FIN 2800 Lecture 1: Class Notes
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Analysis of Financial Statements
Balance Sheets
EXHIBITS: INPUT DATA (XYZ)
Table 1 Balance Sheets
| Assets | 2013E | 2012 | 2011 |
| cash | $ 85,632 | $7,282 | $57,600 |
| Acount Receivable | 878,000 | 632,160 | 351,200 |
| Inventories | 1,716,480 | 1,287,360 | 715,200 |
| Total current assets | $2,680,112 | $1,926,802 | $ 1,124,000 |
| Gross fixed assets | 1,197,160 | 1,202,950 | 491,000 |
| Less: accumulated depreciation | 380,120 | 263,160 | 146,200 |
| Net fixed assets | $ 817,040 | $ 939,790 | $ 344,800 |
| Total assets | $3,497,152 | $2,866,592 | $ 1,468,800 |
| Liabilities and equity | |||
| Accounts payable | $ 436,800 | $ 524,160 | $ 145,600 |
| Notes payable | 300,000 | 636,808 | 200,000 |
| Accruals | 408,000 | 489,600 | 136,000 |
| Total current liabilities | $1,144,800 | $1,650,568 | $ 481,600 |
| Long term bonds | 400,000 | 723,432 | 323,432 |
| Total debt | $1,544,800 | $2,374,000 | $ 805,032 |
| Common stock (100,000 shares) | 1,721,176 | 460,000 | 460,000 |
| Retained earnings | 231,176 | 32,592 | 203,768 |
| Total common equity | $1,952,352 | $ 492,592 | $ 663,768 |
| Total liabilities and equity | $3,497,152 | $2,866,592 | $ 1,468,800 |
Analysis of Financial Statements
Income Statements
Table 2
Income Statements
| 2013E | 2012 | 2011 | |
| Sales | $7,035,600 | $6,034,000 | $ 3,432,000 |
| Cost of goods sold | 5,875,992 | 5,528,000 | 2,864,000 |
| Other expenses | 550,000 | 519,988 | 358,672 |
| Total operating exp. excl. depreciation and amortization | $6,425,992 | $6,047,988 | $ 3,222,672 |
| EBITDA | $ 609,608 | $(13,988) | $ 209,328 |
| Depreciation and amortization | 116,960 | 116,960 | 18,900 |
| Earnings before interest and taxes (EBIT) | $492,648 | $(130,948) | $190,428 |
| Interest expense | 70,008 | 136,012 | 43,828 |
| Earnings before taxes (EBT) | $ 422,640 | $ (266,960) | $ 146,600 |
| Taxes (40%) | 169,056 | (106,784) | 58,640 |
| Net Income | $ 253,584 | $ (160,176) | $ 87,960 |
| Earnings per share (EPS) | $ 1.014 | $ (1.602) | $ 0.880 |
| Dividends per share (DPS) | $ 0.220 | $ 0.110 | $ 0.220 |
| Book value per share (BVPS) | $ 7.809 | $ 4.926 | $ 6.638 |
| Stock price | $ 12.17 | $ 2.25 | $ 8.50 |
| Shares outstanding | 250,000 | 100,000 | 100,000 |
| Tax rate | 40.00% | 40.00% | 40.00% |
| Lease payments | $ 40,000 | $ 40,000 | $ 40,000 |
| Sinking fund payments | 0 | 0 | 0 |
Analysis of Financial Statements
Ratio Analysis
| 2013E | 2012 | 2011 | Industry Average | |
| Current ratio | * | 1.2 | 2.3 | 2.7 |
| Quick ratio | * | 0.4 | 0.8 | 1.0 |
| Inventory turnover | * | 4.7 | 4.8 | 6.1 |
| Days sales outstanding (DSO) | * | 38.2 | 37.4 | 32.0 |
| Fixed assets turnover | * | 6.4 | 10.0 | 7.0 |
| Total assets turnover | * | 2.1 | 2.3 | 2.6 |
| Debt-to- assets ratio | * | 82.8% | 54.8% | 50.0% |
| Times interest earned (TIE) | * | -1.0 | 4.3 | 6.2 |
| Operating margin | * | -2.2% | 5.6% | 7.3% |
| Profit margin | * | -2.7% | 2.6% | 3.5% |
| Basic earning power (BEP) | * | -4.6% | 13.0% | 19.1% |
| Return on assets(ROA) | * | -5.6% | 6.0% | 9.1% |
| Return on equity (ROE) | * | -32.5% | 13.3% | 18.2% |
| Price/earnings (P/E) | * | -1.4 | 9.7 | 14.2 |
| Market/book (M/B) | * | 0.5 | 1.3 | 2.4 |
| Book value per share (BVPS) | * | $4.93 | $6.64 | n.a. |
Requiremnts:
Note: Question 1 through 5 has been answered completley, thank you very much. Please I am waiting for the question 6 and 7.
6. Use the extended DuPont equation to provide a summary and overview of XYZâs financial condition as projected for 2013.
7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change âripple throughâ the financial statements (shown in thousands below) and influence the stock price?
Accounts receivable $878 Debt $1,545
Other current assets 1,802
Net fixed assets 817 Equity 1,952
Total assets $3,497 Liabilities plus equity $3,497
First, we need to calculate XYZâs daily sales.
Daily sales = Sales / 365
Daily sales = $7,035,600 / 365
Daily sales = $19,275.62
Target A/R = Daily sales à Target DSO
Target A/R = $19,276 Ã 32
Target A/R = $616,820
Freed-up cash = old A/R â new A/R
Freed-up cash = $878,000 â $616,820
Freed-up cash = $261,180
Note:
This question has been answered totally from 1-8 questions in previuos requested, the only part ( need to answer ) I need to help me with that to have completed the calculations, provide a brief, two- to four-sentence rationale for how these calculations can be used in analyzing the financial position of a company and why they are important. Your rationale should explain what information the ratio provides to the reader and how the reader may use that information.
I will repeat tyoing the question for make it clearing .
Analysis of Financial Statements
Balance Sheets
EXHIBITS: INPUT DATA (XYZ)
Table 1 Balance Sheets
| Assets | 2013E | 2012 | 2011 |
| cash | $ 85,632 | $7,282 | $57,600 |
| Acount Receivable | 878,000 | 632,160 | 351,200 |
| Inventories | 1,716,480 | 1,287,360 | 715,200 |
| Total current assets | $2,680,112 | $1,926,802 | $ 1,124,000 |
| Gross fixed assets | 1,197,160 | 1,202,950 | 491,000 |
| Less: accumulated depreciation | 380,120 | 263,160 | 146,200 |
| Net fixed assets | $ 817,040 | $ 939,790 | $ 344,800 |
| Total assets | $3,497,152 | $2,866,592 | $ 1,468,800 |
| Liabilities and equity | |||
| Accounts payable | $ 436,800 | $ 524,160 | $ 145,600 |
| Notes payable | 300,000 | 636,808 | 200,000 |
| Accruals | 408,000 | 489,600 | 136,000 |
| Total current liabilities | $1,144,800 | $1,650,568 | $ 481,600 |
| Long term bonds | 400,000 | 723,432 | 323,432 |
| Total debt | $1,544,800 | $2,374,000 | $ 805,032 |
| Common stock (100,000 shares) | 1,721,176 | 460,000 | 460,000 |
| Retained earnings | 231,176 | 32,592 | 203,768 |
| Total common equity | $1,952,352 | $ 492,592 | $ 663,768 |
| Total liabilities and equity | $3,497,152 | $2,866,592 | $ 1,468,800 |
Analysis of Financial Statements
Income Statements
Table 2
Income Statements
| 2013E | 2012 | 2011 | |
| Sales | $7,035,600 | $6,034,000 | $ 3,432,000 |
| Cost of goods sold | 5,875,992 | 5,528,000 | 2,864,000 |
| Other expenses | 550,000 | 519,988 | 358,672 |
| Total operating exp. excl. depreciation and amortization | $6,425,992 | $6,047,988 | $ 3,222,672 |
| EBITDA | $ 609,608 | $(13,988) | $ 209,328 |
| Depreciation and amortization | 116,960 | 116,960 | 18,900 |
| Earnings before interest and taxes (EBIT) | $492,648 | $(130,948) | $190,428 |
| Interest expense | 70,008 | 136,012 | 43,828 |
| Earnings before taxes (EBT) | $ 422,640 | $ (266,960) | $ 146,600 |
| Taxes (40%) | 169,056 | (106,784) | 58,640 |
| Net Income | $ 253,584 | $ (160,176) | $ 87,960 |
| Earnings per share (EPS) | $ 1.014 | $ (1.602) | $ 0.880 |
| Dividends per share (DPS) | $ 0.220 | $ 0.110 | $ 0.220 |
| Book value per share (BVPS) | $ 7.809 | $ 4.926 | $ 6.638 |
| Stock price | $ 12.17 | $ 2.25 | $ 8.50 |
| Shares outstanding | 250,000 | 100,000 | 100,000 |
| Tax rate | 40.00% | 40.00% | 40.00% |
| Lease payments | $ 40,000 | $ 40,000 | $ 40,000 |
| Sinking fund payments | 0 | 0 | 0 |
Analysis of Financial Statements
Ratio Analysis
| 2013E | 2012 | 2011 | Industry Average | |
| Current ratio | * | 1.2 | 2.3 | 2.7 |
| Quick ratio | * | 0.4 | 0.8 | 1.0 |
| Inventory turnover | * | 4.7 | 4.8 | 6.1 |
| Days sales outstanding (DSO) | * | 38.2 | 37.4 | 32.0 |
| Fixed assets turnover | * | 6.4 | 10.0 | 7.0 |
| Total assets turnover | * | 2.1 | 2.3 | 2.6 |
| Debt-to- assets ratio | * | 82.8% | 54.8% | 50.0% |
| Times interest earned (TIE) | * | -1.0 | 4.3 | 6.2 |
| Operating margin | * | -2.2% | 5.6% | 7.3% |
| Profit margin | * | -2.7% | 2.6% | 3.5% |
| Basic earning power (BEP) | * | -4.6% | 13.0% | 19.1% |
| Return on assets(ROA) | * | -5.6% | 6.0% | 9.1% |
| Return on equity (ROE) | * | -32.5% | 13.3% | 18.2% |
| Price/earnings (P/E) | * | -1.4 | 9.7 | 14.2 |
| Market/book (M/B) | * | 0.5 | 1.3 | 2.4 |
| Book value per share (BVPS) | * | $4.93 | $6.64 | n.a. |
Requiremnts:
1. Calculate XYZâs 2013 current and quick ratios based on the projected balance sheet and income statement data.
2. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.
3. Calculate the 2013 debt-to-assets and times-interest-earned ratios.
4. Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).
5. Calculate the 2013 price/earnings ratio, and market/book ratio.
6. Use the extended DuPont equation to provide a summary and overview of XYZâs financial condition as projected for 2013.
7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change âripple throughâ the financial statements (shown in thousands below) and influence the stock price?
Accounts receivable $878 Debt $1,545
Other current assets 1,802
Net fixed assets 817 Equity 1,952
Total assets $3,497 Liabilities plus equity $3,497
First, we need to calculate XYZâs daily sales.
Daily sales = Sales / 365
Daily sales = $7,035,600 / 365
Daily sales = $19,275.62
Target A/R = Daily sales à Target DSO
Target A/R = $19,276 Ã 32
Target A/R = $616,820
Freed-up cash = old A/R â new A/R
Freed-up cash = $878,000 â $616,820
Freed-up cash = $261,180
Note : All questions from 1-8 has been answered, but the only part I need help with to write the analysis or to provide a brief, two- to four-sentence rationale for how these calculations can be used in analyzing the financial position of a company and why they are important.