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Integrative Problem 7-17 Donna Jamison was recently hired as a financial analyst by Computron Indus- tries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data: Balance Sheets 2015 2014 Assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets $ 52,000 402,000 836,000 $1,290,000 527,000 (166,200) $ 360,800 $1,650,800 $ 57,600 351,200 715,200 $1,124,000 491,000 (146,200) $ 344,800 $1,468,800 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 175,200 225,000 140,000 $ 540,200 424,612 460,000 225,988 $ 685,988 $1,650,800 $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $1,468,800 Income Statements 2015 2014 Sales Cost of goods sold Other expenses Depreciation Total operating costs EBIT Interest expense $ 3,850,000 (3,250,000) ( 430,300) (20,000) $3,700,300 $ 149,700 76,000) $ 73,700 (29,480) $ 44,220 $ 0.442 $3,432,000 (2,864,000) (340,000) (18,900) $3,222,900 $ 209,100 62,500) $ 146,600 (58,640) $ 87,960 $ 0.880 EBT Taxes (40%) Net income EPS Other Data 2015 2014 December 31 stock price Number of shares Dividends per share Lease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000 Industry Average Data for 2015 Ratio Industry Average Current Quick Inventory turnover Days sales outstanding (DSO) Fixed assets turnover Total assets turnover Debt ratio TIE Fixed charge coverage Net profit margin ROA ROE Pricelearnings Market/book 2.7 x 1.0x 6.0x 32.0 days 10.7x 2.6 50.0% 2.5x 2.1 x 3.5% 9.1% 18.2% 14.2 x 1.4x C. Assume that you are Donna Jamison's assistant and that she has asked you to help her prepare a report that evaluates the company's financial condition. Answer the following questions: a. What can you conclude about the company's financial condition from its statement of cash flows? b. What is the purpose of financial ratio analysis, and what are the five major categories of ratios? What are Computron's current and quick ratios? What do they tell you about the company's liquidity position? d. What are Computron's inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times interest earned, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? f. Calculate and discuss the firm's profitability ratiosthat is, its net profit margin, return on assets (ROA), and return on equity (ROE). g. Calculate Computron's market value ratiosthat is, its pricelearnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses? i. Use the following simplified 2015 balance sheet to show, in general terms, how an improvement in one of the ratios-say, the DSOwould affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would that change ripple through the following financial statements ($ thousands) and influence the stock price? Accounts receivable $ 402 Debt $ 965 Other current assets 888 Net fixed assets 361 Equity 686 Unit 1 Assessment: Financial Statement Analysis For the unit one assessment, we are going to become a financial consultant for Donna Jamison. Please complete the Integrative Problem in Chapter 7, page 246. Items A - J should be completely answered with a critical analysis component to the addressing the questions. If you use outside sources, then please follow APA formatting. The assessment will be worth 60 points. Statement of Cash Flows (2015) Operating Activities Net income $ 44,220 Additions (sources of cash) Depreciation 20,000 Increase in accounts payable 29,600 Increase in accruals 4,000 Subtractions (uses of cash) Increases in accounts receivable (50,800) Increase in inventories (120,800) Net cash flow from operations $(73,780) Long-Term Investing and Financing Activities Investment in fixed assets Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from investing and financing Net reduction in cash account Cash at beginning of year Cash at end of year $(36,000) $ 25,000 101,180 ( 22,000) $ 68,180 $( 5,600) 57,600 $ 52,000 2015 2014 Other Data December 31 stock price Number of shares Dividends per share Lease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000 Integrative Problem 7-17 Donna Jamison was recently hired as a financial analyst by Computron Indus- tries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data: Balance Sheets 2015 2014 Assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net fixed assets Total assets $ 52,000 402,000 836,000 $1,290,000 527,000 (166,200) $ 360,800 $1,650,800 $ 57,600 351,200 715,200 $1,124,000 491,000 (146,200) $ 344,800 $1,468,800 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity $ 175,200 225,000 140,000 $ 540,200 424,612 460,000 225,988 $ 685,988 $1,650,800 $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $1,468,800 Income Statements 2015 2014 Sales Cost of goods sold Other expenses Depreciation Total operating costs EBIT Interest expense $ 3,850,000 (3,250,000) ( 430,300) (20,000) $3,700,300 $ 149,700 76,000) $ 73,700 (29,480) $ 44,220 $ 0.442 $3,432,000 (2,864,000) (340,000) (18,900) $3,222,900 $ 209,100 62,500) $ 146,600 (58,640) $ 87,960 $ 0.880 EBT Taxes (40%) Net income EPS Other Data 2015 2014 December 31 stock price Number of shares Dividends per share Lease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000 Industry Average Data for 2015 Ratio Industry Average Current Quick Inventory turnover Days sales outstanding (DSO) Fixed assets turnover Total assets turnover Debt ratio TIE Fixed charge coverage Net profit margin ROA ROE Pricelearnings Market/book 2.7 x 1.0x 6.0x 32.0 days 10.7x 2.6 50.0% 2.5x 2.1 x 3.5% 9.1% 18.2% 14.2 x 1.4x C. Assume that you are Donna Jamison's assistant and that she has asked you to help her prepare a report that evaluates the company's financial condition. Answer the following questions: a. What can you conclude about the company's financial condition from its statement of cash flows? b. What is the purpose of financial ratio analysis, and what are the five major categories of ratios? What are Computron's current and quick ratios? What do they tell you about the company's liquidity position? d. What are Computron's inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times interest earned, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? f. Calculate and discuss the firm's profitability ratiosthat is, its net profit margin, return on assets (ROA), and return on equity (ROE). g. Calculate Computron's market value ratiosthat is, its pricelearnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses? i. Use the following simplified 2015 balance sheet to show, in general terms, how an improvement in one of the ratios-say, the DSOwould affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would that change ripple through the following financial statements ($ thousands) and influence the stock price? Accounts receivable $ 402 Debt $ 965 Other current assets 888 Net fixed assets 361 Equity 686 Unit 1 Assessment: Financial Statement Analysis For the unit one assessment, we are going to become a financial consultant for Donna Jamison. Please complete the Integrative Problem in Chapter 7, page 246. Items A - J should be completely answered with a critical analysis component to the addressing the questions. If you use outside sources, then please follow APA formatting. The assessment will be worth 60 points. Statement of Cash Flows (2015) Operating Activities Net income $ 44,220 Additions (sources of cash) Depreciation 20,000 Increase in accounts payable 29,600 Increase in accruals 4,000 Subtractions (uses of cash) Increases in accounts receivable (50,800) Increase in inventories (120,800) Net cash flow from operations $(73,780) Long-Term Investing and Financing Activities Investment in fixed assets Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from investing and financing Net reduction in cash account Cash at beginning of year Cash at end of year $(36,000) $ 25,000 101,180 ( 22,000) $ 68,180 $( 5,600) 57,600 $ 52,000 2015 2014 Other Data December 31 stock price Number of shares Dividends per share Lease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000