(also cited as Case 35 in original casebook)
Topic – Financial Analysis and Forecasting
(15th edition – textbook)
Omit 10.
62-78. Please fill in Xs. Divide accounts by total assets in Table 1 to get Xs in Table 3 for 1992. Example: In Table 3 for 1992, accounts receivable = 30.55% = 29,357/96,102
Divide accounts by net sales in Table 2 to get Xs in Table 4 for 1992. Examples: In Table 4 for 1992, cost of goods sold = 166,837/195,732 = 85.24%; depreciation = 2,040/195,732 = 1.04%
Subtract accounts in 1992 from 1991 in Table 1 to get Xs in Table 5 for 1992. These are either increases/decreases (uses/sources) in cash. Example: in Table 5, increase in receivables = 29,357 (1992) – 18,462 (1991) = 10,895. For other numbers, add/subtract numbers in Table 5. Example: (Sales) 195,732 – 10,895 (increase in receivables) = 184,837 (cash sales).
For Table 6, see pages 68 and 74 for income statement and balance sheet examples. Example: In Table 6, current ratio = 79,922/45562 = 1.75 (see Table 1 for balance sheet), 108 and 129 in textbook; debt ratio – 116; total assets turnover – 113; return on total assets – 119
Altman Z factor – see casebook footnote d in Table 6- for 1992 as an example – .012 X (79922 – 45562) (net working capital = current assets – current liabilities) / 96102 + .014 X 15368 / 96102 + .033 X 4249/96102 + .006 X 3.67 X 3500 (12845 – see Table 1 in casebook – footnotes a and b – market value = market price of shares X shares) / 57465 + .999 X 195732/96102 = 2.97 (First 4 factors (X1-X4) are in % – move decimal 2 places to the right – ex. – .012 becomes 1.2)
See ratios in Chapter 4 in textbook
DuPont Equation – 124. 105-35 – Chapter 4 in textbook.
Your opinion / no textbook example
Fill in the Xs. Do income statement first. Fill in blanks in order that you can figure them out. I suggest you do them in the following order on the balance sheet: accounts receivable, inventory, short term bank loans, current liabilities, total liabilities, retained earnings, total equity, total liabilities and equity, total assets, current assets, cash and marketable securities.
Examples: Net sales 1993 = 195732 X 1.1 = $215,305
Cost of goods sold 1993 = 215305 X .825 = $177,627
Administrative and selling expenses 1993 = 215305 X .08 = $17,224
Miscellaneous expenses 1993 = 215305 X 0.0175 = 3,768
Interest on LT loans 1993 = 9563 X 10% = 956 (see Table 1 and footnote b in Table 2)
Addition to retained earnings 1993 = 6,099 – 0 = $6,099
Accounts receivable 1993 = (215305 X 32) / 360 = $19,138
Inventory 1993 = 177629/5.7 = $31,163
Short-term bank loans 1993 = 18,233 + 6375 = $24,608
Current assets 1993 = total assets – net fixed assets = 106,307 – 20,132 = 86,175
Retained earnings 1993 = 15,368 + 6,099 = 21,467
Example: in Table 6, 1993 current ratio = 86,175 / 49,904 = 1.73. See Tables 1 and 2 in casebook. 108 and 129 in textbook. For 1994, current ratio = 103,208 / 53,029 = 1.95.
For pro forma ratios
Current ratio – page 108
Quick ratio – page 110
Debt ratio – 116
TIE coverage – 116
Inventory turnover (sales) – 111
Total assets turnover – 113
DSO (ACP) – 112
Profit margin – 118
ROE – 119
Payout ratio – casebook or dividends / net income
Table 6 footnote d in casebook.
Example: optimal cash balance 1993 = 215,305 X .05 = $10,765. Excess funds invested in marketable securities = 35,874 – 10,765 = $25,109.
See 1993 balance sheet for amount owed and answer to question 5—could use excess funds.
Your opinion / no textbook example
131-3
Do income statement first (see Table 2 for example). Fill in blanks in order that you can figure them out. Make out Tables 7-9 for revisions. Example: 1993 interest on short term loans changes (see casebook) which changes numbers below it in the income statement: 24,608 / 2 X .12 = 1,476. For the revised pro forma balance sheet, short term bank loans (see Table 1 for example) = 24608 – 24608 = 0. The following accounts change (I suggest you do them in order): short term bank loans, current liabilities, total liabilities, retained earnings, total equity, total liabilities and equity, total assets, current assets, cash and marketable securities. 1994 interest on short-term bank loans = $0 (paid off in 1993).
For revised pro forma ratios (can be Table 9). 120.
Current ratio for 1993 = (example) 60707/25296 = 2.40
for 1994 = 75775/28421 = 2.67 (page 108)
Quick ratio – page 110
Debt ratio – 116
TIE coverage – 116
Inventory turnover (cost) – 111 (substitute cost of goods sold for sales)
Inventory turnover (sales) – 111
Fixed assets turnover – 113
Total assets turnover – 113
DSO (ACP) – 112
Profit margin – 118
Gross PM – gross profit / sales
Return on total assets – 119
ROE – 119
Altman Z factor – Casebook – use P/Es (given in case for 1993and 1994) X net income to get market value of stock
Payout ratio – casebook question 9b or dividends / net income
Your opinion / no textbook example
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