Use the following financial statements for Magnet Computers to compute the reque
ID: 2776001 • Letter: U
Question
Use the following financial statements for Magnet Computers to compute the requested ratios. Next, prepare a written financial analysis of Magnet Computer by comparing Magnet ratios with the industry norms. Magnet Computers had an average of 10,000 common stock shares outstanding for 2009 and the stock price on December 31, 2009 was $ 40.00.
Magnet Computers Inc
Balance Statement
December 31, 2009
(Dollars in Thousands)
Assets Liabilities
Cash $ 200 Accounts payable $ 205
Account Receivables 245 Notes Payable 425
Inventory 625 Other Current Liabilities 115
Total Current Assets $1,070 Total Current Liabilities $ 745
Net Fixed Assets 1,200 Long Term debt 420
Total Assets $2,270 Total Liabilities $ 1,165
Shareholders Equity $ 1,105
Total Liabilities & SE $ 2,270
Magnet Computers Inc
Income Statement
For year ended December 31, 2009
(Dollars in Thousands)
Revenue
Sales $ 2,400
Expenses
Cost of Goods Sold:
Materials $1,000
Labor 600
Heat, Light, and power 89
Indirect Labor 65
Depreciation 80
Cost of Goods Sold 1,834
Gross Profit $566
Selling Expenses 175
General and administrative expenses 216
Earnings before interest and taxes (EBIT) 175
Interest Expense 35
Earnings before taxes (EBT) 140
Taxes (40%) 56
Net Income (NI) $ 84
A) Continued Compute Ratios
Magnet Computers Industry Norm
1. Current Ratio ____ 1.53
2. Quick Ratio ____ 1.02
3. Inventory Turnover _____ 5.23
4. Fixed Asset turnover _____ 1.89
5. Total Asset Turnover _____ 1.05
6. Average Collection Period
AKA “Days Sales Outstanding _______ 46.25 days
7. Debt to Total Assets _____ 38.9%
8. Times interest earned _____ 9.02
9. Profit Margin on sales _____ 5.2 %
10. Return on Total Assets ____ 4.5 %
11. Return on common equity ____ 6.5%
12. Earnings per Share _____ $12.65
13. Price / Earnings Ratio _____ 15.65
14. Cash Flow / Share _____ $ 21.75
15. Price / Cash Flow _____ 2.95
16. Book Value per Share _____ N/A
17. Market / Book Ratio _____ 4.65
B) Written Financial Analysis
Explanation / Answer
1. Current Ratio = Current Assets/ Current Liabilities = 1070/745 = 1.43
2. Quick Ratio = Current Assets - Inv / Current Liabilties = 1070-625/745 = 0.60
3.Inventory Turnover = COGS/ Avg. Inventory = 1834/625 =2.93
4. Fixed Assets Turnover = Net Sales/ Net Fixed Assets = 2400/1200 =2
5. total Asset Turnover = Net Sales/ Total Assets =2400/2270= 1.05
6. Average Collection Period = Avg. Debtors/ Daily Credit Sales = 245/2400/365 = 37.29 days
7.Debt/ Total Assets = 1165/2270 =0.51
8.Time Interest Earned = EBIT/ Interest Expense =175/35 = 5
9.Profit Margin = Net Profit/Sales = 84/2400 =3.5%
10.return on total assets = Net profit/total assets = 84/2270 = 3.7%
11. ROE = Net profit/ total equity = 84/1105 = 7.6%
12. EPS = Rnet income/no.of shares = 84000/10000 = 8.4
13. Price/ Earnings = Market Price /EPS = 40/8.4 =4.76
14. Cash flow per share is Net income + dep/ No. of shares = 84000+80000/10000 = 16.4
15. price/cash flow = 40/16.4 =2.44
16 Book Value per share =1105000/10000 = 110.5
17 Market/ Book = 40/110.5 = 0.36
Financial Analysis
The firm is is not performing upto the mark when compared to industy analysis. In almost all ratios the firm is not upto the mark with respect to industry. The firm has to reduce debt level and increase profit margins substantially.
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