Gemini Case Analysis

Cash Flows and Financial Statements at Sunset Boards, Inc. Income Statement 2013 2014 Net Sales $333,426 $406,427 COGS ($169,969) ($214,607) Gross Profit $163,457 $191,820 Expenses $33,425 $43,626 Depreciation ($47,980) ($54,230) EBIT $82,052 $93,964 Interest Paid ($10,442) ($11,954) Earnings Before Taxes $71,610 $82,010 Income Tax 20% ($14,322) ($16,402) NET INCOME $57,288 $65,608 Balance Sheet 2013 2014 Current Assets Cash $24,524 $26,056 Accounts receivable $17,378 $22,542 Inventory $36,570 $50,185 Total Current Assets $78,472 $98,783 Fixed Assets Net Fixed Assets $211,680 $264,021 Total Assets $290,152 $362,804 Current Liabilities Accounts Payable $43,344 $48,090 Note Payable $19,757 $21,571 Total Current Liabilities $63,101 $69,661

As you can see from this mock Balance Sheet of our business, it (1) has enough assets to pay our debts when they are due, and (2) the claims of short and long-term creditors on

SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement

1996 Current Assets: Cash & Equivalents Marketable Securities AFS Accounts Receivable Inventory Other Current Assets Total Current Assets Property & Equipment, net Goodwill, net Other Total Assets Current Liabilities: Short-Term Borrowings Accounts Payable Accrued Expenses Income Taxes Payable Current Maturities of LT Debt Total Current

Each Friday, the cash clerk records the amount of cash receive and deposit the money in the bank account. Each quarter, the controller requests information from the bank necessary to prepare bank reconciliation.

Plant Goodwill Excluding Goodwill Net temporary differences Deferred tax liability 30% Beginning DTL balance Change in DTL (adjustment)

Note Exhibit 3, Year 2 cash flows, the “add total change in cash” is an incorrect number. It should be $1,371,350.

In regards to inventory turnover in 2009, CVS experienced a favorable amount of inventory on hand compared to cost of goods sold. When comparing this result to 2011 it climbed to 10.66, which improves the company’s regulation of managing inventory. From 2009 to 2010 there was an improvement

Increase in current liabilities Substantial increase in current liabilities weakened the company’s liquidity position. Its current liabilities were US$2,063.94 million at the end of FY2010, a 48.09% increase compared to the previous year. However, its current assets recorded a marginal increase of 25.07% - from US$1,770.02 million at the end of FY2009 to US$2,213.72 million at the end of FY2010. Following this, the company’s current ratio declined from 1.27 at the end of the FY2009 to 1.07 at the end of FY2010. A lower current ratio indicates that the company is in a weak financial position, and it may find it difficult to meet its day-to-day obligations.

7. Debt to capitalization = Long-term Debt in Balance Sheet / Long term debt + Net Assets in

Asset Management  Parts Inventory Turnover in Days is higher than the industry average as a large proportion of parts must still be sourced from Asia due to lack of North American suppliers. Transportation raises the cost, and additional stock must be carried to guard against interruptions in the longer supply chain. This should improve in the future as the more local suppliers are developed and JIT principles are applied. WP Inventory Turnover in days is lower than industry average due to the modern, highly automated assembly line. FG Inventory Turnover in days is much lower than industry average due to the flexible nature of the assembly lines that allows it to quickly switch between the products. Also inventory can be delivered quickly

NewGrade’s current free cash flows may be determined by obtaining information about the firm’s earnings before interest and taxes (EBIT) minus the change in net working capital minus capital expenditures (Keen, n.d.). This information is provided in Exhibit 5 for the years 2008 through 2025. For example, in 2008, the EBITDA is $180.9 million. Deducting the capital expenditures of $6 million and an arbitrary change in net working capital, which we will use as $18.84 million, the company’s free cash flow for 2008 is $156.06 ($180.9 million - $6 million - $18.84 million).

1994 Liabilities and Equity Short-term borrowings Accounts payable Progress collections and price adjustments accrued Dividends payable Taxes accrued Other costs and expenses accrued Current liabilities Long-term borrowings Other liabilities Total liabilities Minority interest in equity of consolidated affiliates Preferred stock Common stock Amounts received for stock in excess of par value Retained earnings Deduct common stock held in treasury Total shareowners’ equity Total liabilities and equity $644.9 696.0 1,000.5 72.8 337.2 1,128.1 $3,879.5 1,195.2 518.9 5,593.6 $ 71.2 $ — $465.2 414.5 3,000.5 $3,880.2 (175.9 ) $3,704.3 $9,369.1 $665.2 673.5 718.4 72.7 310.0 1,052.6 $3,492.4 917.2 492.1 4,901.7 50.1 — $463.8 409.5 2,683.6 $3,556.9 (184.5 ) $3,372.4 $8,324.2 $ $120.6 376.2 300.5 58.7 318.3 392.6 $1,566.9 364.1 221.0 2,152.0 41.4 — $455.8 266.9 1,384.5 $2,107.2 — $2,107.0 $4,300.6 1993 1985

YEAR 0 2009 1 2010 2 2011 3 2012 4 2013 5 2014 6 2015 7 2016 8 2017 9 2018 10 Initial Investment Gross Revenue 2 COGS 3 Add'l revenue Less: COGS Loan down payment 4 Loan repayment Depreciation Additional workers Land square required Moving cost 5 Operating Expenses Total Expenses Net Income Before Tax Income Tax Net Income After Tax After Tax Cash Flow ATCF Cummulative ATCF NPV through Year N

| Below is an excerpt from the cash flow statement of a firm for fiscal year 2003: Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of software Tax benefits of employee stock plans Special charges (Gains)/losses on investments Change in operating assets and liabilities: Receivables Inventories Pension assets Other assets Accounts payable Pension liabilities Other liabilities Net cash provided by operating activities Cash flows from investing activities: Payments for plant and other property Proceeds from disposition of plant and other property Investment in software