&H Corp. recently hired Jeffery. His immediate mandate was to analyze the compan
ID: 2820187 • Letter: #
Question
&H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate its 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 $350,000 in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory . The company reported $297,500 of current liabilities including accounts payable and accruals Interestingly, the company had no notes payable outstanding, and there were no changes in the company's accounts payable during the year The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560,000 for its long-term assets last year Income Statement For the Year Ended on December 31 Industry Average J&H Corp $49,000,000 $61,250,000 49,000,000 2,450,000 51,450,000 $9,800,000 1,470,000 $8,330,000 3,332,000 $4,998,000 Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest expense Earnings before taxes (EBT) Less: Taxes (40%) Net income 39,200,000 1,960,000 41,160,000 $7,840,000 784,000 $7,056,000 2,822,400 $4,233,600 Based on the information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Complete the following statements in his report. Statement #1: J&H Corp.'s NOPAT is which is lower than the industry average of Statement #2: The company has liabilities in operating assets and in operating Statement #3: J&H Corp. has in noncash charges, and a net cash flow of Statement #4:J&H Corp.'s total working capital and its total investment in long-term assets, is equal to , which consists of its net operatingExplanation / Answer
1. J&H Corp's NOPAT (Net operating profit after tax) is (7,840,000 *(1-40%)) = $4,704,000 which is lower than industry average of (9800000*(1-40%)) = $5,880,000
2. The company has $910,000 (350,000 + 560,000) in operating assets and $297,500 in operating liabilities
3. J&H has $1,960,000 in non cash charges, and net cash flow of $6,193,600 (4,233,600+1,960,000)
4. J&H Corp.'s total $52,500 (350,000 - 297,500), which consist of its net operating working capital and its total investment in long term assets, is equal to $560,000
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