this

question has several parts to it, please answer a-m. the tables needed are displayed.

D'LEON INC., PART I 4-26 FINANCIAL STATEMENTS AND TAXES Part I of this case, presented in Chapter 3, discussed the situation and undertaken a major marketing campaign in an attempt to "go national." Thus far, sales have not been to the forecasted level, costs have been higher than were projected, and a large loss occurred in 2018 rather ult, its managers, directors, and investors are concerned about the firm's surviv D'Leon Inc, a regional snack foods producer, after an expansion program. D'Leon had increased plant capacity o Fred Campo, D'Leon's chairman, who had the task of getting the company back into a sound financial position. D'Leon's 2017 and 2018 balance sheets and the expected profit. As a result, its m Donna Jamison was brought in as assistant t income statements, together with p Table IC The 201 statements, together with projections for 20i9, are given in Tables IC 4.1 and IC 4.2. In addit 9 projected financial statement data represent Jamison's and Campo 4.3 gives the company's 2017 and 2018 financial ratios, together with industry average data. 's best guess for 2019 results, assuming that some new financing is arranged to get the company "over the hump." Jamison examined monthly data for 2018 (not given in the case), and she detected an improving pat tern during the year. Monthly sales were rising, costs were falling, and large losses in the early months had urned to a small profit by December. Thus, the annual data look somewhat worse than final monthly data. Also, it appears to be taking longer for the advertising program to get the message out, for the new sales offices to generate sales, and for the new manufacturing facilities to operate efficiently. In other words, the lags between spending money and deriving benefits were longer than D'Leon's managers had anticipated. For these reasons, Jamison and Campo see hope for the company-provided it can survive in the short run. Jamison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers Why are ratios useful? What are the five major categories of ratios? Calculate D'Leon's 2019 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity positions in 2017, in 2018, and as b. projected for 2019? We often think of ratios as being useful (1) to managers to help run the business (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the company's liquidity ratios? Explain your answer. c. Calculate the 2019 inventory turnover, days sales outstandirg (DS0), fised assets tumover, and total of assets stack up against other firms in the industry? turnover. How does D'Leon's utilization d Calculate the 2019 debt-to-capital and times-interest-earned ratios How does D'Leon compare with (ROA) t. Calculate the 2019 price/earnings ratio and market /book ratio Do these ratios indicate that investors the industry with nespect to al leverage? What can you conclude from these ratios? e. Calculate the 2019 operating margin, profit margin. basic earning power (BEP), returm on assets retum on equity (ROE), and return on invested capital (ROIC). What can you say about thhe rats are expected to have a high or low opinion of the company? Use the DuPont equation to provide a summary and overview of Leon's financial condition as projected for 2019 What are the firm's major strengths and weaknesses? Use the following simplified 2019 balance sheet to show, in general temns. how an mponement in the DSO would tend to affect the stock price. tion procedures and thereby lower its DSO from 45.6 days to the 32-day industry averag h For example, if the company could improve its collec- I statements (shown in thou- sands below) and influence the stock price? Accoums recelvable Other current assets Net frxed assets Total assets Current liabiltes 1 802 700 53497 Liabilties pius equity $3,492 hat imventories could be adjusted I so, how should that adjustment affece PLer profitability and stock price? company paid its suppliers much later than the due dates; also, it was not maintaining ers could cut the com could refuse to renew the loan when it comes due in 90 days. On the basis of data ger, continue to sell to D'Leon on credit? (You could demand 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 2019, D'Leon showed you its 2019 projections along with proof that it was going to raise more than $1.2 million of new equity financial ratios at levels called for in its bank loan agreem pany off, and its bank provided, would you, as a credit mana cash on delivery-that is, sell on terms of CoD-but tha ents. Therefore, k. In hindsight, what should D'Leon have done in 2017? l. 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? TABLE IC 4.1 Balance Sheets 2017 Cash Accounts receivable 5 85632 85,632 878.000 1,716480 5 7.282 57,600 151,200 632,160 Total current assets Gross fixed assets Less accumulated depreciation $1,926,802 ,124,000 491 000 146,200 1,202,950 5 812040 939.790 344.800 Net foxed assets Total assets $3492152 52866,592 $1.468 800 Liabilities and Equity 524,160 145,600 5 436,800 408,000 136,000 200000 51,850568 481,600 459,600 636,808 Notes payable $1,144,800 Total curent liabilities Long-term debt Common stock Retained earnings 723,432 460,000 32.592 323,432 460000 203,768 176 $1.952352 192.592 5 663,768 Total equity Total labiaties and equity Note: E indicates estimated. The 2019 data are forecasts $3,497.152 $2806 992 $1463 800 TABLE IC 4. Income Statements 2019E 2018 2017 7,035,600 6034000 3 3432000 $,528,000 2804000 5,875,992 $50,000 Cost of goods sold Other expenses Total operating costs excluding depreciation and 519,988 358,672 $6425,992 5 609,608 116,960 ($ 13,988) 116,960 s 492,648 ( 130,948) 136012 s 422640 15 266960) (106,784" 160.176 .9883,222672 5 209,328 18,900 10428 3,878 EBITDA Depreciation and amortization 0008 Interest expense EBT Taxes (40%) Net income 1466 169056 S253.584 58 640 S 87,60 S 1.602) 5 0.110 4.926 1014 0.220 $ 7809 12.17 250,000 40,00% 0880 5 0.220 56.638 850 100,000 4000% DPS Book value per share Stock price Shares outstanding Tax rate Lease payments Sinking fund payments Note: E indicates estimated. The 2019 data are forecasts The firm had sufficient taxable income in 2016 and 2017 to obtain its full tax refund in 201a. 100,000 5 40,000 TABLE IC 4.3 Ratio Analysis 2018 1.2X 0.4 4.7x 38.2 2017 23x 08x 4.8x 2019E Industry Average Quick Inventory turnover Days sales outstanding IDSO Fixed assets turnover Total assets turnover Debt-to-capital ratio TIE Operating margin 10x 6.1x 37.4 10.0x 23x 44.1% 4.3x 5.5% 26% 13.0% 60% 13.3% 96% 9.7x 1.3x 70x 2.6x 40,0% 62x 7.3% 3.5% 19.1% 9.1% 18.2% 14.5% 14.2x 2.4 2.1x 73.4% 2.2% Basic earning power ROA ROE ROIC Price/earnings Market/book Book value per share Note: E indicates estimated. The 2019 data are forecasts Calculation is based on a 365-day year -4.6% 56% -4.2% $4.93