Conestoga Consulting Inc. Conestoga Consulting Inc. is examining their 2023 year-end financial statements and industry data....

  

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Conestoga Consulting Inc. Conestoga Consulting Inc. is examining their 2023 year-end financial statements and industry data. CONESTOGA CONSULTING INC. Balance Sheet December 31, 2023 Assets Liabilities & Shareholders' Equity Cash $ 50,000 Accounts payable $2,200,000 Marketable securities 80,000 Accrued expenses 150,000 Accounts receivable 3,000,000 Notes payable (current) 400,000 Inventory 1,000,000 Bonds (10%) 2,500,000 Property, Plant, & Equipment, net 4,000,000 Common shares (1.7 mill shares) 1,700,000 Retained Earnings 1,180,000 Total assets 8,130,000 Total Liabilities and Equity 8,130,000 CONESTOGA CONSULTING INC. Industry data Income Statement Profit margin 5.75% December 31, 2023 Return on assets 6.90% Sales (all on credit) $ 7,000,000 Return on equity 9.20% Variable costs (0.60) 4,200,000 Receivables turnover 4.35x Contribution margin 2,800,000 Capital asset turnover 1.85x Fixed costs* 2,100,000 Total asset turnover 1.20x Operating profit 700,000 Current ratio 1.45x Less: interest 250,000 Quick ratio 1.10x Earnings before tax 450,000 Debt-to-total assets 25.05% Less: Taxes @ 34% 153,000 Interest coverage 5.35x Earnings after tax 297,000 Deduct: Dividends Increased retained earnings *Fixed costs include: 1. Lease expense of $200,000 2. Amortization of $500,000 118,800 178,200 Requirements 1. Analyze Conestoga Consulting Inc. using ratio analysis and compare it to the industry data provided in the question. Discuss weaknesses, strengths, and what you think can be done to improve performance. 2. Compute the break-even in sales dollars, cash break-even, DOL, DFL, and DCL. 3. Using your response to part 1 and part 2, comment on the risk associated with this company. 4. Conestoga Consulting is currently trying to determine the funds needed for 2024, and it is expected that sales will increase by 20% next year (sales increases can be accommodated with existing capital assets). Compute the Required New Funds (RNF) based on the current balance sheet (Notes payable and bonds are not a part of the liability calculation). 5. Do you think they are credit worthy for a bank loan? Why or why not? 6. How would the RNF change for each of the following two independent situations (no need for any calculations) a. Raised the dividend payout ratio. b. Sales declined. Conestoga Consulting Inc. Conestoga Consulting Inc. is examining their 2023 year-end financial statements and industry data. CONESTOGA CONSULTING INC. Balance Sheet December 31, 2023 Assets Liabilities & Shareholders' Equity Cash $ 50,000 Accounts payable $2,200,000 Marketable securities 80,000 Accrued expenses 150,000 Accounts receivable 3,000,000 Notes payable (current) 400,000 Inventory 1,000,000 Bonds (10%) 2,500,000 Property, Plant, & Equipment, net 4,000,000 Common shares (1.7 mill shares) 1,700,000 Retained Earnings 1,180,000 Total assets 8,130,000 Total Liabilities and Equity 8,130,000 CONESTOGA CONSULTING INC. Industry data Income Statement Profit margin 5.75% December 31, 2023 Return on assets 6.90% Sales (all on credit) $ 7,000,000 Return on equity 9.20% Variable costs (0.60) 4,200,000 Receivables turnover 4.35x Contribution margin 2,800,000 Capital asset turnover 1.85x Fixed costs* 2,100,000 Total asset turnover 1.20x Operating profit 700,000 Current ratio 1.45x Less: interest 250,000 Quick ratio 1.10x Earnings before tax 450,000 Debt-to-total assets 25.05% Less: Taxes @ 34% 153,000 Interest coverage 5.35x Earnings after tax 297,000 Deduct: Dividends Increased retained earnings *Fixed costs include: 1. Lease expense of $200,000 2. Amortization of $500,000 118,800 178,200 Requirements 1. Analyze Conestoga Consulting Inc. using ratio analysis and compare it to the industry data provided in the question. Discuss weaknesses, strengths, and what you think can be done to improve performance. 2. Compute the break-even in sales dollars, cash break-even, DOL, DFL, and DCL. 3. Using your response to part 1 and part 2, comment on the risk associated with this company. 4. Conestoga Consulting is currently trying to determine the funds needed for 2024, and it is expected that sales will increase by 20% next year (sales increases can be accommodated with existing capital assets). Compute the Required New Funds (RNF) based on the current balance sheet (Notes payable and bonds are not a part of the liability calculation). 5. Do you think they are credit worthy for a bank loan? Why or why not? 6. How would the RNF change for each of the following two independent situations (no need for any calculations) a. Raised the dividend payout ratio. b. Sales declined.