MINI CASE: The first part of the case, presented in Chapter 7, discussed the sit
ID: 459314 • Letter: M
Question
MINI CASE:
The first part of the case, presented in Chapter 7, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2012, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.
Jenny Cochran was brought in as assistant to Gary Meissner, Computron's chairman, who had the task of getting the company back into a sound financial position. Computron's 2011 and 2012 balance sheets and income statements, together with projections for 2013, are shown in the following tables. The tables also show the 2011 and 2012 financial ratios, along with industry average data. The 2013 projected financial statement data represent Cochran's and Meissner's best guess for 2013 results, assuming that some new financing is arranged to get the company “over the hump.”
Mini Case: (Chapter 7).
Balance Sheet
2011
2012
2013
Assets
Cash
$9,000
$7,282
$14,000
Short-term investments
48,000
20,000
71,632
Accounts receivable
351,200
632,160
878,000
Inventories
751,200
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
$39,790
$36,840
Total assets
$1,468,800
$2,886,592
$,516,952
2011
2012
2013
Liabilities & Equity
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
Common stock (100,000 shares)
460,800
460,000
1,680,936
Retained earnings’
203,768
97,632
296,216
Total equity
$663,768
$557,632
$1,977,152
Total liabilities & Equity
$1,468,800
$2,886,592
$3,516,952
Note: “E” denotes, “estimated”; the 2013 data for forecasts.
Income Statement
2011
2012
2013
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 & Amortization
18,900
116,960
120,000
Total operating Cost
$3,222,900
$5,816,960
$6,532,962
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
Stock price
$8.50
$6.00
$12.17
Shares outstanding
100,000
100,000
250,000
2011
2012
2013E
EPS
$0.880
($0.951)
$1.014
DPS
$0.220
0.110
0.220
Tax rate
40%
40%
40%
Book value per share
$6.638
$5.576
$7.909
Lease payment
$40,000
$40,000
$40,000
Note: “E” denotes “estimated”; the 2013 data are forecasts.
Ratio Analysis
2011
2012
2013E
Industry Average
Current
2.3
1.5
------------------
2.7
Quick
0.8
0.5
------------------
1.0
Inventory turnover
4.8
4.5
------------------
6.1
Days sales outstanding
37.3
39.6
------------------
32.0
Fixed assets turnover
10.0
6.2
-----------------
7.0
Total assets turnover
2.3
2.0
---------------
2.5
Debt ratio
54.8%
80.7%
--------------
50.0%
TIE
3.3
0.1
--------------
6.2
EBITDA Coverage
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
Note: “E” denotes “estimated.”
Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers.
Answer just the questions below!!
f. Calculate the 2013 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 Computron?
I need this answered like ASP!!
Balance Sheet
2011
2012
2013
Assets
Cash
$9,000
$7,282
$14,000
Short-term investments
48,000
20,000
71,632
Accounts receivable
351,200
632,160
878,000
Inventories
751,200
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
$39,790
$36,840
Total assets
$1,468,800
$2,886,592
$,516,952
2011
2012
2013
Liabilities & Equity
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
Common stock (100,000 shares)
460,800
460,000
1,680,936
Retained earnings’
203,768
97,632
296,216
Total equity
$663,768
$557,632
$1,977,152
Total liabilities & Equity
$1,468,800
$2,886,592
$3,516,952
Note: “E” denotes, “estimated”; the 2013 data for forecasts.
Income Statement
2011
2012
2013
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 & Amortization
18,900
116,960
120,000
Total operating Cost
$3,222,900
$5,816,960
$6,532,962
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
Stock price
$8.50
$6.00
$12.17
Shares outstanding
100,000
100,000
250,000
2011
2012
2013E
EPS
$0.880
($0.951)
$1.014
DPS
$0.220
0.110
0.220
Tax rate
40%
40%
40%
Book value per share
$6.638
$5.576
$7.909
Lease payment
$40,000
$40,000
$40,000
Note: “E” denotes “estimated”; the 2013 data are forecasts.
Ratio Analysis
2011
2012
2013E
Industry Average
Current
2.3
1.5
------------------
2.7
Quick
0.8
0.5
------------------
1.0
Inventory turnover
4.8
4.5
------------------
6.1
Days sales outstanding
37.3
39.6
------------------
32.0
Fixed assets turnover
10.0
6.2
-----------------
7.0
Total assets turnover
2.3
2.0
---------------
2.5
Debt ratio
54.8%
80.7%
--------------
50.0%
TIE
3.3
0.1
--------------
6.2
EBITDA Coverage
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
Note: “E” denotes “estimated.”
Explanation / Answer
f. The ratio's for 2013
Price Earning Ratio = Stock Price per share/ Earnings = (12.17 / 253584)*250000 = 12.05
Price/ Cash Flow = 12.17 / EBIT = (12.17 / 502640)* 250000 = 6.05
Price/ Book Value = 12.17/ BV per share = 12.17 / 7.909 = 1.54
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.