27. (Financial statement analysis) The last two years of financial statements fo

Question

27. (Financial statement analysis) The last two years of financial statements for Industries are as follows: Carver Industries Balance Sheets for December 31, 2012 and 2013 2012 2013 Cash Accounts receivable Inventories Total current assets Land Buildings and equipment Less: Accumulated depreciation Total fixed assets Total assets 650 20,800 59,150 S 63,125 80,600 $ 25,000 33,800 130,000 (35,000) $(49,400) 77,500 114,400 $140,625 $195,000 11,250 15,625 36,250 5o 87,500 Accounts payable Short-term bank notes Total current liabilities Long-term debt Common stock Retained earnings Common equity Total debt and equity S 13,125 28,600 61,100 S 34,375 89,700 $ 35,938 29,835 40,950 34,515 S 75.465 $140,625 $195,000 21,250 39,375 30,938 70,313

Explanation / Answer

(a. )

Formulas are taken directly from Google.

(b). Liquidity : At par with Indusytry Average, as you can see the Acid test ratio. however at 2013, liquidity declines.

capital structure: Debt to Equity = 100% . compnay is adequately leveraged and can raise further debt if required easily.

Asset management efficicency: Better than industry Average: See asset turnover ratio

profitability: ROE and operating profit margin is at par with industry average. company is good.

(c). EPS = Net Income /Outstanding Shares = 3.34 ;

Price-Earnings Ratio = Price/EPS = 15/3.34 =4.5

Market to Book ratio = Market Cap / Total Book Value ;; total Book value = total asset - liability = 195000 - 89700-29835 = 135135

Market Cap = Outstanding share * price = 5000 * 15 = 75000

Market to Book ratio = 75000/135135 = 0.555

(d). Compnay's financial condition is deteriorating from 2012 to 2013 by seeing csah declined in balance sheet. however inventory and fixed asset increased significantly in 2013, which complement the declining cash. Performance is good and better than industry average by seeing its Inventory Turnover ratio, Asset turnover ratio and Operating return on Asset.  

Industry Average 2012 2013 Current Ratio 2 1.84 0.90 Acid Test ratio 0.8 0.78 0.24 Average Collection period 37 30.42 18.98 inventory turnover 2.5 -3.10 -4.06 debt ratio 58% 100% 158% times interest earned 3.8 -3.15 -4.67 operating profit margin 10% 9.60% 10.63% total asset turnover 1.14 1.33 2.05 fixed asset turnover 1.40 2.42 3.50 operating return on asset 11.40% 12.80% 21.79% Return on Equity 9.50% 8.73% 22.13%

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