200782 Lecture Notes - Lecture 7: United States Trustee Program, Financial Institution
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Explain how the ratios help identify the strengths and weaknesses of the facility and the management team.
The students will use Financial Ratios to analyze a potential strategic acquisition.
The student will use the Financial Ratios to evaluate the current management teamâs ablity to make good long term and short term decisions. Should Acme continue to employ the current management team. If Beechtree is acquired, do we keep its management team or do build a new one
Ratio | Formula | Standard | Beechtree |
Current Ratio (Liquidity) | Current Assets/Current Liabilities | 1.3 | 1.15 |
Quick Ratio (liquidity) | (Current Assets-Supplies on hand)/Current Liabilities | 1.2 | .9 |
Days Cash on Hand (liquidity) | (Cash on Hand +Market Securities)/((Tot Operating Exp-Depreciation Exp)/365) | 50 | 35 |
Days in Net Receivable (liquidity) | (Accounts Receivable +Notes Receivable + Other Receivable-allowance for uncollectable)/(Tot Operating Revenue/365) | 49 | 65 |
Debt Service Coverage Ratio (solvency) | Net Operating Income/(Principal +interest + lease payment | >1 | .89 |
Operating Margin (profitability) | Operating Income/Total Operating Revenue | >.05 | -.005 |
Return on Total Assets (profitability) | Net Operating Income/Total Assets | 1.1 | .9 |
Net Operating Income for this financial statement=Decrease in unrestricted net assets + Interest Expense + Depreciation
1.) analyze ratios
liquidity ratios
LIQUIDITY Ratios | Are wemeeting our current obligations? | ||||
Working Capital | $ 7,143 | $ 2,162 | $ 2,357 | $ (1,204) | $ 1,888 |
Current Ratio | 1.55 | 1.51 | 1.52 | 1.57 | 1.52 |
2.) Solvency ratio: analyze the ratio
SOLVENCY Ratios | Are wehandling debt appropriately? | ||||
Financial LEVerage | 2.82 | 2.95 | 2.91 | 2.74 | 2.94 |
Debt ratio | 65% | 66% | 66% | 64% | 66% |
Free Cash Flow | $ (1,066) | $ (2,048) | $ (3,067) | $ 6,225 | $ 7,282 |
3.) Investment Appeal of Target analysis
Dividends per share | $ (1.10) | $ (1.32) | $ (1.58) | $ (1.90) | $ (2.13) |
Market Value per share | $ 59.00 | $ 56.00 | $ 54.00 | $ 53.00 | $ 53.00 |
Dividend Yield | -1.87% | -2.37% | -2.93% | -3.59% | -4.01% |
Price-to-Earnings (P/E) ratio | -53.49 | -42.27 | -34.14 | -27.84 | -24.91 |
Price-to-Sales (P/S) ratio | 38.09 | 37.00 | 35.44 | 33.69 | 34.98 |
Price-to-Book (P/B) ratio | 22.00 | 23.64 | 25.13 | 25.56 | 25.57 |
4.) Du pont Analyis analysis
DuPont Analysis of ROE = ROS xAsset turnover = ROA x Financial LEVerage = ROE | |||||
Return on Sales(ROS), also known as Net Profit Margin | 4.19% | 4.09% | 2.77% | -2.25% | 4.56% |
Asset Turnover | 1.60 | 1.57 | 1.48 | 1.63 | 1.79 |
Return on Assets (ROA) | 6.70% | 6.43% | 4.09% | -3.67% | 8.17% |
Financial LEVerage | 2.82 | 2.95 | 2.91 | 2.74 | 2.94 |
Return on Equity (ROE) | 18.91% | 18.96% | 11.90% | -10.08% | 24.03% |
e.) How does your stack up against its competiton?graph/charts
(1.) is your company in attractive industry? Yes/No
(2.) What metrics determine superior companies for yourindustry?
f.) State your investment thesis-investment philosophy(graphs/charts) (target corporation ) 2011-2015
a.) Sustainability economic moats profitability ? your test yourcompany pass/fail explain
b) growth? stable? dividends ? your test yours company pass/failexplain
c.) financial health? financial risk? your test your companypass/fail explain
d.) quality of income? your test your company pass/failexplain
e.) good value? buy now your test your company pass/failexplain
This stock appears to be trading below/ about /over theprice.
g.) investment decisions (target corporation)
overall, this company is a long term buy/ review again at lowprice / bust )
Why? list 5 good reasons 1, 2, 3, 4, 5,