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Analysis of Financial StatementsBalance SheetsEXHIBITS:

Question

Analysis of Financial StatementsBalance SheetsEXHIBITS:

INPUT DATA (XYZ)

Table 1 Balance Sheets

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Assets2013E20122011
cash$ 85,632$7,282$57,600
Acount Receivable878,000632,160351,200
Inventories1,716,4801,287,360715,200
Total current assets$2,680,112$1,926,802$ 1,124,000
Gross fixed assets1,197,1601,202,950491,000
Less: accumulated depreciation380,120263,160146,200
Net fixed assets$ 817,040$ 939,790$ 344,800
Total assets$3,497,152$2,866,592$ 1,468,800
Liabilities and equity
Accounts payable$ 436,800$ 524,160$ 145,600
Notes payable300,000636,808200,000
Accruals408,000489,600136,000
Total current liabilities$1,144,800$1,650,568$ 481,600
Long term bonds400,000723,432323,432
Total debt$1,544,800$2,374,000$ 805,032
Common stock (100,000 shares)1,721,176460,000460,000
Retained earnings231,17632,592203,768
Total common equity$1,952,352$ 492,592$ 663,768
Total liabilities and equity$3,497,152$2,866,592$ 1,468,800

Analysis of Financial Statements

Income Statements

Table 2

Income Statements

2013E20122011
Sales$7,035,600$6,034,000$ 3,432,000
Cost of goods sold5,875,9925,528,0002,864,000
Other expenses550,000519,988358,672
Total operating exp. excl. depreciation and amortization$6,425,992$6,047,988$ 3,222,672
EBITDA$ 609,608$(13,988)$ 209,328
Depreciation and amortization116,960116,96018,900
Earnings before interest and taxes (EBIT)$492,648$(130,948)$190,428
Interest expense70,008136,01243,828
Earnings before taxes (EBT)$ 422,640$ (266,960)$ 146,600
Taxes (40%)169,056(106,784)58,640
Net Income$ 253,584$ (160,176)$ 87,960
Earnings per share (EPS)$ 1.014$ (1.602)$ 0.880
Dividends per share (DPS)$ 0.220$ 0.110$ 0.220
Book value per share (BVPS)$ 7.809$ 4.926$ 6.638
Stock price$ 12.17$ 2.25$ 8.50
Shares outstanding250,000100,000100,000
Tax rate40.00%40.00%40.00%
Lease payments$ 40,000$ 40,000$ 40,000
Sinking fund payments000

Analysis of Financial Statements

Ratio Analysis

2013E    2012   2011     Industry Average
Current ratio*1.22.32.7
Quick ratio*0.40.81.0
Inventory turnover*4.74.86.1
Days sales outstanding (DSO)*38.237.432.0
Fixed assets turnover*6.410.07.0
Total assets turnover*2.12.32.6
Debt-to- assets ratio*82.8%54.8%50.0%
Times interest earned (TIE)*-1.04.36.2
Operating margin*-2.2%5.6%7.3%
Profit margin*-2.7%2.6%3.5%
Basic earning power (BEP)*-4.6%13.0%19.1%
Return on assets(ROA)*-5.6%6.0%9.1%
Return on equity (ROE)*-32.5%13.3%18.2%
Price/earnings (P/E)*-1.49.714.2
Market/book (M/B)*0.51.32.4
Book value per share (BVPS)*$4.93$6.64n.a.

Requiremnts:

1. Calculate XYZ’s 2013 current and quick ratios based on the projected balance sheet and income statement data.

2. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

3. Calculate the 2013 debt-to-assets and times-interest-earned ratios.

4. Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).

5. Calculate the 2013 price/earnings ratio, and market/book ratio.

6. Use the extended DuPont equation to provide a summary and overview of XYZ’s financial condition as projected for 2013.

7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change “ripple through” the financial statements (shown in thousands below) and influence the stock price?

Accounts receivable                          $878                                                  Debt                                              $1,545            

Other current assets                         1,802                                                                                                                                  

Net fixed assets                                  817                                                     Equity                                            1,952              

Total assets                                          $3,497                                               Liabilities plus equity               $3,497            

First, we need to calculate XYZ’s daily sales.                                                                                                                           

Daily sales =        Sales                        /                         365                                                                                                           

Daily sales =        $7,035,600             /                         365                                                                                                           

Daily sales =        $19,275.62                                                                                                                                                           

Target A/R =       Daily sales              ×                         Target DSO                                                                                           

Target A/R =       $19,276                   ×                         32                                                                                                             

Target A/R =       $616,820                                                                                                                                                              

Freed-up cash =                                  old A/R            –                              new A/R                                                                             

Freed-up cash =                                  $878,000          –                              $616,820                                                                             

Freed-up cash =                                  $261,180      

Note:

I have a different calculations for some points, I want you to recheck it with me pls,

My answer was : 

1. Calculate XYZ’s 2013 current and quick ratios based on the projected balance sheet and income statement data.

Answer:

Current ratio = current assets / current liabilities

= $2,680,112 / $1,144,800

= 2.34

Quick ratio = total current assets – inventory / current liabilities

= ($2,680,112 – 1,716,480) / $1,144,800

= $963632 / 1144800

= 0.84

2. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

Answer:

Inventory turnover ratio = cost of goods sold / average inventory

= 5,875,992 / (1,716,480+1,287,360) /2

= 5,875,992 / 1501920

= 3.91

Days sales outstanding (DSO) = accounts receivable / sale * 365 days

,000 / $7,035,600 * 365

.55 days

Fixed assets turnover = sale / average net fixed assets

= $7,035,600 / [$ 817,040 + $ 939,790]/2

= $7,035,600 / 878415

= 8.01

Total assets turnover = sale / average Total fixed assets

= $7,035,600 / [ $3,497,152 + $2,866,592]/2

= $7,035,600 / 3181872

.21

3. Calculate the 2013 debt-to-assets and times-interest-earned ratios.

Answer:

Debt to Asset ratio= total debt/ total assets

1,544,800/3,497,.17%

Times-interest-earned ratios= Earnings before interest and taxes (EBIT)/ Interest expense

492,648/70,. 04

4. Calculate the 2013 operating margin, profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE).

Answer:

Operating Margin= (Gross Profit/Sales)*100= ((7,035,600-5,875,992)/7,035,600)*.48%

Profit Margin= (Net Profit/Sales)*100=(253,584/7,035,600)*.60 %

Basic Earning Power= Earnings before interest and taxes (EBIT)/ Total assets

492,648/3,497,.09 %

Profit/,584/3,497,.25%

Profit/,584/1,721,.73%

5. Calculate the 2013 price/earnings ratio, and market/book ratio.

Answer:

Price/ Earnings Ratio= Stock Price/ Earnings per Share (EPS)

12.17/1..00

Market/Book Ratio= Stock Price/ Book value per share (BVPS)

12.17/7..56

6. Use the extended DuPont equation to provide a summary and overview of XYZ’s financial condition as projected for 2013.

Answer:

Du-Pont analysis is given by the equation ROE = NPM *TATR * EM

NPM = Net profit margin = Net Income/Total revenue = 253,584/7,035,600 = 0.036

TATR = Total asset turnover ratio = Total revenue/ Total assets = 7,035,600/3,497,152 = 2.012

EM = 1+ Total Debt/ Total + D/E = 1 + 1,544,800/1,952,352 = 1+ 0.7912 = 1.791

So ROE = 0.036*2.012*1.791 = 0.1297 = 12.97%

According to Extended Du-Pont formula:

The First part NPM again broken down into NPM = Net Income/EBIT * EBIT/EBT * EBT/Sales

Net Income/EBIT = 253,584/492,648 = 0.5147

EBIT/EBT = 492,648/422,640 = 1.1656

EBT/Sales = 422,640/7,035,600 = 0.06

So NPM = 0.1547*1.1656*0.06 = 0.036

7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change “ripple through” the financial statements (shown in thousands below) and influence the stock price?

Would you please verify my answers , cause the answer on your website has different result on some equation?

 
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