Berndt depreciation expenses

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Reference no: EM13743509

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

2014

Cash

$9,000

$7,282

$14,000

Short-term investments

48,600

20,000

71,632

Accounts receivable

351,200

632,160

878,000

Inventories

715,200

1,287,360

1,716,480

Total current assets

$1,124,000

$1,946,802

$2,680,112

Gross fixed assets

491,000

1,202,950

1,220,000

Less* Accumulated depreciation

146,200

263,160

383,160

Net fixed assets

$344,800

$939,790

$836,840

Total assets

$1,468,800

$2,886,592

$3,516,952

 

 

 

 

Liabilities and Equity

 

 

 

Accounts payable

$145,600

$324,000

$359,800 300,000 380,000

Notes payable

200,000

720,000

Accruals

136,000

284,960

Total current liabilities

$481,600

$1,328,960

$1,039,800

500,000

Long-term debt

323,432

1,000,000

Common stock (100,000 shares)

460,000

460,000

1,680,936

Retained earnings

203,768

97,632

296,216 $1,977,152 $3,516,952

Total equity

$663,768

$557,632

Total liabilities and equity

$1,468,800

$2,886,592

Income Statements

2012

2013

2014

Sales

$3,432,000

$5,834,400

$7,035,600

Cost of goods sold except depr.

2,864,000

4,980,000

5,800,000 120,000 612,960

Depredation and amortization

18,900

116,960

Other expenses

340,000

720,000

Total operating costs

$3,222,900

$5,816,960

$6,532,960

$502,640

EBIT

$209,100

$17,440

Interest expense

62,500

176,000

80,000 $422,640 169,056

EBT

$146,600

($158,560)

Taxes (40%)

58,640

-63,424

Net income

$87,960

($95,136)

$253,584

Other Data

2012

2013

2014

Stock price

$8.50

$6.00

$12.17

Shares outstanding

100,000

100,000

250,000

EPS

$0.88

(S0.95)

$1.104

DPS

$0.22

0.11

0.22

Tax rate

40%

40%

40%

Book value per share

$6.64

$5.58

$7.909

Lease payments

$40,000

$40,000

$40,000

Ratio Analysis

2012

2013

Industry

Average

Current

2.3

1.5

2.7

Quick

0.8

0.5

1.0

Inventory turnover

4

4

6.1

Days sales outstanding

37.3

39.6

32.0

Fixed assets turnover

10

6.2

7.0

Total assets turnover

2.3

2

2.5

Debt ratio

35.60%

59.60%

32.0%

Liabilities-to-assets ratio

54.80%

80.70%

50.0%

TIE

3.3

0.1

6.2

EBITDA coverage

2.6

0.8

8.0

Profit margin

2.60%

-1.6%

3.6%

Basic earning power

14.20%

0.60%

17.8%

ROA

6.00%

-3.3%

9.0%

ROE

13.30%

-17.1%

17.9%

Price/Earnings (P/E)

9.7

-6.3

16.2

Price/Cash flow

8

27.5

7.6

Market/Book

1.3

1.1

2.9

1. What is the free cash flow for 2014?

2. 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?

3. Calculate the 2014 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?

4. Calculate the 2014 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover.

5. Calculate the 2014 debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. What can you conclude from these ratios?

6. Calculate the 2014 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

7. Calculate the 2014 price / earnings ratio, price / cash flow ratio, and market / book ratio

8. Use the extended DuPont equation to provide a summary and overview of company's financial condition as projected for 2014. What are the firm's major strengths and weaknesses?

Reference no: EM13743509

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