Use the following websites for figures to answer questions b through j: http://w
ID: 2705640 • Letter: U
Question
Use the following websites for figures to answer questions b through j:
http://investing.money.msn.com/investments/key-ratios?symbol=eat&page=PriceRatios
Note:
B. Calculate the 2011 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company's liquidity position in 2009, 2010 and as projected for 2011? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?
C. Calculate the 2011 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Brinker's utilization of assets stack up against that of other firms in its industry?
D. Calculate the 2011 debt, times-interest-earned, and EBITDA coverage ratios. How does Brinker compare with the industry with respect to financial leverage? What can you conclude from these ratios?
E. Calculate the 2011 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
F. Calculate the 2011 price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?
G. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Brinker?
H. Use the extended Du Pont equation to provide a summary and overview of Brinker's financial condition as projected for 2011. What are the firm's major strengths and weaknesses?
I. What are some potential problems and limitations of financial ratio analysis?
J. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance?
Explanation / Answer
Balance Sheets
2009 2010 2011E
Assets:
Cash $9,000 $7,282 $14,000
Short-term inv estments 48,600 20,000 71,632
Accounts receiv able 351,200 632,160 878,000
Inv entories 715,200 1,287,360 1,716,480
Total current assets $1,124,000 $1,946,802 $2,680,112
Gross fixed assets $491,000 $1,202,950 $1,220,000
Less: Accumulated depreciation 146,200 263,160 383,160
Net Fixed Assets 344,800 939,790 836,840
$1,468,800 $2,886,592 $3,516,952
Total assets
Liabilities:
Accounts payable $145,600 $324,000 $359,800
Notes payable 200,000 720,000 300,000
Accruals 136,000 284,960 380,000
Total current liabilities $481,600 $1,328,960 $1,039,800
Long-term debt $323,432 $1,000,000 $500,000
Total long-term liabilities $323,432 $1,000,000 $500,000
Common stock (100,000 shares) 460,000 460,000 1,680,936
Retained earnings $203,768 $97,632 $296,216
Total equity $663,768 $557,632 $1,977,152
$1,468,800 $2,886,592 $3,516,952
Total liabilities and owners' equity
Income Statements
2009 2010 2011E
Sales $3,432,000 $5,834,400 $7,035,600
Cost of goods sold $2,864,000 $4,980,000 $5,800,000
Other expenses 340,000 720,000 612,960
Depreciation expense 18,900 116,960 120,000
Total operating costs $3,222,900 $5,816,960 $6,532,960
EBIT $209,100 $17,440 $502,640
Interest expense 62,500 176,000 80,000
EBT $146,600 ($158,560) $422,640
Taxes (40%) 58,640 (63,424) 169,056
Net income $87,960 ($95,136) $253,584
Other Data
2009 2010 2011E
Stock price $8.50 $6.00 $12.17
Shares outstanding 100,000 100,000 250,000
EPS $0.880 ($0.951) $1.014
DPS $0.220 $0.110 $0.220
Tax rate 40% 40% 40%
Book v alue per share $6.638 $5.576 $7.909
Lease payments $40,000 $40,000 $40,000
Ratio Analysis
2009 2010 2011E Industry Average
Current 2.3 1.5 2.7
Quick 0.8 0.5 1.0
Inv entory turnov er 4.8 4.5 6.1
Days sales outstanding 37.3 39.6 32.0
Fixed assets turnov er 10.0 6.2 7.0
Total assets turnov er 2.3 2.0 2.5
Debt ratio 54.8% 80.7% 50.0%
TIE 3.3 0.1 6.2
EBITDA cov erage 2.6 0.8 8.0
Profit margin 2.6% -1.6% 3.6%
Basic earning power 14.2% 0.6% 17.8%
ROA 6.0% -3.3% 9.0%
ROE 13.3% -17.1% 17.9%
Price/Earnings P/E 9.7 -6.3 16.2
Price/Cash flow 8.0 27.5 7.6
Market/Book 1.3 1.1 2.9
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