Computron Industries - Jamison Analysis

1762 WordsFeb 3, 20108 Pages
Running head: MINI CASE - CHAPTER 3 Mini Case - Chapter 3 Computron Industries – Jamison Analysis Mini Case - Chapter 3 Computron Industries, a manufacturer of electronic calculators, has been going through some growth over the course of the 2007 and 2008 years. Some components of this growth include new sales offices, additional plant capacity and a costly advertising campaign. However, execution of this growth is subpar, and has led to suppliers and lenders being paid late, bank complaints, and threats to cut off credit from lenders. To add insult to injury, Computron Industry’s stockholders are unhappy because of these complaints, and an overall unhealthy balance sheet. As such, the intent of this document is to indentify the…show more content…
Similarly, Computron also yielded an overall increase in operating current liabilities, or business debt like bonds, mortgages and loans that need to be settled in cash within the current operating year. The importance between operating current assets and operating current liabilities is the difference between the two value that yields Net Operating Working Capital, NOWC: NOWC = (Operating Current Assets) – (Operating Current Liabilities). That being said, the 2008 NOWC for Computron is calculated as follows: NOWC = [(cash at end of year) + (accounts receivable) + (inventories)] – [(accounts payable) + (accruals)] NOWC = [($7,282) + ($632,160) + ($1,287,360)] – [($324,000) +($284,960)] = $1,317,842 Similarly, Computron’s 2008 Total Operating Capital, for financial liquidity, is $2,257,632 or the sum of NOWC and net fixed assets, (found on balance sheet, see appendix a). As mentioned earlier in this document, Free Cash Flows, FCF, is a company’s ability to generate cash after it has addressed its current liabilities. FCF, is calculated by first determining a company’s Net Operating Profit After Taxes, (NOPAT or [Earnings Before Interest and Taxes] * [1 – Tax Rate]), and its net investment in operating capital, (difference between Total Operating Capital of actual year and Total Operating Capital of previous year). That being said, Computron’s 2008 FCF is as follows: FCF_2008 = NOPAT – net investment in operating capital =

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