FIN 3504 Chapter Notes - Chapter 11: Leveraged Buyout, Inventory Turnover, Asset Turnover
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Document Summary
* financing side effects: interest tax shield subsidized financing. * financial distress costs new issue costs leveraged buyouts. * debt to value and equity to value stay constant. * wacc and apv unleveraged flow to equity leveraged. The current ratio is a liquidity ratio that measures a company"s ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the total assets of a company (both liquid and illiquid) relative to that company"s total liabilities. quick ratio = (ca-inv)/ cl. The quick ratio is an indicator of a company"s short-term liquidity. The quick ratio measures a company"s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows: Total asset turnover ratio = (sales/ total assets) The ratio of the value of a company"s sales or revenues generated relative to the value of its assets.
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| 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 | ||||||
| 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 | ||||||
Fill in the remaining boxes and write short response toquestion.
| Company Name | McDonald's | Wendy's | YUM! | Industry | |
| Average | |||||
| Market Price of Common Stock (Stock Price) | $35.0 | $31.0 | $45.0 | $37.0 | |
| Revenue (Sales) | $22,151.0 | $3,550.0 | $8,380.0 | $11,360.3 | |
| Cost of Goods Sold | $7,384.1 | $2,299.6 | $3,940.0 | $4,541.2 | |
| Gross Profit | $14,766.9 | $1,250.4 | $4,440.0 | $6,819.1 | |
| SG&A Expense | $5,776.0 | $261.1 | $3,005.0 | $3,014.0 | |
| Depreciation + amortization | $1,148.2 | $167.8 | $401.0 | $572.3 | |
| Operating Income (EBIT) Earnings before interest and taxes | $7,842.7 | $821.5 | $1,034.0 | $3,232.7 | |
| Interest Expense | $467.1 | $48.5 | $164.5 | $226.7 | |
| Net Profits After Tax | $1,675.0 | $236.0 | $617.0 | $842.7 | |
| 3-5 Year Growth Rate In Earnings | 15.00 | 8.00 | 7.00 | 10.00 | |
| Cash | $492.8 | $171.2 | $192.0 | $285.3 | |
| Accounts Receivables | $734.5 | $124.0 | $169.0 | $342.5 | |
| Inventory | $129.4 | $54.4 | $67.0 | $83.6 | |
| Total Current Assets | $6,500.0 | $1,235.0 | $1,485.0 | $3,073.3 | |
| Total Assets | $28,524.0 | $3,164.0 | $6,500.0 | $12,729.3 | |
| Short Term Debt | $388.0 | $50.9 | $10.0 | $149.6 | |
| Total Current Liabilities | $2,485.8 | $528.5 | $1,461.0 | $1,491.8 | |
| Long Term Debt | $9,342.5 | $692.6 | $2,056.0 | $4,030.4 | |
| Total Liabilities (Total Debt) | $11,828.3 | $1,221.1 | $3,517.0 | $5,522.1 | |
| Stockholders Equity | $16,695.7 | $1,942.9 | $2,983.0 | $7,207.2 | |
| Annual Dividends paid to common stock | $578 | $54.0 | $125 | $252 | |
| Preferred Dividends | $0.0 | $0.0 | $0.0 | $0.0 | |
| # of Common Shares Outstanding | 1,154.0 | 114.7 | 292.0 | 520.2 | |
| Financial Ratio's | McDonald's | Wendy's | YUM! | Average | |
| Liquidity | |||||
| Current Ratio | 2.61 | 2.34 | 1.02 | 1.99 | |
| Quick Ratio | 2.56 | 2.23 | 0.97 | 1.92 | |
| Asset Activity | |||||
| Accounts Rec. Turnover | |||||
| Inventory Turnover | |||||
| Total Asset Turnover | |||||
| Debt | |||||
| Total Debt to Equity | |||||
| Equity Multiplier | |||||
| Times Interest Earned | |||||
| Profitability | |||||
| Gross Profit Margin | |||||
| Operating Profit Margin | |||||
| Net Profit Margin | |||||
| (ROA) Return On Assets | |||||
| (ROE) Return On Equity | |||||
| Market Value | |||||
| EPS | |||||
| P/E | |||||
| PEG Ratio | |||||
| Dividends Per Share | |||||
| Dividend Payout Ratio | |||||
| Book Value Per Share | |||||
| Price to Book Value | |||||
| Market Capitalization | |||||
| Cash Per Share | |||||
| Revenue Per Share |
Based on the Financial Ratio's, which company do you fell is thebest investment?
(enter answer in this textbox) (must be 100 words or more)
