Based on comparisons Between SEC€™s days sales outstanding (DSO) and inventory turnover ratios with the industry average figures, does it appear that SEC is operating efficiently with respect to its inventory and accounts receivable? Suppose SEC were able to bring these ratios into line with the industry averages and reduce its SGA/Sales ratio to 33%. What effect would this have on its AFN and its financial ratios? What effect would this have on free cash flow and ROIC?
Betty Simmons, the new financial manager of Southeast Chemicals (SFC), a Georgia producer of specialized chemicals for use in fruit orchards, must prepare a financial forecast for 2010. SEC€™s 2009 sales were $2 billion, and the marketing department is forecasting a 25% increase for 2010. Simmons thinks the company was operating at full capacity in 2009, but, she is not sure about this. The 2009 financial statements, plus some other data, are shown below:
A. 2009 Balance sheet (Millions of Dollars)

B. 2009 Income Statement (Millions of Dollars)

C. KeyRatios

Percent et Sales oe Sales Cash and secures 5 20) Accounts aable atd acerls Nutis paryahle 5% 12% oal rey Rahties Lons m de Common ock Ritained eanting 740 500 5 200 100 Net fed asiets 25% eil asets 51.00 Tual iblties and etquity 2.304 B. 2009 Income Statement (Millions of Dollars) Percent of Sales Sales Cost of goods sold (COGS Sales, general, and administrative costs SGA $2,000.00 1.200.00 60%, 35% Eanings before interest and taxes Interest Famings hefore taxes Taxes 140%, Net income Dividends (40%) Addtion to retained eamings $ 100.00 1000 $ 9000 36.00 S 540o 21.60 S 32.40 C. Key Ratios SEC Industry 4.00 2.70% 7,71% Profit margin Return on equity Days sales outstanding 365 days Inventory turnover Fixed assets turnover Debt/assets Times interest earned Current ratio Rotarn n investnd eapital NOPAT/Operating capital, 15.60% 43.80 days 32.00 days 8.33 4,00 30.00% 10.00 2.50 11.00 5.00 36.00% 9.40 3.00 14.00 67%