Griffin and Lasky, Inc. (G&L), supplies industrial automation equipment and mach
ID: 2817187 • Letter: G
Question
Griffin and Lasky, Inc. (G&L), supplies industrial automation equipment and machine tools to the automotive industry. G&L uses the percentage of completion method for recognizing revenue on its long-term contracts. Customer orders have long lead times because they involve multiyear capital investment programs. Sometimes orders are canceled. Selected items from the company’s financial statements follow.
Required:
Compute earnings before interest, taxes, depreciation, and amortization (EBITDA) and adjusted EBITDA—after excluding the plant write-down—for each year in the schedule.
Are profits at G&L keeping pace with sales?
Compute the days receivables outstanding using year-end receivables for each year in the schedule. Assume 365 days as year.
($ in millions) 2012 2013 2014 Sales $ 571.5 $ 619.5 $ 730.6 Accounts receivable—billed 141.6 94.5 147.9 Accounts receivable—unbilled 104.5 249.4 202.7 Total accounts receivable 246.1 343.9 350.6 Inventory 57.4 74.8 102.3 Earnings before interest and taxes (EBIT) 74.8 75.8 38.1 Depreciation and amortization 14.8 15.4 19.3 Plant write-down 0 0 30.3Explanation / Answer
EBITDA = EBIT + Depreciation and Amortization
Adjusted EBITDA = EBIT + Depreciation and Amortization + plant write down
Adjusted EBITDA to sales ratio will tell whether profits at G&L keeping pace with sales.
Days receivables outstanding = 365 * total account receivables/sales
Please find the following table with all the ratios.
Adjusted EBITDA/sales ratio is decreasing thus it profit is not in pace with sales.
$ in millions) 2012 2013 2014 Sales 571.5 619.5 730.6 Accounts receivable—billed 141.6 94.5 147.9 Accounts receivable—unbilled 104.5 249.4 202.7 Total accounts receivable 246.1 343.9 350.6 Inventory 57.4 74.8 102.3 Earnings before interest and taxes (EBIT) 74.8 75.8 38.1 Depreciation and amortization 14.8 15.4 19.3 Plant write-down 0 0 30.3 EBITDA 89.6 91.2 57.4 Adjusted EBITDA 89.6 91.2 87.7 Adjusted EBITDA/Sales 15.68% 14.72% 12.00% Days receivables outstanding 157.18 202.62 175.16Related Questions
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