a. Calculate the current and quick ratios based on the projected balance sheet and income statement data.

b. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron's utilization of assets stack up against other firms in its industry?

c. Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?

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

e. Calculate the price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?

f. Perform a common size analysis and percent change analysis. What do these analyses tell you about Computron?

g. Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses?

The first part of the case, presented in Chapter 6, discussed the situation of Computron Industries after an expansion program. A large loss occurred in 2015, rather than the expected profit. As a result, its managers, directors, and investors are concerned about the firm's survival.

Jenny Cochran was brought in as assistant to Gary Meissner, Computron's chairman, who had the task of getting the company back into a sound financial position. Computron's 2014 and 2015 balance sheets and income statements, together with projections for 2016, are shown in the following tables. The tables also show the 2014 and 2015 financial ratios, along with industry average data. The 2016 projected financial statement data represent Cochran's and Meissner's best guess for 2016 results, assuming that some new financing is arranged to get the company "over the hump."

Transcribed Image Text:

Balance Sheets Accounts receivable $2,680,112 1,202,950 Less: Accumulated depreciation 5 939,790 $ 836,840 Liabilities and Equity Total current liabilities $1,039,800 Common stock (100.000 shares) Retained earnings Total liabilities and equity Note: "E" denotes "estimated"; the 2016 data are forecasts