FINC 300 Study Guide - Quiz Guide: Profit Margin, Retained Earnings, Asset Turnover
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Document Summary
Cash inflow: occurs when we sell something; decrease in asset acct accts / rec; inventory; net fixed assets. Increase in liability or equity acct, notes payable; lt debt, common stock cash outflow: occurs when we buy something; increase in asset acct cash. & other current assets; decrease in liability or equity acct accts /payable; leases payable; notes payable; lt debt, stock repurchase; common and/or preferred dividends. Statement of cash flow-summarizes the sources and uses of cash; divided into three major categories: operating activity e. g. net income and changes in most current asset accts; investment activity e. g. Statement of cash flow-summarizes the sources and uses of cash; divided into three major categories: operating activity e. g. net income and changes in most current asset accts; investment activity e. g. changes in fixed assets; financing activity e. g. Ratio analysis: ratios allow for better comparison over time or between companies. For each ratio, consider what it"s trying to measure and importance of the information.
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Given the BS and IS for Simmons Mfg. Co., compute the ratios on the next page. For each ratio indicate if Simmons is doing better or worse than the industry average by providing an âxâ in the appropriate box. SHOW CALCULATIONS ON NEXT PAGE BELOW THE CHART. 15 points
SIMMONS MANUFACTURING COMPANY
Balance Sheet
Assets Liabilities and Stockholdersâ Equity
Cash $ 15,000 Accounts Payable $ 21,000
Accts. Receivable 22,000 Notes Payable 20,000
Inventory 30,000 Accrued Expenses 5,000
Current Assets 67,000 Current Liabilities 46,000
Net Fixed Assets 73,000 Long-Term Debt 30,000
Stockholdersâ Equity 64,000
Total Liabilities +
Total Assets $ 140,000 Stockholders equity $140,000
Income Statement
Sales (80% credit) $120,000
Less: COGS 45,000
Gross Profit 75,000
Selling & Administrative Expenses 20,000
Rent Expense (lease) 8,000
EBIT 47,000
Interest Expense 5,000
EBT 42,000
Taxes (25%) 10,500
Net Income $ 31,500
Common Shares outstanding 15,000
EPS $ 2.10
| Ratio | Ratio For Simmons | Industry Average Ratios | Better | Worse |
| Profit margin | 17.5% | |||
| Return on assets | 20.8% | |||
| Return on equity | 35% | |||
| Receivables Turnover | 4.44x | |||
| Avg. Collection Period | 68.0 days | |||
| Fixed asset turnover | 2.4x | |||
| Total asset turnover | .76x | |||
| Quick Ratio | .85 | |||
| Debt to Total Assets | .45 | |||
| Times interest earned | 12.0x |
| Joshua & White Technologies: December 31 Balance Sheets | ||||||
| (Thousands of Dollars) | ||||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | $21,000 | $20,000 | ||||
| Short-term investments | 3,759 | 3,240 | ||||
| Accounts Receivable | 52,500 | 48,000 | ||||
| Inventories | 84,000 | 56,000 | ||||
| Total current assets | $161,259 | $127,240 | ||||
| Net fixed assets | 218,400 | 200,000 | ||||
| Total assets | $379,659 | $327,240 | ||||
| Liabilities and equity | ||||||
| Accounts payable | $33,600 | $32,000 | ||||
| Accruals | 12,600 | 12,000 | ||||
| Notes payable | 19,929 | 6,480 | ||||
| Total current liabilities | $66,129 | $50,480 | ||||
| Long-term debt | 67,662 | 58,320 | ||||
| Total liabilities | $133,791 | $108,800 | ||||
| Common stock | 183,793 | 178,440 | ||||
| Retained Earnings | 62,075 | 40,000 | ||||
| Total common equity | $245,868 | $218,440 | ||||
| Total liabilities and equity | $379,659 | $327,240 | ||||
| Joshua & White Technologies December 31 Income Statements | ||||||
| (Thousands of Dollars) | ||||||
| 2010 | 2009 | |||||
| Sales | $420,000 | $400,000 | ||||
| Expenses excluding depr. and amort. | 327,600 | 320,000 | ||||
| EBITDA | $92,400 | $80,000 | ||||
| Depreciation and Amortization | 19,660 | 18,000 | ||||
| EBIT | $72,740 | $62,000 | ||||
| Interest Expense | 5,740 | 4,460 | ||||
| EBT | $67,000 | $57,540 | ||||
| Taxes (40%) | 26,800 | 23,016 | ||||
| Net Income | $40,200 | $34,524 | ||||
| Common dividends | $18,125 | $17,262 | ||||
| Addition to retained earnings | $22,075 | $17,262 | ||||
| Other Data | 2010 | 2009 | ||||
| Year-end Stock Price | $90.00 | $96.00 | ||||
| # of shares (Thousands) | 4,052 | 4,000 | ||||
| Lease payment (Thousands of Dollars) | $20,000 | $20,000 | ||||
| Sinking fund payment (Thousands of Dollars) | $0 | $0 | ||||
| Ratio Analysis | 2010 | 2009 | Industry Avg | |||
| Liquidity Ratios | ||||||
| Current Ratio | 2.38 | 2.52 | 2.58 | |||
| Quick Ratio | 1.17 | 1.41 | 1.53 | |||
| Asset Management Ratios | ||||||
| Inventory Turnover | 1.11 | 1.22 | 7.69 | |||
| Days Sales Outstanding | 45.63 | 43.80 | 47.45 | |||
| Fixed Assets Turnover | 1.92 | 2.00 | 2.04 | |||
| Total Assets Turnover | 3.81 | 5.64 | 1.23 | |||
| Debt Management Ratios | ||||||
| Debt Ratio | 32.1% | |||||
| Times-interest-earned ratio | 15.33 | |||||
| EBITDA coverage ratio | 4.18 | |||||
| Profitability Ratios | ||||||
| Profit Margin | 9.57% | 8.63% | 8.86% | |||
| Basic Earning Power | 19.16% | 18.95% | 19.48% | |||
| Return on Assets | 10.59% | 10.55% | 10.93% | |||
| Return on Equity | 21.87% | 19.35% | 16.10% | |||
| Market Value Ratios | ||||||
| Earnings per share | NA | |||||
| Price-to-earnings ratio | 10.65 | |||||
| Cash flow per share | NA | |||||
| Price-to-cash flow ratio | 7.11 | |||||
| Book Value per share | NA | |||||
| Market-to-book ratio | 1.72 | |||||
| a. Has Joshua & White's liquidity position improved or worsened? Explain. | ||||||
| The position of JW has worsend because there ration has fallen from 1.41 to 1.17 | ||||||
| b. Has Joshua & White's ability to manage its assets improved or worsened? Explain. | ||||||
| c. How has Joshua & White's profitability changed during the last year? | ||||||
| d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009. | ||||||
| ROE = | PM x | TA Turnover x Equity Multiplier | ||||
| 2010 | ||||||
| 2009 | ||||||
| e. Perform a common size analysis. What has happened to the composition | ||||||
| (that is, percentage in each category) of assets and liabilities? | ||||||
| Common Size Balance Sheets | ||||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Liabilities and equity | 2010 | 2009 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Common Size Income Statements | 2010 | 2009 | ||||
| Sales | ||||||
| Expenses excluding depr. and amort. | ||||||
| EBITDA | ||||||
| Depreciation and Amortization | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
| f. Perform a percent change analysis. What does this tell you about the change in profitability | ||||||
| and asset utilization? | ||||||
| Percent Change Balance Sheets | Base | |||||
| Assets | 2010 | 2009 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Base | ||||||
| Liabilities and equity | 2010 | 2009 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Base | ||||||
| Percent Change Income Statements | 2010 | 2009 | ||||
| Sales | ||||||
| Expenses excluding depr. and amort. | ||||||
| EBITDA | ||||||
| Depreciation and Amortization | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
