Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) A

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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

Explanation / Answer

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 2.44 2.52 2.58    Quick Ratio 1.17 1.41 1.53 Asset Management Ratios    Inventory Turnover 5.00 7.14 7.69    Days Sales Outstanding 45.63 43.80 47.45    Fixed Assets Turnover 1.92 2.00 2.04    Total Assets Turnover 1.11 1.22 1.23 Debt Management Ratios    Debt Ratio 35.2% 33.2% 32.1%    Times-interest-earned ratio 12.67 13.90 15.33    EBITDA coverage ratio 4.37 4.09 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 16.35% 15.80% 16.10% Market Value Ratios    Earnings per share $9.92 $8.63 NA    Price-to-earnings ratio 9.07 11.12 10.65    Cash flow per share $14.77 $13.13 NA    Price-to-cash flow ratio 6.09 7.31 7.11    Book Value per share $60.68 $54.61 NA    Market-to-book ratio 1.48 1.76 1.72 a. Has Joshua & White's liquidity position improved or worsened? Explain. The current ratio and quick ratio were a little below the industry average initially. However, the quick ratio fell by a lot while the current ratio fell by just a little. This indicates a build-up in inventory relative to other current assets. b. Has Joshua & White's ability to manage its assets improved or worsened? Explain. All asset management ration were close to the industry averages initially (although the DSO was a little better than the industry average. However, all ratios worsened, with the inventory turnover showing the biggest change, which again indicates a buildup in inventory. c. How has Joshua & White's profitability changed during the last year? All profit margins improved and are comparable to the industry averages. d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009. ROE =           PM     x TA Turnover    x    Equity Multiplier 2010 16.35% 9.57% 1.11 1.54 2009 15.80% 8.63% 1.22 1.50 ROE improved because the profit margin improved and the equity multiplier increases, despite the reduction in the total asset turnover ratio. Thus, J&W became more profitable, more leveraged, but less efficient. 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 5.5% 6.1% Short-term investments 1.0% 1.0% Accounts Receivable 13.8% 14.7% Inventories 22.1% 17.1% Total current assets 42.5% 38.9% Net fixed assets 57.5% 61.1% Total assets 100.0% 100.0% Liabilities and equity 2010 2009 Accounts payable 8.9% 9.8% Accruals 3.3% 3.7% Notes payable 5.2% 2.0% Total current liabilities 17.4% 15.4% Long-term debt 17.8% 17.8% Total liabilities 35.2% 33.2% Common stock 48.4% 54.5% Retained Earnings 16.4% 12.2% Total common equity 64.8% 66.8% Total liabilities and equity 100.0% 100.0% Common Size Income Statements 2010 2009 Sales 100.0% 100.0% Expenses excluding depr. and amort. 78.0% 80.0% EBITDA 22.0% 20.0% Depreciation and Amortization 4.7% 4.5% EBIT 17.3% 15.5% Interest Expense 1.4% 1.1% EBT 16.0% 14.4% Taxes (40%) 6.4% 5.8% Net Income 9.6% 8.6% Common size analysis shows that inventories now make up a greater proportion of assets and that the combined long-term debt and notes payable make up a greater proportion of liabilities & equity. Profits margins have gone up (even though interest expense has also gone up). 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 5.0% 0.0% Short-term investments 16.0% 0.0% Accounts Receivable 9.4% 0.0% Inventories 50.0% 0.0% Total current assets 26.7% 0.0% Net fixed assets 9.2% 0.0% Total assets 16.0% 0.0% Base Liabilities and equity 2010 2009 Accounts payable 5.0% 0.0% Accruals 5.0% 0.0% Notes payable 207.5% 0.0% Total current liabilities 31.0% 0.0% Long-term debt 16.0% 0.0% Total liabilities 23.0% 0.0% Common stock 3.0% 0.0% Retained Earnings 55.2% 0.0% Total common equity 12.6% 0.0% Total liabilities and equity 16.0% 0.0% Base Percent Change Income Statements 2010 2009 Sales 5.0% 0.0% Expenses excluding depr. and amort. 2.4% 0.0% EBITDA 15.5% 0.0% Depreciation and Amortization 9.2% 0.0% EBIT 17.3% 0.0% Interest Expense 28.7% 0.0% EBT 16.4% 0.0% Taxes (40%) 16.4% 0.0% Net Income 16.4% 0.0% Percent change analysis shows that sales increased at a rate of 5%, but that several items grew much faster. For example, inventories grew by 50%. Notes payable also grew by a substantial amount. Fortunately, profitability also grew by more than sales. The trend analysis confirms that profitability increased, but the increase in inventories is a red flag.

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