Part 4 Ch 11

Part 4 Ch 11 - CHAPTER 11 INTEGRATIVE PROBLEM 11-23 DONNA...

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CHAPTER 11 INTEGRATIVE PROBLEM 149 11-23 DONNA JAMISON WAS RECENTLY HIRED AS A FINANCIAL ANALYST BY COMPUTRON INDUSTRIES, 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 2005 2004 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: ACCUMULATED 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 ACCRUALS 140,000 136,000 TOTAL CURRENT LIABILITIES $ 540,200 $ 481,600 LONG-TERM DEBT 424,612 323,432 COMMON STOCK 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 2005 2004 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 ) EBT $ 73,700 $ 146,600 TAXES (40%) ( 29,480 ) ( 58,640 ) NET INCOME $ 44,220 $ 87,960 EPS $0.442 $0.880
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STATEMENT OF CASH FLOWS (2005) OPERATING ACTIVITIES: NET INCOME $ 44,220 OTHER ADDITIONS (SOURCES OF CASH): DEPRECIATION 20,000 INCREASE IN ACCOUNTS PAYABLE 29,600 INCREASE IN ACCRUALS 4,000 SUBTRACTIONS FROM NET INCOME: INCREASE IN ACCOUNTS RECEIVABLE ( 50,800) INCREASE IN INVENTORY ( 120,800 ) NET CASH FLOW FROM OPERATIONS ($ 73,780) LONG-TERM INVESTING ACTIVITIES: INVESTMENT IN FIXED ASSETS ( 36,000) FINANCING ACTIVITIES: INCREASE IN NOTES PAYABLE $ 25,000 INCREASE IN LONG-TERM DEBT 101,180 PAYMENT OF CASH DIVIDENDS ( 22,000 ) NET CASH FLOW FROM FINANCING $104,180 NET CHANGE IN CASH ACCOUNT ($ 5,600) CASH AT BEGINNING OF YEAR 57,600 CASH AT END OF YEAR $52,000 OTHER DATA 2005 2004 DECEMBER 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 2005: RATIO INDUSTRY AVERAGE CURRENT 2.7 x QUICK 1.0 x INVENTORY TURNOVER 6.0 x DAYS SALES OUTSTANDING (DSO) 32.0 DAYS FIXED ASSETS TURNOVER 10.7 x TOTAL ASSETS TURNOVER 2.6 x DEBT RATIO 50.0% TIE 2.5 x FIXED CHARGE COVERAGE 2.1 x PROFIT MARGIN 3.5% ROA 9.1% ROE 18.2% PRICE/EARNINGS 14.2 x MARKET/BOOK 1.4 x 150
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ANSWER : Begin by reviewing briefly what balance sheets and income statements are. Then give an overview of the statement of cash flows. Explain that some data (net income, depreciation, and dividends) come from the income statement, while the other items reflect differences between balance sheet accounts and thus show changes in those accounts between the two dates. The cash flow statement highlights some important aspects of Computron’s financial condition. First,
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Part 4 Ch 11 - CHAPTER 11 INTEGRATIVE PROBLEM 11-23 DONNA...

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