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1. In hindsight, what should KPB have done back in 2004?

2. What are some qualitative factors analysts should consider when evaluating a companys likely future financial performance?

2004 Table IC 4-1. Balance Sheets 2006E 2005 Assets Cash $ 85,632 $ 7,282 Accounts receivable 878,000 632,160 Inventories 1,716,480 1,287,360 Total current assets $2,680,112 $1,926,802 Gross fixed assets 1,197,160 1,202,950 Less accumulated depreciation 380,120 263,160 Net fixed assets $ 817,040 $ 939,790 Total assets $3,497,152 $2,866,592 $ 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 Retained earnings Total equity Total liabilities and equity $ 436,800 300,000 408,000 $1,144,800 400,000 1,721,176 231,176 $1,952,352 $3,497,152 $ 524,160 636,808 489,600 $1,650,568 723,432 460,000 32,592 $ 492,592 $2,866,592 $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $1,468,800 Note: "E" indicates estimated. The 2006 data are forecasts. Table IC 4-2. Income Statements 2006E 2005 2004 Sales $7,035,600 $6,034,000 $3,432,000 Cost of goods sold 5,875,992 5,528,000 2,864,000 Other expenses 550,000 519,988 358,672 Total operating costs excluding depreciation $6,425,992 $6,047,988 $3,222,672 EBITDA $ 609,608 ($ 13,988) $ 209,328 Depreciation 116,960 116,960 18,900 EBIT $ 492,648 ($ 130,948) $ 190,428 Interest expense 70,008 136,012 43,828 EBT $ 422,640 ($ 266,960) $ 146,600 Taxes (40%) 169,056 (106,784) 58,640 Net income $ 253,584 ($ 160,176) $ 87,960 $ EPS 1.014 ($ 1.602) $ 0.880 DPS 0.220 $ 0.110 $ 0.220 Book value per share 7.809 $ 4.926 $ 6.638 Stock price 12.17 $ 2.25 $ 8.50 Shares outstanding 250,000 100,000 100,000 Tax rate 40.00% 40.00% 40.00% Lease payments 40,000 40,000 40,000 Sinking fund payments 0 0 0 Note: "E" indicates estimated. The 2006 data are forecasts. The firm had sufficient taxable income in 2003 and 2004 to obtain its full tax refund in 2005. Table IC 4-3. Ratio Analysis 2006E 2005 Current 1.2x Quick 0.4x Inventory turnover 4.7x Days sales outstanding (DSO) 38.2 Days inventory outstanding (DIO)* 85.0 Days payable outstanding (DPO) 31.4 Fixed assets turnover 6.4x Total assets turnover 2.1x Debt ratio 82.8% TIE -1.0x EBITDA coverage 0.1x Profit margin -2.7% ROA -5.6% ROE -32.5% Price/earnings -1.4x Price/cash flow -5.2x Market/book 0.5x Book value per share $4.93 Note: "E indicates estimated. The 2006 data are forecasts. a Calculation is based on a 365-day year. 2004 2.3x 0.8x 4.8x 37.4 91.1 18.6 10.0x 2.3x 54.8% 4.3x 3.0x 2.6% 6.0% 13.3% 9.7x 8.0x 1.3x $6.64 Industry Average 2.7x 1.0x 6.1x 32.0 70.0 30.0 7.0x 2.6x 50.0% 6.2x 8.0x 3.5% 9.1% 18.2% 14.2x 11.0x 2.4x n.a

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