Questions: 1. Using a cash flow statement for the most recent year, explain how Greg would sum up the company's cash position. 2. Analyze the firm's liquidity, leverage, turnover, and profitability using ratio analysis. 3. Using common size statements, help Greg present an appraisal of the company's performance and financial condition vis--vis its key competitors. 4. What would Greg discover after performing a DuPont analysis on the company's key profitability ratios? 5. How much additional sales can the company support without having to add fixed assets? 6. Will Paramount Paper have to raise external capital over the next 12 months? If so how much? If not, why not? 7. Is Warren correct in saying "there is more to us than meets the eye"? Explain. 8. If you are Warren, explain how you would attempt to convince the rating agencies that the firm's debt rating should be raised. 2 3 Historical Sales for Paramount Paper Inc. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Revenues 8,825,000 12,450,000 13,246,000 14,250,000 16,275,000 18,235,000 21,234,000 24,345,000 28,255,000 37,340,000 54,670,000 10 2 3 4 Aggregate Balance Sheet for Paper Industry- Select 6 As of December 31, 2015 von 8 9 Cash Marketable Securities Accounts Receivables Inventories Current Assets Net Fixed Assets Total Assets 6,554,000 45,200 32,046,800 55,867,200 94,513,200 131,486,800 226,000,000 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Accounts Payables Accruals Notes Payables Current Liabilities Long Term Debt Total Liabilities Preferred Stock Common Stock Retained Earnings Total Owner's Equity Total Liabilities and Owner's Equity 5,085,000 3,073,600 1,898,400 10,057,000 72,885,000 82,942,000 11,752,000 30,510,000 100,796,000 143,058,000 226,000,000 36 2 3 Aggregate Income Statement for Paper Industry - Select 6 for Year Ended December 31, 2015 4 S 6 7 8 9 10 11 12 13 14 Sales Revenues Cash Operating costs Depreciation Total Operating Costs Operating Income (EBIT) Interest Expenses Taxable income Taxes Net Income Preferred Dividends Addition to Retained Earning 590,000,000 505,040,000 31,270,000 536,310,000 53,690,000 7,670,000 46,020,000 18,408,000 27,612,000 590,000 27,022,000 15 16 17 18 Paramount Paper Inc. Prior 3-Year Balance Sheets 2013 2014 2015 Cash Marketable Securities Accounts Receivables Inventories Current Assets Net Fixed Assets Total Assets 396,000 460,000 2,225,000 3,850,000 6,931,000 13,875,000 20,806,000 428,000 540,000 2,525,000 4,950,000 8,443,000 14,576,000 23,019,000 587,000 638,000 3,758,000 6,013,000 10,996,000 17,568,000 28,564,000 Accounts Payables Accruals Notes Payables Current Liabilities Long Term Debt Total Liabilities Preferred Stock Common Stock Retained Earnings Total Owner's Equity Total Liabilities and Owner's Equity 425,000 495,000 150,000 1,070,000 5,250,000 6,320,000 1,550,000 10,250,000 2,686,000 14,486,000 20,806,000 478,000 567,000 180,000 1,225,000 6,714,140 7,939,140 1,950,000 9,500,000 3,629,860 15,079,860 23,019,000 518,000 694,000 175,000 1,387,000 8,985,980 10,372,980 2,450,000 10,500,000 5,241,020 18,191,020 28,564,000 1 2 3 4 25 26 Paramount Paper Inc. Prior 3-Year Income Statements 2013 2014 2015 D 1 -2 13 14 15 16 17 18 19 Sales Revenues Cash Operating Costs Depreciation Total Operating costs Operating Income (EBIT) Interest Expenses Taxable Income Taxes Net Income Preferred Dividends Addition to Retained Earnings 28,255,000 22,321,450 2,775,000 25,096,450 3,158,550 325,000 2,833,550 1,133,420 1,700,130 108,500 1,591,630 37,340,000 32,112,400 2,915,000 35,027,400 2,312,600 512,000 1,800,600 720, 240 1,080,360 136,500 943,860 54,670,000 47,562,900 3,513,000 51,075,900 3,594,100 623,000 2,971,100 1,188,440 1,782,660 171,500 1,611,160