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TABLE 1
PENG PLASMA SOLUTIONS
(millions of Chinese renminbi, Rmb)
NOTES
Profit Distribution:
Dividends paid 60.0 60.0 60.0
Retained earnings 121.4 (44.3) 12.2
Currency:
RMB/US$ 6.94 6.84 6.76
Sales (millions of US$) 268.3 228.1 287.0
NI (millions of US$) 26.1 2.3 10.7
Many companies use the financial results above the line, EBITDA, as a metric of managerial performance. This is because the
principle components below the line, depreciation, interest, taxes, are all driven by financial and accounting activities largely
controlled by corporate and are therefore not under the discretion or direction of business unit management.
TABLE 2
PENG PLASMA SOLUTIONS
(millions of Chinese renminbi, Rmb)
31 December 2008
Cash 61.2 9.0% Short-term debt 119.5 17.7%
NWC 276.9 40.9% Long-term debt 127.8 18.9%
Net fixed assets 338.6 50.0% Equity 429.4 63.5%
Invested capital 676.7 100.0% 676.7 100.0%
31 December 2009
Cash 26.4 4.1% Short-term debt 137.3 21.4%
NWC 279.9 43.5% Long-term debt 120.6 18.8%
Net fixed assets 336.6 52.4% Equity 385.1 59.9%
Invested capital 643.0 100.0% 643.0 100.0%
31 December 2010
Cash 17.4 2.3% Short-term debt 242.7 32.2%
NWC 388.7 51.6% Long-term debt 113.2 15.0%
Net fixed assets 347.1 46.1% Equity 397.3 52.7%
Invested capital 753.2 100.0% 753.2 100.0%
Note: Net working capital (NWC) = A/R + Inventories + Prepaid - A/P - Accrued.
The "Managerial Balance Sheet" reduces Assets to 3 categories (Cash, NWC & Fixed Assets), resulting in a
right-hand-side which is pure financing (short-term debt, long-term debt, and equity).
The Managerial Balance Sheet is intended to focus the analyst's attention on key asset categories and how
the firm is financing those assets -- in order to make a clear distinction between operations (assets) and
financing (the funding of those assets).
TABLE 3
PENG PLASMA SOLUTIONS
(millions of Chinese renminbi, Rmb)
Peng Plasma's days sales outstanding and inventory levels are rising, increasing the total days of
net working capital for the firm.
Peng has been rapidly expanding the use of short-term debt in the financing of its net working
capital, which, depending on market and company conditions, may be increasingly risky.
TABLE 4
PENG PLASMA SOLUTIONS
(millions of Chinese renminbi, Rmb)
Inventory Analysis
2008
Product Line Sales Cost of Sales Inventory Gross Margin Days Inventory
Handheld Systems 707.4 470.2 76.3 33.5% 59.2
Mechanized Systems 844.7 542.2 85.2 35.8% 57.4
Consumables 223.4 179.8 21.6 19.5% 43.8
Controls 86.2 62.9 9.2 27.0% 53.4
Total 1,861.7 1,255.1 192.3 32.6% 55.9
2009
Product Line Sales Cost of Sales Inventory Gross Margin Days Inventory
Handheld Systems 570.3 450.2 74.3 21.1% 60.2
Mechanized Systems 725.9 498.1 81.9 31.4% 60.0
Consumables 183.6 149.5 17.9 18.6% 43.7
Controls 80.5 62.3 9.4 22.6% 55.1
Total 1,560.3 1,160.1 183.5 25.6% 57.7
2010
Product Line Sales Cost of Sales Inventory Gross Margin Days Inventory
Handheld Systems 670.8 540.6 96.3 19.4% 65.0
Mechanized Systems 950.1 657.3 114.2 30.8% 63.4
Consumables 219.2 179.5 24.2 18.1% 49.2
Controls 100.2 79.3 13.1 20.9% 60.3
Total 1,940.3 1,456.7 247.8 24.9% 62.1
TABLE 5
PENG PLASMA SOLUTIONS
(millions of Chinese renminbi, Rmb)
2009 2010
Opening Cash Balance 61.2 26.4
"Cash Flow from Investing" for 2009-2010 is based on the reported new investment undertaken in that
year by Peng. A second method of calculating cash flow from investing is to use the following basic
relationship from information presented on the balance sheet alone:
Net Fixed Assets (2010) = Net Fixed Assets (2009) + New Capital Expenditure (2010) - Depreciation (2010)
347.2 = 336.63 + New Capex - 61.96
which, solving for New Capex,
New Capital Expenditure = -72.5
"Cash Flow from Investing" is negative, indicating a new use of cash -- a cash outflow.
TABLE 6
PENG PLASMA SOLUTIONS
(thousands of Chinese renminbi, Rmb)
x x x x
= = = =
x x x x
x x x x
Return on Assets
Return on Equity
x x x x
x x x x
ROE = Return on Equity; ROIC = Return on Invested Capital; EAT = Earnings After Tax
Note 1: Financial leverage multiplier = Pretax ROE / Pretax ROIC
Note 2: Retention rate (b) = Retained earnings / Earnings after tax
The "Sustainable Growth rate" is that rate of sales growth the company could support financially using
internal financing at the current rate of profitability. For example, a 3.1% sustainable growth rate
means that if the company's sales grow faster than 3.1%, at current operating parameters, external
financing will be needed (debt or equity).
TABLE 7
PENG PLASMA SOLUTIONS
Benchmarking 2010 Performance
Peng Plasma is not collecting on its receivables at a comparable rate, and also appears to be carrying significantly
higher inventories than comparable companies.
Peng is also much more highly leveraged, which means it is carrying significantly higher interest expenses as well
as being considered higher in risk than comparable companies.
Although Peng's gross margins are comparable with other companies, its return on sales and returns on all
measures of capital are underperforming.