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Hemingway Corporation manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in the United States. The company is considering expanding its operations worldwide to boost its income and cash flows. The expansion project will require the company to raise $100 million capital to finance the project. Mike Schenk, MBA has been hired to assist the company with the preparation of financial statement analysis and to suggest actions needed to raise the needed funds. Schenk is directed to send copies of the financial statement analysis to management of the company, potential lenders, and strategic investors. The balance sheet and income statement for the company are shown below. Balance Sheet (Millions of Dollars) 2019 2020 2021 Est. Assets Cash and equivalents 62 52 52 Short-term investments 102 12 52 Accounts receivable 402 522 532 Inventories 640 840 680 Total current assets 1,206 1,426 1,316 Net fixed assets 2,920 3,520 3,720 Total assets 4,126 4,946 5,036 Liabilities and equity Accounts payable 330 430 365 Notes payable 182 252 120 Accruals 200 240 272 Total current liabilities 712 922 757 Long-term bonds 800 1,100 1,100 Total liabilities 1,512 2,022 1,857 Common stock (100,000 shares) 1,000 1,000 1,000 Retained earnings 1,650 1,924 2,216 Total common equity 2,650 2,924 3,216 Total liabilities and equity 4,126 4,946 5,036 Income Statement (millions of Dollars) 2019 2020 2021Est. Net sales 7,000 6,500 4,400 7,600 5,320 4,800 292 322 372 Cost of goods sold Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest 360 400 410 1,448 1,498 1,478 108 68 100 1,380 1,370 1,398 Pre-Tax earnings Taxes (25%) 345 343 350 1.035 1.028 1.049 Net Income Industry average for selected ratios Profit margin Operating profit margin Basic Earning power ROA ROE P/E ratio 16.0% 22.0% 35.5% 25.6% 36.5% 9.4 Inventory turnover Fixed assets turnover Total assets turnover Current Quick Debt ratio 6.0 2.3 1.6 2 0.85 30.0% 8. Mike Schenk is using the extended Dupont equation to predict the Return on Equity (ROE) for Hemingway Corporation for 2022. He forecasts the following ratios for 2022. Ratio Profit margin Total assets turnover Equity multiplier 16.0% 1.6 1.7 Calculate the Return on Equity (ROE) for Hemingway Corporation for 2022. 9. Mike Schenk explains to the CEO that although financial ratio provides useful information concerning the company's operation, it has limitations that necessitate care and judgment. Identify four limitations of ratio analysis that Mike is addressing. 10. In the report sent to investors and credit lenders, Mike indicated that financial statement analysis goes beyond comparing ratios, and that qualitative factors must be considered as well. Identify five such qualitative factors that the users of the financial statement should consider when evaluating the company's future financial performance

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