Project #34941 - Finance

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. 

Use the following information for Questions 1 through 8: 

Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of questions you must answer. 

 

Income Statements and Balance Sheet 

Balance Sheet 2012 2013 

Cash $9,000 $7,282 

Short-term investments 48,600 20,000 

Accounts receivable 351,200 632,160 

Inventories 715,200 1,287,360 

Total current assets $1,124,000 $1,946,802 

Gross fixed assets 491,000 1,202,950 

Less: Accumulated depreciation 146,200 263,160 

Net fixed assets $344,800 $939,790 

Total assets $1,468,800 $2,886,592 

Liabilities and Equity 

Accounts payable $145,600 $324,000 

Notes payable 200,000 720,000 

Accruals 136,000 284,960 

Total current liabilities $481,600 $1,328,960 

Long-term debt 323,432 1,000,000 

Common stock (100,000 

shares) 

460,000 460,000 

Retained earnings 203,768 97,632 

Total equity $663,768 $557,632 

Total liabilities and equity $1,468,800 $2,886,592 

 

Income Statements 2012 2013 

Sales $3,432,000 $5,834,400 

Cost of goods sold except depr. 2,864,000 4,980,000 

Depreciation and amortization 18,900 116,960 

Other expenses 340,000 720,000 

Total operating costs $3,222,900 $5,816,960 

EBIT $209,100 $17,440 

Interest expense 62,500 176,000 

EBT $146,600 ($158,560) 

Taxes (40%) 58,640 -63,424 

Net income $87,960 ($95,136) 

Other Data 2012 2013 

Stock price $8.50 $6.00 

Shares outstanding 100,000 100,000 

EPS $0.88 ($0.95) 

DPS $0.22 0.11 

Tax rate 40% 40% 

Book value per share $6.64 $5.58 

Lease payments $40,000 $40,00

Ratio Analysis 2012 2013 

Current 2.3 1.5 

Quick 0.8 0.5 

Inventory turnover 4 4 

Days sales outstanding 37.3 39.6 

Fixed assets turnover 10 6.2 

Total assets turnover 2.3 2 

Debt ratio 35.60% 59.60% 

Liabilities-to-assets ratio 54.80% 80.70% 

TIE 3.3 0.1 

EBITDA coverage 2.6 0.8 

Profit margin 2.60% −1.6% 

Basic earning power 14.20% 0.60% 

ROA 6.00% −3.3% 

ROE 13.30% −17.1% 

Price/Earnings (P/E) 9.7 −6.3 

Price/Cash flow 8 27.5 

Market/Book 1.3 1.1 

 

1. What is the free cash flow for 2013? 

 

2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No 

changes in operations occurred. What would happen to reported profit and to net cash flow? 

 

3. Calculate the 2013 current and quick ratios based on the projected balance sheet and income 

statement data. What can you say about the company’s liquidity position in 2013? 

 

4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. 

 

5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA 

coverage ratios. What can you conclude from these ratios? 

 

6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios? 

 

7. Calculate the 2013 price / earnings ratio, price / cash flow ratio, and market / book ratio. 

 

 

 

Subject Business
Due By (Pacific Time) 07/11/2014 12:00 am
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