Electronic Equipment Venture

Balance Sheet
(In Thousands)
2008 2009 2010 Fcst
Assets
Cash 300 130 100
Accounts Receivables 5400 6700 8800
Inventory 6700 9000 12000
Total Current Assets 12400 15830 20900

Net Plant & Equipment 1500 1530 1700

Total Assets 13900 17360 22600

Liabilities
Accounts Payables 3000 3100 4800
Notes Payables 450 600 1200
Accured Taxes 300 350 900
Current portion of long-term Debt 200 200 200
Total Current Liabilities 3950 4250 7100

Long-term Debt 1800 1700 1600

Shareholders equity 8150 11410 13900
Total Liabilities and Net Worth 13900 17360 22600

FIN600 Assignment List B

Electronic Equipment Venture
Income Statement
Thousands
2008 2009 2010 (Fsct)
Net Sales 98800 108000 113500
Cost of good sold
Total cost of good sold 68500 80250 85425
Gross Profit 30300 27750 28075
% 31% 26% 25%

Expenses
General & Administrative 3500 5300 5700
Marketing 7500 8500 9000
Operating Expense 9900 10610 11120
Total Expenses 20900 24410 25820

Income Before Taxes 9400 3340 2255

Taxes 3760 1336 902
Net Income 5640 2004 1353

Headcount
Direct 2080 2400 2500
Indirect 320 350 400
Total Headcount 2400 2750 2900

Products 2008 2009

Sales Margin % Sales Margin %
Electronic Equipmen
Television 4000 1000 25% 3500 900 26%
Computers 5000 2400 48% 5200 2300 44%
Medical 2300 1500 65% 3500 2000 57%
Automotive 15000 3200 21% 16000 2800 18%
Electronic Equipmen 26300 8100 31% 28200 8000 28%

Electronic Equipment Parts

Television 12000 3200 27% 13000 3050 23%
Computers 44500 13000 29% 50000 10500 21%
Medical 6000 3500 58% 7000 3700 53%
Automotive 10000 2500 25% 9800 2500 26%
Electronic Equipment 72500 22200 31% 79800 19750 25%

Total 98800 30300 31% 108000 27750 26%

 2010 Fcst
Sales Margin %

5000 1045 21%

7600 3300 43%
4000 1800 45%
15400 3000 19%
32000 9145 29%

12000 2230 19%

48000 10500 22%
7500 3700 49%
14000 2500 18%
81500 18930 23%

113500 28075 25%

 2008
Amounts
Liquidity ratios

Current Ratio Current Assets = 12400

Current Liabilities 3,950

Quick Ratio, or Quick Assets * 5700.000

"Acid Test" Current Liabilities 3950

* Quick assets include Cash, Marketable Securities, and Accounts Receivable

Asset Management Ratios

Inventory Cost of Goods Sold 68,500

Turnover Inventory 6,700
Err:508
Number of days Accts receivable 5400.000
to Collect Avg. daily sales 270.680
[Sales/365 days]

Debt (Leverage) (Long-term Solvency) Ratios

Debt to Total Liabilities 5750.000

Assets Total Assets 13900.000

Debt to Total Liabilities 5750.000

Equity Total Equity 8150.000

Profitability Ratios (not applicable if net loss)

Profit Margin Net Income 5640.000

on Sales (%) Sales 98800.000

Gross Profit Gross Profit 30300.000

on Sales (%) Sales 98800.000

Return Net Income 5640.000

on Assets (%) Total Assets 13900.000

Return Net Income 5640.000

on Equity (%) Equity 8150.000
 2009
Answer Amounts Answer

= 3.14 15,830 = 3.72

4,250

1.44 6830.000 1.61

4250

10.22 80,250 8.92

9,000

19.95 6700 22.64

295.890

0.4 5,950 0.3

17,360

0.7 5,950 0.5

11,410

5.7% 2,004 1.9%

108,000

30.7% 27,750 25.7%

108,000

40.6% 2,004 11.5%

17,360

69.2% 2,004 17.6%

11,410
 2010

20,900 2.943662
7,100

8,900 1.253521
7100

85,425 7.11875
12000

8800 28.30037
310.95

8700 0.384956
22,600

8700 0.625899
13,900

1,353 1.19%
113,500

28,075 24.74%
113,500

1,353 5.99%
22,600

1,353 9.7%
13,900
 Liquidity ratios Example:
A "2.0 to 1" ratio means that there is
Current Ratio Current Assets 2.0 to 1 $2.00 of current assets for every $1
Current Liabilities in current liabilities, which suggests
that short-term creditors can be
reasonably sure of being paid.

Quick Ratio Quick Assets * 0.9 to 1Indicates extent to which claims of

"Acid Test" Current Liabilities short-term creditors are covered by
"quick" assets*.
* Quick assets include Cash, Marketable Securities, and Accounts Receivable (excludes Inventory)

Asset Management Ratios

Number of times merchandise
Inventory Cost of Goods Sold* 4.0 times items are sold and restocked
Turnover Inventory ("turned over") per year.

* Some publications use "Sales" as the numerator, and /or average inventory as denominator

Number of days Accts receivable * 45 days Number of days customers are taking
to Collect Avg. daily sales to pay. If substantially more than credit
[Sales/365 days] terms, then credit checking and/or
collection is a problem.
* Some publications use "Sales / Accounts Receivable", which is "accounts receivable turnover" ratio

Debt (Leverage) (Long-term Solvency) Ratios

Debt to Total Liabilities 0.50 The portion of the total financing

Assets Total Assets supplied by creditors as opposed to
the owner-stockholders.

Debt to Total Liabilities 1.5 The financing supplied by creditors

Equity Total Equity as compared to financing supplied
by the owner-stockholders.

Times interest EBIT* 3.2 Measures the extent to which operat-

Earned Interest expense ing income can decline before firm is
unable to meet interest payments

* EBIT means "Earnings before Interest and Taxes"

Profitability Ratios (not applicable if net loss)

Profit Margin Net Income 5.1% Net income as a percentage of sales.

on Sales (%) Sales (net) If trend is down, product costs and/or
operating expenses are rising faster
 than sales.

Gross Profit Gross Profit 35.2% Gross Profit as a percentage of sales.

on Sales (%) Sales (net) If low or declining, product costs may
be increasing and/or selling prices
decreasing (steeper discounts).

Return Operating Income* 15.3% Measures how well management

on Assets (%) Total Assets is managing assets to generate
aka ROI profit from operations.

Return Net Income ** 18.4% Measures rate of return on stockholders

on Equity (%) Equity *** investment. (However, "dividend yield"
for stockholders is generally much less.)

* Some publications use Net income (after tax) instead of Operating income (before interest expense, tax, etc.)
** If preferred stock exists, subtract Preferred Dividends from Net Income; *** also subtract Preferred Stock from Total Equity

Market Value Ratios

Earnings per Net Income * $1.23 EPS is the "real" measure of profitability
Share (EP Common shares outstanding used by potential investors (not used
by creditors).
* If preferred stock exists, subtract Preferred Dividends from Net Income.

Price/Earnings Market Price 16.5 times The multiple-times-earnings that

Ratio (P/E) EPS * investors are willing to pay, based
on anticipated future EPS.
* If EPS is negative, ratio is "not applicable"
 If current liabilities are rising faster
than the current assets from which
they must be paid, company could
become insolvent (unable to pay
its debts) and eventually bankrupt.

If Current Ratio is OK, but Quick Ratio

is low or declining, the cause may
be excessive nonliquid inventory.

Low or declining turnover suggests

excessive inventory, or possibly
obsolete or otherwise overstated
inventory.

If the number of days is increasing,

credit and collection policies may
need to be strengthened.

turnover" ratio

Debt to Assets and Debt to Equity

are alternative benchmarks that
measure long-term solvency. Higher
ratios (high leverage) mean greater
risk that cash flows from operations
will be insufficient to cover interest
and principal payments.

Low ratio = low margin of safety,

and can make it difficult to borrow.

Low percentage = low safety

margin: higher risk that a decline in
sales will erase profits and result
 in a net loss.

A low or declining Gross Profit %

indicates less ability to sell goods
at intended selling price, or rising
cost of goods, or both.

A low or declining rate could mean

that assets are not being utilized
effectively.

Low return could be caused by high

debt i.e., high interest expense.

nse, tax, etc.)

ed Stock from Total Equity

EPS can decline despite an

increase in total earnings, and thus
drive down the market price per
share.

High P/E ratio means that investors

perceive good growth potential -- but
they could be (and often are) wrong.