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Use the following websites for figures to answer questions b through j: http://w

ID: 2705640 • Letter: U

Question

                    Use the following websites for figures to answer questions b through j:                 

http://www.brinker.com/                 

http://investing.money.msn.com/investments/key-ratios?symbol=eat&page=PriceRatios                 

Note:                 

                    B. Calculate the 2011 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 2009, 2010 and as projected for 2011? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit                    analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?                 

                    C. Calculate the 2011 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Brinker's utilization of                    assets stack up against that of other firms in its industry?                 

                    D. Calculate the 2011 debt, times-interest-earned, and EBITDA coverage ratios. How does Brinker compare with the industry with respect to financial leverage?                    What can you conclude from these ratios?                 

                    E. Calculate the 2011 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?                 

                    F. Calculate the 2011 price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate that investors are expected to have a high                    or low opinion of the company?                 

                    G. Perform a common size analysis and percentage change analysis. What do these analyses tell you about Brinker?                 

                    H. Use the extended Du Pont equation to provide a summary and overview of Brinker's financial condition as projected for 2011. What are the firm's major                    strengths and weaknesses?                 

                    I. What are some potential problems and limitations of financial ratio analysis?                 

                    J. What are some qualitative factors that analysts should consider when evaluating a company's likely future financial performance?

Explanation / Answer

Balance Sheets


2009 2010 2011E


Assets:

Cash $9,000 $7,282 $14,000

Short-term inv estments 48,600 20,000 71,632

Accounts receiv able 351,200 632,160 878,000

Inv entories 715,200 1,287,360 1,716,480

Total current assets $1,124,000 $1,946,802 $2,680,112


Gross fixed assets $491,000 $1,202,950 $1,220,000

Less: Accumulated depreciation 146,200 263,160 383,160

Net Fixed Assets 344,800 939,790 836,840

$1,468,800 $2,886,592 $3,516,952

Total assets


Liabilities:

Accounts payable $145,600 $324,000 $359,800

Notes payable 200,000 720,000 300,000

Accruals 136,000 284,960 380,000

Total current liabilities $481,600 $1,328,960 $1,039,800


Long-term debt $323,432 $1,000,000 $500,000

Total long-term liabilities $323,432 $1,000,000 $500,000


Common stock (100,000 shares) 460,000 460,000 1,680,936

Retained earnings $203,768 $97,632 $296,216

Total equity $663,768 $557,632 $1,977,152

$1,468,800 $2,886,592 $3,516,952

Total liabilities and owners' equity

Income Statements


2009 2010 2011E


Sales $3,432,000 $5,834,400 $7,035,600


Cost of goods sold $2,864,000 $4,980,000 $5,800,000

Other expenses 340,000 720,000 612,960

Depreciation expense 18,900 116,960 120,000

Total operating costs $3,222,900 $5,816,960 $6,532,960


EBIT $209,100 $17,440 $502,640

Interest expense 62,500 176,000 80,000

EBT $146,600 ($158,560) $422,640

Taxes (40%) 58,640 (63,424) 169,056

Net income $87,960 ($95,136) $253,584


Other Data


2009 2010 2011E


Stock price $8.50 $6.00 $12.17

Shares outstanding 100,000 100,000 250,000

EPS $0.880 ($0.951) $1.014

DPS $0.220 $0.110 $0.220

Tax rate 40% 40% 40%

Book v alue per share $6.638 $5.576 $7.909

Lease payments $40,000 $40,000 $40,000

Ratio Analysis


2009 2010 2011E Industry Average


Current 2.3 1.5 2.7

Quick 0.8 0.5 1.0

Inv entory turnov er 4.8 4.5 6.1

Days sales outstanding 37.3 39.6 32.0

Fixed assets turnov er 10.0 6.2 7.0

Total assets turnov er 2.3 2.0 2.5

Debt ratio 54.8% 80.7% 50.0%

TIE 3.3 0.1 6.2

EBITDA cov erage 2.6 0.8 8.0

Profit margin 2.6% -1.6% 3.6%

Basic earning power 14.2% 0.6% 17.8%

ROA 6.0% -3.3% 9.0%

ROE 13.3% -17.1% 17.9%

Price/Earnings P/E 9.7 -6.3 16.2

Price/Cash flow 8.0 27.5 7.6

Market/Book 1.3 1.1 2.9

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