d for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D’Leon on credit? (You could demand cash on delivery—that is, sell on terms of COD—but that might cause D’Leon to stop buying from your company.) Similarly, if you were the bank lo
d for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D’Leon on credit? (You could demand cash on delivery—that is, sell on terms of COD—but that might cause D’Leon to stop buying from your company.) Similarly, if you were the bank lo
d for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D’Leon on credit? (You could demand cash on delivery—that is, sell on terms of COD—but that might cause D’Leon to stop buying from your company.) Similarly, if you were the bank lo
1) An Excel spreadsheet illustrating the calculations of all required ratios and financial statistics.
In 2016, the company paid its suppliers much later than the due dates; also, it was not maintaining financial ratios at levels called for in its bank loan agreements. Therefore, suppliers could cut the company off, and its bank could refuse to renew the loan when it comes due in 90 days. On the basis of data provided, would you, as a credit manager, continue to sell to D’Leon on credit? (You could demand cash on delivery—that is, sell on terms of COD—but that might cause D’Leon to stop buying from your company.) Similarly, if you were the bank loan officer, would you recommend renewing the loan or demanding its repayment? Would your actions be influenced if, in early 2017, D’Leon showed you its 2017 projections along with proof that it was going to raise more than $1.2 million of new equity?
In hindsight, what should D’Leon have done in 2015?
What are some potential problems and limitations of financial ratio analysis?
What are some qualitative factors that analysts should consider when evaluating a company’s likely future financial performance?
Transcribed Image Text:Table IC 4.1 Balance Sheets
2017E
2016
2015
Assets
Cash
$ 85,632
7,282
$ 57600
Accounts receivable
878,000
632,160
351,200
Inventories
1,716,480
1,287,360
715,200
Total current assets
$2,680,112
$1,926,802
$1,124,000
491,000
146,200
$ 344,800
Gross fixed assets
1,197,160
1,202,950
Less accumulated depreciation
380,120
$ 817,040
263,160
$ 939,790
$2,866,592
Net fixed assets
Total assets
$3497,152
$1,468,800
Liabilities and Equity
Accounts payable
$ 436,800
$ 524,160
$ 145,600
Асспuals
408,000
489,600
136,000
300,000
$1,144,800
636,808
$1,650,568
Notes payable
200,000
$ 481600
Total current liabilities
Long-tem debt
400,000
723,432
323432
Common stock
1,721,176
460,000
460,000
Retained eamings
Total equity
231,176
$1,952,352
$3497,152
203,768
$ 663,768
32,592
$ 492,592
$2,866,592
Total liabilities and equity
$1,468.800
Note: E indicates estimated. The 2017 data are forccasts.
Table IC 4.2 Income Statements
2017E
2016
2015
Sales
$7,035600
$6,034,000 $3,432,000
Cost of goods sold
Other expenses
5,875,992
5,528,000
2,864,000
550,000
519,988
_358,672
Total operating costs exduding depreciation and
amortization
$6,425,992 $ 6,047,988
$ 609,608 ($
$3,222,672
$ 209,328
EBITDA
13,988)
Depreciation & amortization
116,960
116,960
18,900
$ 492,648 ($ 130,948)
70,008
$ 422,640 ($ 266,960)
(106,784)
$ 190,428
43,828
$ 146,600
58,640
EBIT
Interest expense
136,012
EBT
Taxes (40%)
169,056
Net income
253,584
($ 160,176)
$ 87,960
$ 1.014
$ 0.220
$ 7.809
$ 12.17
($ 1.602)
$ 0.110
$ 4.926
$ 2.25
EPS
$ 0.880
DPS
Book value per share
Stock price
Shares outstanding
$ 0.220
$ 6.638
$ 8.50
250,000
100,000
100,000
Таx rate
40.00%
40.00%
40.00%
Lease payments
$40,000
$40,000
$40,000
Sinking fund payments
Note: E indicates estimated. The 2017 data are forccasts.
The firm had sufficient taxable income in 2014 and 2015 to obtain its full tax refund in 2016.
Table IC 4.3 Ratio Analysis
Industry
Average
2017E
2016
2015
Current
1.2x
23x
2.7x
Quick
0.4x
0.8x
1.0x
Inventory turnover
4.7x
4.8 x
6.1x
Days sales outstanding (DSOr
38.2
37.4
320
Fixed assets turnover
6.4x
10.0x
7.0x
Total assets turnover
2.1x
2.3x
2.6x
Debt-to-capital ratio
73.4%
44.1%
40.0%
TIE
-1.0x
4.3x
6.2x
Operating margin
Profit margin
-2.2%
5.5%
7.3%
-2.7%
2.6%
3.5%
Basic earning power
-4.6%
13.0%
19.1%
ROA
-5.6%
6.0%
9.1%
ROE
-32.5%
13.3%
182%
ROIC
-4.2%
9.6%
145%
Price/earnings
Market/book
-1.4x
9.7 x
142x
0.5x
1.3x
24x
Book value per share
$4.93
$664
na.
Note: E indicates estimated. The 2017 data are forecasts.
a.
Calculation is based on a 365-day year.
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