J&H Corp. recently hired Jeffrey. His immediate mandate was to analyze the compa
ID: 2811620 • Letter: J
Question
J&H Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report orn the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages . Last year, J&H Corp. reported a book value of $350 million in current assets, of which 25% is cash, 27% is short-term investments, and the rest is accounts receivable and inventory . The company reported $297.5 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period . The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560 million in long-term assets last year Income Statement For the Year Ended on December 31 (Millions of dollars) Industry Average J&H Corp $1,500 1,200 60 1,260 $240 $1,875 1,500 75 1,575 $300 Net sales Operating costs, excluding depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income $216 86 130 $255 102 $153 Based on the information given to Jeffrey, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Which of the following statements in his report are true? Check all that applyExplanation / Answer
Statement 1
Non Bearing Current Assets = Total Current Assets – Short Term Investments
Non Bearing Current Assets = $350 million – $350 * 27%
Non Bearing Current Assets = $255.5 Million
Non Bearing Current Liabilities = $297.5 Million
Non Bearing Current Assets - Non Bearing Current Liabilities = -$42 Million
Statement 1 is true
Statement 2
NOPAT of J&H = Operating income – Operating Income * Tax
NOPAT of J&H = 240 – 240 * 40%
NOPAT of J&H = 240 – 96
NOPAT of J&H = $144 Million
NOPAT of industry = Operating income – Operating Income * Tax
NOPAT of industry = 300 – 300 * 40%
NOPAT of industry = 300 – 120
NOPAT of industry = $180 Million
Statement 2 is true
Statement 3
Operating Assets = Current Assets – Short term investment
Operating Assets = $350 – 94.5
Operating Assets = $255.5 Million
Operating Liabilities = $297.5 Million
Statement 3 is true
Statement 4
Net Operating Capital = Total Assets – Net Current assets
Net Operating Capital = 560 – 42
Net Operating Capital = $518 Million
Statement 4 is true
Statement 5 is False as the company can generate only $144 million of net profits when other companies are earnings on average $180 Million NOPAT
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