asset EBIT/Sales EBT/EBIT NI/EBT Turnover Debt Ratio ROE 2013 2014 2015 2016 Total: / 100 Evaluation Form 11C Mostly cloudy () 1 I 6:48 PM 10/9/2021