MINI CASE: The first part of the case, presented in Chapter 7, discussed the sit
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Question
MINI CASE:
The first part of the case, presented in Chapter 7, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2012, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.
Jenny Cochran was brought in as assistant to Gary Meissner, Computron's chairman, who had the task of getting the company back into a sound financial position. Computron's 2011 and 2012 balance sheets and income statements, together with projections for 2013, are shown in the following tables. The tables also show the 2011 and 2012 financial ratios, along with industry average data. The 2013 projected financial statement data represent Cochran's and Meissner's best guess for 2013 results, assuming that some new financing is arranged to get the company “over the hump.”
Mini Case: (Chapter 7).
Balance Sheet
2011
2012
2013
Assets
Cash
$9,000
$7,282
$14,000
Short-term investments
48,000
20,000
71,632
Accounts receivable
351,200
632,160
878,000
Inventories
751,200
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
$39,790
$36,840
Total assets
$1,468,800
$2,886,592
$,516,952
2011
2012
2013
Liabilities & Equity
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
Common stock (100,000 shares)
460,800
460,000
1,680,936
Retained earnings’
203,768
97,632
296,216
Total equity
$663,768
$557,632
$1,977,152
Total liabilities & Equity
$1,468,800
$2,886,592
$3,516,952
Note: “E” denotes, “estimated”; the 2013 data for forecasts.
Income Statement
2011
2012
2013
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 & Amortization
18,900
116,960
120,000
Total operating Cost
$3,222,900
$5,816,960
$6,532,962
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
Stock price
$8.50
$6.00
$12.17
Shares outstanding
100,000
100,000
250,000
2011
2012
2013E
EPS
$0.880
($0.951)
$1.014
DPS
$0.220
0.110
0.220
Tax rate
40%
40%
40%
Book value per share
$6.638
$5.576
$7.909
Lease payment
$40,000
$40,000
$40,000
Note: “E” denotes “estimated”; the 2013 data are forecasts.
Ratio Analysis
2011
2012
2013E
Industry Average
Current
2.3
1.5
------------------
2.7
Quick
0.8
0.5
------------------
1.0
Inventory turnover
4.8
4.5
------------------
6.1
Days sales outstanding
37.3
39.6
------------------
32.0
Fixed assets turnover
10.0
6.2
-----------------
7.0
Total assets turnover
2.3
2.0
---------------
2.5
Debt ratio
54.8%
80.7%
--------------
50.0%
TIE
3.3
0.1
--------------
6.2
EBITDA Coverage
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
Note: “E” denotes “estimated.”
Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers.
Answer just the question below!!
g. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Computron?
I need this answered like ASP!!
Balance Sheet
2011
2012
2013
Assets
Cash
$9,000
$7,282
$14,000
Short-term investments
48,000
20,000
71,632
Accounts receivable
351,200
632,160
878,000
Inventories
751,200
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
$39,790
$36,840
Total assets
$1,468,800
$2,886,592
$,516,952
2011
2012
2013
Liabilities & Equity
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
Common stock (100,000 shares)
460,800
460,000
1,680,936
Retained earnings’
203,768
97,632
296,216
Total equity
$663,768
$557,632
$1,977,152
Total liabilities & Equity
$1,468,800
$2,886,592
$3,516,952
Note: “E” denotes, “estimated”; the 2013 data for forecasts.
Income Statement
2011
2012
2013
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 & Amortization
18,900
116,960
120,000
Total operating Cost
$3,222,900
$5,816,960
$6,532,962
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
Stock price
$8.50
$6.00
$12.17
Shares outstanding
100,000
100,000
250,000
2011
2012
2013E
EPS
$0.880
($0.951)
$1.014
DPS
$0.220
0.110
0.220
Tax rate
40%
40%
40%
Book value per share
$6.638
$5.576
$7.909
Lease payment
$40,000
$40,000
$40,000
Note: “E” denotes “estimated”; the 2013 data are forecasts.
Ratio Analysis
2011
2012
2013E
Industry Average
Current
2.3
1.5
------------------
2.7
Quick
0.8
0.5
------------------
1.0
Inventory turnover
4.8
4.5
------------------
6.1
Days sales outstanding
37.3
39.6
------------------
32.0
Fixed assets turnover
10.0
6.2
-----------------
7.0
Total assets turnover
2.3
2.0
---------------
2.5
Debt ratio
54.8%
80.7%
--------------
50.0%
TIE
3.3
0.1
--------------
6.2
EBITDA Coverage
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
Note: “E” denotes “estimated.”
Explanation / Answer
Ans;
For the common size balance sheets, divide all items in a year by the total
assets for that year. For the common size income statements, divide all
items in a year by the sales in that year.
Common Size Balance Sheets
Assets
2003 2004 2005e Ind.
Cash 0.6% 0.3% 0.4% 0.3%
Short Term Investments 3.3% 0.7% 2.0% 0.3%
Accounts Receivable 23.9% 21.9% 25.0% 22.4%
Inventories 48.7% 44.6% 48.8% 41.2%
Total Current Assets 76.5% 67.4% 76.2% 64.1%
Gross Fixed Assets 33.4% 41.7% 34.7% 53.9%
Less Accumulated Depreciation 10.0% 9.1% 10.9% 18.0%
Net Fixed Assets 23.5% 32.6% 23.8% 35.9%
Total Assets 100.0% 100.0% 100.0% 100.0%
Liabilities And Equity 2003 2004 2005e Ind.
Accounts Payable 9.9% 11.2% 10.2% 11.9%
Notes Payable 13.6% 24.9% 8.5% 2.4%
Accruals 9.3% 9.9% 10.8% 9.5%
Total Current Liabilities 32.8% 46.0% 29.6% 23.7%
Long-Term Debt 22.0% 34.6% 14.2% 26.3%
Common Stock (100,000 Shares) 31.3% 15.9% 47.8% 20.0%
Retained Earnings 13.9% 3.4% 8.4% 30.0%
Total Equity 45.2% 19.3% 56.2% 50.0%
Total Liabilities And Equity 100.0% 100.0% 100.0% 100.0%
MALAYSIA ON ARAB CAMPUS BMMMF5103
Common Size Income Statement 2003 2004 2005e Ind.
Sales 100.0% 100.0% 100.0% 100.0%
Cost Of Goods Sold 83.4% 85.4% 82.4% 84.5%
Other Expenses 9.9% 12.3% 8.7% 4.4%
Depreciation 0.6% 2.0% 1.7% 4.0%
Total Operating Costs 93.9% 99.7% 92.9% 92.9%
EBIT 6.1% 0.3% 7.1% 7.1%
Interest Expense 1.8% 3.0% 1.1% 1.1%
EBT 4.3% -2.7% 6.0% 5.9%
Taxes (40%) 1.7% -1.1% 2.4% 2.4%
Net Income 2.6% -1.6% 3.6% 3.6%
Computron has higher proportion of inventory and current assets than
industry. Computron has slightly more equity (which means less debt)
than industry. Computron has more short-term debt than industry, but less
long-term debt than industry. Computron has lower COGS than industry,
but higher other expenses. Result is that Computron has similar EBIT as
industry.
For the percent change analysis, divide all items in a row by the value in
the first year of the analysis.
Percent Change Balance Sheets
Assets
2003 2004 2005e
Cash 0.0% -19.1% 55.6%
Short Term Investments 0.0% -58.8% 47.4%
Accounts Receivable 0.0% 80.0% 150.0%
Inventories 0.0% 80.0% 140.0%
Total Current Assets 0.0% 73.2% 138.4%
Gross Fixed Assets 0.0% 145.0% 148.5%
Less Accumulated Depreciation 0.0% 80.0% 162.1%
Net Fixed Assets 0.0% 172.6% 142.7%
Total Assets 0.0% 96.5% 139.4%
Liabilities And Equity 2003 2004 2005e
Accounts Payable 0.0% 122.5% 147.1%
Notes Payable 0.0% 260.0% 50.0%
Accruals 0.0% 109.5% 179.4%
Total Current Liabilities 0.0% 175.9% 115.9%
Long-Term Debt 0.0% 209.2% 54.6%
Common Stock (100,000 Shares) 0.0% 0.0% 265.4%
Retained Earnings 0.0% -52.1% 45.4%
Total Equity 0.0% -16.0% 197.9%
Total Liabilities And Equity 0.0% 96.5% 139.4%
MALAYSIA ON ARAB CAMPUS BMMMF5103
Percent Change Income Statement 2003 2004 2005e
Sales 0.0% 70.0% 105.0%
Cost Of Goods Sold 0.0% 73.9% 102.5%
Other Expenses 0.0% 111.8% 80.3%
Depreciation 0.0% 518.8% 534.9%
Total Operating Costs 0.0% 80.5% 102.7%
EBIT 0.0% -91.7% 140.4%
Interest Expense 0.0% 181.6% 28.0%
EBT 0.0% -208.2% 188.3%
Taxes (40%) 0.0% -208.2% 188.3%
Net Income 0.0% -208.2% 188.3%
We see that 2005 sales grew 105% from 2002, and that NI grew 188%
from 2003. So Computron has become more profitable. We see that total
assets grew at a rate of 139%, while sales grew at a rate of only 105%. So
asset utilization remains a problem.
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