Calculate the Free cash flows for 2008 from an asset /operating perspective. Cal

Question

Calculate the Free cash flows for 2008 from an asset /operating perspective.

Calculate the following ratios for 2008 and compare them to the industry average, and explain the strenghts and and weaknesses of J&J.

Will you give this firm a loan. Explain in detail?

J&J; Corporation's December 31 Balance Sheets Ratio Analvsis Industry Avg 2007 S 72,000 S65,000 328,000 813,000 S 1,405.000 S 1,206,000 271,000 133,000 57,000 S 1,836,000 S 1,667,000 2008 Liquidity Current ratio Asset Management Inventory turnover Days sales outstanding Total assets turnover Profitability Return on assets Return on equity Assets 2.7 Cash 439,000 894,000 Accounts receivable 1 Inventories 2Total current assets 3Land and building 4 Machinery 5 Other fixed assets 6 Total assets 7.0 32 2.6 238,000 132,000 61,000 9.1% 18.2% 40.0% 3.5% Gross profit margin Liabilities and equity 9 Accounts payable 0 Accrued liabilities 1Total current liabilities Profit margin on sales Debt Management Debt ratio S 432,000 S 409,500 162,000 S 602,000 S 571,500 258,898 575,000 261,602 S 1,836,000 S 1,667,000 170,000 50.0% Long-term debt 3 iCommon stock 4 Retained earnings 5 Total liabilities and equity 404,290 575,000 254.710 7 J&J; Corporation's December 31 Income Statements 2007 S 4,240,000 S 3,635,000 3,680,000 2,980,000 S 560,000 S 655,000 213,550 154,500 127,000 S 30,680 S 159,950 63,980 S 18,408 S95,970 2008 9 Sales 0 Cost of goods sold 1 Gross operating profit 2 General admin. and selling epenses 236,320 159,000 134,000 Depreciation Miscellaneous 5 EBIT 6 |Taxes (40%) 7 | Net income 12.272

Explanation / Answer

Operating Cashflow in 2008 = Net Income + Depriciation =18408+159000=177408

Change in Capital =Fixed Assets in 2008-(Fixed Assets in 2007-Depriciation)=(1836000-602000)-(1667000-1206000-154500)=927500

Change in Working Capital=(Current Asset in 2008-Current Liablity in 2008)-(Current Asset in 2007-Current Liablity in 2007) =(1405000-602000)-(1206000-571500)=168500

Net cash flow=Operating cashflow-Change in capital-change in Working capital=177408-927500-168500=-918592

Current Ration=Current Asset/Current Liability=1405000/602000=2.33

Inventory Turnover=Cost of goods sold/Average inventory=3680000/((894000+813000)/2)=4.31

Asset Turnover=Sales/Total Asset=4240000/1836000=2.30

Return on Assets=Net profit after tax/Total Assets=(18408/1836000)*100=1.002%

Retrun on Equity=Net profit after tax/Equity=(18408/575000)*100=3.20%

Gross Profit Margin=(Sales-Cost of Goods sold)/Cost of Goods sold*100=((4240000-3680000)/3680000)*100=15.21%

Profit Margin on Sales=(Net Income/Sales)*100=(18408/4240000)*100=0.43%

Debt Ratio=Debt/(Equity+Debt)=404290/(575000+404290)=0.41 or 41%

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