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al Statement Integrative Problem 7-17 Donna Jamison was recently hired as a financial analyst by Computron Indus trics, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data: Balance Sheets 2015 2014 Arres Cash Ac u vivable Inventories Total current assets Gross fixed assets Less Accumulated depreciation Net fixed assets Total assets $ 52,000 402,000 336,000 $1,290,000 527,000 (166.200) $360,800 $1,650.800 $ 57,600 351200 715,200 $1,124.000 491,000 (146,200) $ 344.800 $1,468,000 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Img-term debt Common stock 100,000 shares) Retained carings Total equity Total liabilities and equiry $ 175,200 225,000 140.000 $540,200 424,612 460,000 225.988 $ 145,600 200,000 136,000 $ 481.600 323,432 460,000 203.768 S 663,76% S1.168.800 5 685,988 51.650.NO Income Statements 2015 2014 Sales Cost of goods sold Othere Depreciation Total parating custo $3,850,000 13.250,000) 10: 20.000 Son 53,432,000 12.864,000 340.000 1800 53212900 S 219 100 62,500) 146.600 Litecost expens 151 Taxe $ 44,220 Opunting Acties Net income Additions sources of cash) Depreciation Increase in comumts payable Increase in accrual Subtractions Muses of cash) Increases in accounts receivablo Increase in inventories Net cash flow from operations 20,000 29,600 4,000 ( 50,800) (120,800) $(73,780) Long-Term Investing and Financing Activities Investment in foxed assets Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from investing and financing Net reduction in cash account Cash at beginning of year Cash at end of year ${36,000) S 25,000 101,180 (22,000 S6180 SE 5,600) 57 600 $ 52,000 Other Data 2015 2014 December 31 stock price Number of shares Dividenda per share Tease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000 Industry Average Data for 2015 Ratio Industry Average 2.7 10 320 days 10.73 2.6 Current Quick Im turn Days outstanding DSO Fixed assistance Total assets turnover Debt ratio TIE Fixed change Net peut mun ROA ROE Then Marko hork 2.5 Assume that you arc Donna Jamison's assistant and that she has asked you to help her prepare a report that cvaluates the company's financial condition Answer the following questions a. What can you condude about the company's financial condition from its statement of cash flows? b. What is the purpose of financial ratio analysis, and what are the five major categories of ratios? c. What are Computron's current and quick ratios? What do they tell you about the company's liquidity position? d. What are Computron's inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times interest camed, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? Calculate and discuss the firm's profitability ratiosthat is, its net profit margin, return on assets (ROA), and return on equity (ROE). 9. Calculate Computron's market value ratios-that is, its pricelearnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses? i. Use the following simplified 2015 balance sheet to show, in general terms, how an improvement in one of the ratiossay, the DSOwould affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would chat change "ripple through the following financial statements (5 thousands) and influence the stock price Accounts receivable S 402 Debt $ 965 Other current assets 888 Net fixed assets 361 Equity 686 Total assets 51.651 Total liabilities and equity $1.651 Although financial statement analysis can provide useful information about a company's operations and its financial condition, this type of analysis does have some potential problems and limitations, and it must be used with care and judgment. What are some problems and limitations? al Statement Integrative Problem 7-17 Donna Jamison was recently hired as a financial analyst by Computron Indus trics, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data: Balance Sheets 2015 2014 Arres Cash Ac u vivable Inventories Total current assets Gross fixed assets Less Accumulated depreciation Net fixed assets Total assets $ 52,000 402,000 336,000 $1,290,000 527,000 (166.200) $360,800 $1,650.800 $ 57,600 351200 715,200 $1,124.000 491,000 (146,200) $ 344.800 $1,468,000 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Img-term debt Common stock 100,000 shares) Retained carings Total equity Total liabilities and equiry $ 175,200 225,000 140.000 $540,200 424,612 460,000 225.988 $ 145,600 200,000 136,000 $ 481.600 323,432 460,000 203.768 S 663,76% S1.168.800 5 685,988 51.650.NO Income Statements 2015 2014 Sales Cost of goods sold Othere Depreciation Total parating custo $3,850,000 13.250,000) 10: 20.000 Son 53,432,000 12.864,000 340.000 1800 53212900 S 219 100 62,500) 146.600 Litecost expens 151 Taxe $ 44,220 Opunting Acties Net income Additions sources of cash) Depreciation Increase in comumts payable Increase in accrual Subtractions Muses of cash) Increases in accounts receivablo Increase in inventories Net cash flow from operations 20,000 29,600 4,000 ( 50,800) (120,800) $(73,780) Long-Term Investing and Financing Activities Investment in foxed assets Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from investing and financing Net reduction in cash account Cash at beginning of year Cash at end of year ${36,000) S 25,000 101,180 (22,000 S6180 SE 5,600) 57 600 $ 52,000 Other Data 2015 2014 December 31 stock price Number of shares Dividenda per share Tease payments $ 6.00 100,000 $ 0.22 $ 40,000 $ 8.50 100,000 $ 0.22 $ 40,000 Industry Average Data for 2015 Ratio Industry Average 2.7 10 320 days 10.73 2.6 Current Quick Im turn Days outstanding DSO Fixed assistance Total assets turnover Debt ratio TIE Fixed change Net peut mun ROA ROE Then Marko hork 2.5 Assume that you arc Donna Jamison's assistant and that she has asked you to help her prepare a report that cvaluates the company's financial condition Answer the following questions a. What can you condude about the company's financial condition from its statement of cash flows? b. What is the purpose of financial ratio analysis, and what are the five major categories of ratios? c. What are Computron's current and quick ratios? What do they tell you about the company's liquidity position? d. What are Computron's inventory turnover, days sales outstanding, fixed assets turnover, and total assets turnover ratios? How does the firm's utilization of assets stack up against that of the industry? e. What are the firm's debt, times interest camed, and fixed charge coverage ratios? How does Computron compare to the industry with respect to financial leverage? What conclusions can you draw from these ratios? Calculate and discuss the firm's profitability ratiosthat is, its net profit margin, return on assets (ROA), and return on equity (ROE). 9. Calculate Computron's market value ratios-that is, its pricelearnings ratio and its market/book ratio. What do these ratios tell you about investors' opinions of the company? h. Use the DuPont equation to provide a summary and overview of Computron's financial condition. What are the firm's major strengths and weaknesses? i. Use the following simplified 2015 balance sheet to show, in general terms, how an improvement in one of the ratiossay, the DSOwould affect the stock price. For example, if the company could improve its collection procedures and thereby lower the DSO from 38.1 days to 27.8 days, how would chat change "ripple through the following financial statements (5 thousands) and influence the stock price Accounts receivable S 402 Debt $ 965 Other current assets 888 Net fixed assets 361 Equity 686 Total assets 51.651 Total liabilities and equity $1.651 Although financial statement analysis can provide useful information about a company's operations and its financial condition, this type of analysis does have some potential problems and limitations, and it must be used with care and judgment. What are some problems and limitations