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Use the following information for Questions 1 through 8:
Assume that you recently graduated and have just reported to work as an investment advisor at the one of the firms on Wall Street. You have been presented and asked to review the following Income Statement and Balance Sheets of one of the firm’s clients. Your boss has developed the following set of questions you must answer.
| Income Statements and Balance Sheet
Balance Sheet |
2012 | 2013 |
| Cash | $9,000 | $7,282 |
| Short-term investments | 48,600 | 20,000 |
| Accounts receivable | 351,200 | 632,160 |
| Inventories | 715,200 | 1,287,360 |
| Total current assets | $1,124,000 | $1,946,802 |
| Gross fixed assets | 491,000 | 1,202,950 |
| Less: Accumulated depreciation | 146,200 | 263,160 |
| Net fixed assets | $344,800 | $939,790 |
| Total assets | $1,468,800 | $2,886,592 |
| Liabilities and Equity | ||
| Accounts payable | $145,600 | $324,000 |
| Notes payable | 200,000 | 720,000 |
| Accruals | 136,000 | 284,960 |
| Total current liabilities | $481,600 | $1,328,960 |
| Long-term debt | 323,432 | 1,000,000 |
| Common stock (100,000 shares) | 460,000 | 460,000 |
| Retained earnings | 203,768 | 97,632 |
| Total equity | $663,768 | $557,632 |
| Total liabilities and equity | $1,468,800 | $2,886,592 |
| Income Statements | 2012 | 2013
|
| Sales | $3,432,000 | $5,834,400 |
| Cost of goods sold except depr. | 2,864,000 | 4,980,000 |
| Depreciation and amortization | 18,900 | 116,960 |
| Other expenses | 340,000 | 720,000 |
| Total operating costs | $3,222,900 | $5,816,960 |
| EBIT | $209,100 | $17,440 |
| Interest expense | 62,500 | 176,000 |
| EBT | $146,600 | ($158,560) |
| Taxes (40%) | 58,640 | -63,424 |
| Net income | $87,960 | ($95,136) |
| Other Data | 2012 | 2013 |
| Stock price | $8.50 | $6.00 |
| Shares outstanding | 100,000 | 100,000 |
| EPS | $0.88 | ($0.95) |
| DPS | $0.22 | 0.11 |
| Tax rate | 40% | 40% |
| Book value per share | $6.64 | $5.58 |
| Lease payments | $40,000 | $40,000 |
| Ratio Analysis | 2012 | 2013 |
| Current | 2.3 | 1.5 |
| Quick | 0.8 | 0.5 |
| Inventory turnover | 4 | 4 |
| Days sales outstanding | 37.3 | 39.6 |
| Fixed assets turnover | 10 | 6.2 |
| Total assets turnover | 2.3 | 2 |
| Debt ratio | 35.60% | 59.60% |
| Liabilities-to-assets ratio | 54.80% | 80.70% |
| TIE | 3.3 | 0.1 |
| EBITDA coverage | 2.6 | 0.8 |
| Profit margin | 2.60% | −1.6% |
| Basic earning power | 14.20% | 0.60% |
| ROA | 6.00% | −3.3% |
| ROE | 13.30% | −17.1% |
| Price/Earnings (P/E) | 9.7 | −6.3 |
| Price/Cash flow | 8 | 27.5 |
| Market/Book | 1.3 | 1.1 |
- What is the free cash flow for 2013?
- Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?
- Calculate the 2013 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2013?