Analyze the present financieal condition

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Reference no: EM131219158

Book- Introduction to Corporate Finance 3rd edition - Chapter 2 Mini Case -

you have been hired as a financial analyst by First Citizens Bank. One of your first job assignments it to analyze the present financieal condition of Bradley Stores, Inc. You are provided with the following 2012 balance sheet and income statement information for Bradley Stores. In addition you are told that Bradley Stores has 10,000,000 shares of common stock outstanding currently trading at $9 per share, and has made annual purchases of $210,000,000. Your assignment calls for you to calculate certain financial ratios and to compare these calculated ratios with the industry average ratios that are provided. You are also told to base your analysis on five categories of ratios (a) liquidity ratios, (b) activity ratios, (c) debt ratios, (d) profitability ratios,and (e) market ratios.

Balance sheet

Cash    $5,000             Accounts payable $15,000

Accounts receivable 20,000    Notes payable 20,000

Inventory                   40,000    Total current liabilities 35,000

Total current assets   65,000   Long term debt      10,000

net fixed assets      135,000    stockholder equity    65,000

total assets            200,000      total liabilities and equity 200,000

net sales (all credit)                    300,000

less cost of goods sold                 250,000

earnings before interest and taxes   50,000

less interest                                       40,000

earnings before taxes                      10,000

less taxes (40%)                               4,000

Net Income                                      6,000

Industry averages for key ratios

Net profit margin    6.4%

average collection period (365 days)      30 days

debt ratio    50%

p/e ratio 23

inventory turnover ratio     12.0

roe   18%

average payment period (365 days)   20 days

times interest earned ratio 8.5

total asset turnover 1.4

current ratio 1.5

assets to equity ratio 2.0

roa 9%

quick ratio 1.25

fixed asset turover ratio   1.8

Overall, what are Bradley's strong and weak points? knowing that your boss will approve new loans only to companies in a better-than-average financial position, what is your final recommendation (approval or denial of loan)?

Reference no: EM131219158

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