Donna Jamison was recently hired as a financial anaylst by Computeon Industries, a manufacturer of electronic...

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Finance

Donna Jamison was recently hired as a financial anaylst byComputeon Industries, a manufacturer of electronic components. Herfirst task was ri cinduct a financial analysis of the firm coveringthe last two years. To begin, she gathered the following financialstatements and other data.
Balance sheets 2015 2016
Assets
Cash $52,000. 57,600
Accounts receivable. $402,000. 351,200
Inventories. 836,000. 715,200
Total current assets. $1,290,000. 1,124,000
Gross fixed assets. 527,000. 491,000
Less accumlated
depreciation. $166,200. 146,200
Net fixed assets. 360,800. 344,800
Total assets. $1,650,800. 1,468,800

Liabilities and equity
Accounts payable. $175,200. 145,600
Notes payable. 225,000. 200,000
Accurals. 140,000. 136,000
Total current liabilities. 540,200. 481,600
Long term debt. 424,612. 323,432
Commonstock (100,000
shares. 460,000. 460,000
Retained earnings. 225,988. 203,768
Total equity. 685,988. 663,768
Total liabilities and equity. 1,650,800. 1,468,800

Income statements. 2016. 2015
Sales. $3,850,000. 3,432,000
Cost of goods sold. (3,250,000). (2,864,000)
Other expenses. (430,300). (340,000)
Depreciation. (20,000). (18,900)
Total operating costs. $3,700,300. 3,222,900
EBIT. 149,700. 209,100
Interest expense. (76,000). (62,500)
EBIT. 73,700. 146,600
Taxes (40%). (29,480). (58,640)
Net income. 44,220. 87,960
EPS. 0.442. 0.880

Statement of cash Flows (2016)
Operating Activities
Net income. 44,220
Other additions (source of
cash
Depreciation. 20,000
Increase in accounts
payable. 29,600
Increase in accruals. 4,000
Subtractions (uses of cash)
Increase in accounts receivable (50,800)
Increase in inventorties. (120,800)
Net cash flow from operations (73,780)

Long Term Investing Activities
Investment in fixed assets. (36,000)

Financing Activities
Increasebin notes payable. $25,000
Increase in long-term debt. $101,180
Paymentbof cash dividends. (22,000)
Net cash flow from financing. $104,180
Net reductionbin cash accoont. (5,600)
Cash at beginning of year. 57,600
Cash at end of year. 52,000

Other Data. 2016. 2015
Decenber 31 stock price. $6.00. $8.50
Number of shares. 100,000. 100,000
Dividends per share. $.0.22. $0.22
Lease payments. $40,000. $40,000

Industry average data for 2016.
Ratio. Industry Average
Current. 2.7x
Quick. 1.0x
Inventory turnover. 6.0x
Days sales outstanding (DSO). 32.0 days
Fixed assets turnover. 10.7x
Total assets turnover. 2.6x
Debt ratio. 50.0%
TIE. 2.5x
Fixed charge coverage. 2.1x
Net profit margin. 3.5%
ROA. 9.1%
ROE. 18.2%
Price/earnings. 14.2x
Market/book. 1.4x

Assume that you are Donna Jamison’s assistant and that she hasasked you to help her prepare a report that evaluates the company’sfinancial condition. Answer the following questions:
a. What can you conclude about the cimpany’s financialcondition from its statement of cash flows?
b. What is the purpose of financial ratio analysis, and whatare the five major categories of ratios?
c. What are Computrons current and quick ratios? What do theytell you about the company’s liquidity position?
d. What is Computron’s inventory turnover, day’s salesoutstanding, fixed assets turnover and total assets turnoverratios? How doesnthe firm’s utilization of assetz stack up againstthat of the industry?
e. What are the firm’s debt, times-interest-earned, and fixedcharge coverage ratios? How does Computron comparebto the industrywith respect to financial leverage? What conclusions can youdrawnfrom these ratios?
f. Calculate and discussnthe firm’s profitability ratios- thatis, its net profit margin, return on assets (ROA), and return onequity (ROE).

Answer & Explanation Solved by verified expert

3.7 Ratings (340 Votes)

A AS PER THE STATEMENT OF CASH FLOW THE MANAGEMENT OF THE COMPANY IS NOT ABLE TO WORK EFFECTIVELY AND EFFICIENTLY WITH REGARDS TO GENERATING CASH FLOWS FROM OPERATIONS ONE OF THE CORE REASON IS LOW PROFIT ACCOMPANIED WITH THE LOOSE CREDIT POLICY WHICH HAVE RESULTED INTO LARGE DEBTORSSUBSEQUENTLY INCREASING THE RISK OF BAD DEBTS OTHER PROMINENT REASON FOR LOW NEGATIVE CASH FLOW IS THE INCREASE IN INVENTORY HIGHLIGHTING THE MANAGEMENTS INEFFICIENCY TO SELL THE GOODS IN THE MARKET THE COMPANY IS INVESTING IN THE FIXED ASSETS HIGHLIGHTING THE COMPANYS GOING CONCERN IN FUTURE TO MEET THE FINANCIAL GAP CREATED DUE TO See Answer

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Transcribed Image Text

Donna Jamison was recently hired as a financial anaylst byComputeon Industries, a manufacturer of electronic components. Herfirst task was ri cinduct a financial analysis of the firm coveringthe last two years. To begin, she gathered the following financialstatements and other data.Balance sheets 2015 2016AssetsCash $52,000. 57,600Accounts receivable. $402,000. 351,200Inventories. 836,000. 715,200Total current assets. $1,290,000. 1,124,000Gross fixed assets. 527,000. 491,000Less accumlateddepreciation. $166,200. 146,200Net fixed assets. 360,800. 344,800Total assets. $1,650,800. 1,468,800Liabilities and equityAccounts payable. $175,200. 145,600Notes payable. 225,000. 200,000Accurals. 140,000. 136,000Total current liabilities. 540,200. 481,600Long term debt. 424,612. 323,432Commonstock (100,000shares. 460,000. 460,000Retained earnings. 225,988. 203,768Total equity. 685,988. 663,768Total liabilities and equity. 1,650,800. 1,468,800Income statements. 2016. 2015Sales. $3,850,000. 3,432,000Cost of goods sold. (3,250,000). (2,864,000)Other expenses. (430,300). (340,000)Depreciation. (20,000). (18,900)Total operating costs. $3,700,300. 3,222,900EBIT. 149,700. 209,100Interest expense. (76,000). (62,500)EBIT. 73,700. 146,600Taxes (40%). (29,480). (58,640)Net income. 44,220. 87,960EPS. 0.442. 0.880Statement of cash Flows (2016)Operating ActivitiesNet income. 44,220Other additions (source ofcashDepreciation. 20,000Increase in accountspayable. 29,600Increase in accruals. 4,000Subtractions (uses of cash)Increase in accounts receivable (50,800)Increase in inventorties. (120,800)Net cash flow from operations (73,780)Long Term Investing ActivitiesInvestment in fixed assets. (36,000)Financing ActivitiesIncreasebin notes payable. $25,000Increase in long-term debt. $101,180Paymentbof cash dividends. (22,000)Net cash flow from financing. $104,180Net reductionbin cash accoont. (5,600)Cash at beginning of year. 57,600Cash at end of year. 52,000Other Data. 2016. 2015Decenber 31 stock price. $6.00. $8.50Number of shares. 100,000. 100,000Dividends per share. $.0.22. $0.22Lease payments. $40,000. $40,000Industry average data for 2016.Ratio. Industry AverageCurrent. 2.7xQuick. 1.0xInventory turnover. 6.0xDays sales outstanding (DSO). 32.0 daysFixed assets turnover. 10.7xTotal assets turnover. 2.6xDebt ratio. 50.0%TIE. 2.5xFixed charge coverage. 2.1xNet profit margin. 3.5%ROA. 9.1%ROE. 18.2%Price/earnings. 14.2xMarket/book. 1.4xAssume that you are Donna Jamison’s assistant and that she hasasked you to help her prepare a report that evaluates the company’sfinancial condition. Answer the following questions:a. What can you conclude about the cimpany’s financialcondition from its statement of cash flows?b. What is the purpose of financial ratio analysis, and whatare the five major categories of ratios?c. What are Computrons current and quick ratios? What do theytell you about the company’s liquidity position?d. What is Computron’s inventory turnover, day’s salesoutstanding, fixed assets turnover and total assets turnoverratios? How doesnthe firm’s utilization of assetz stack up againstthat of the industry?e. What are the firm’s debt, times-interest-earned, and fixedcharge coverage ratios? How does Computron comparebto the industrywith respect to financial leverage? What conclusions can youdrawnfrom these ratios?f. Calculate and discussnthe firm’s profitability ratios- thatis, its net profit margin, return on assets (ROA), and return onequity (ROE).