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Week 2 Chapter 3 - Financial Build A Model

Corporate Financial Accounting (Johnson & Wales University)

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Build a Model
Chapter: 3
Problem: 15

Joshua & White Technologies: December 31 Balance Sheets

(Thousands of Dollars)

Assets 2019 2018

Cash and cash equivalents $21,000 $20,000
Short-term investments 3,759 3,240
Accounts Receivable 52,500 48,000
Inventories 84,000 56,000
Total current assets $161,259 $127,240
Net fixed assets 223,097 200,000
Total assets $384,356 $327,240

Liabilities and equity

Accounts payable $33,600 $32,000
Accruals 12,600 12,000
Notes payable 19,929 6,480
Total current liabilities $66,129 $50,480
Long-term debt 67,662 58,320
Total liabilities $133,791 $108,800
Common stock 178,440 178,440
Retained Earnings 72,125 40,000
Total common equity $250,565 $218,440
Total liabilities and equity $384,356 $327,240

Joshua & White Technologies December 31 Income Statements

(Thousands of Dollars)
2019 2018
Sales $420,000 $400,000
COGS except excluding depr. and amort. 300,000 298,000
Depreciation and Amortization 19,660 18,000
Other operating expenses 27,600 22,000
EBIT $72,740 $62,000
Interest Expense 5,740 4,460
EBT $67,000 $57,540
Taxes (25%) 16,750 14,385
Net Income $50,250 $34,524

Common dividends $18,125 $17,262

Addition to retained earnings $32,125 $17,262

Other Data 2019 2018

Year-end Stock Price $90.00 $96.00

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# of shares (Thousands) 4,052 4,000

Lease payment (Thousands of Dollars) $20,000 $20,000
Sinking fund payment (Thousands of Dollars) $5,000 $5,000

Ratio Analysis 2019 2018 Industry Avg

Liquidity Ratios
Current Ratio 2.44 2.52 2.58
Quick Ratio 1.17 1.41 1.53
Asset Management Ratios
Inventory Turnover (Total COGS/Inventories) 3.81 5.64 7.69
Days Sales Outstanding 45.63 43.80 47.45
Fixed Assets Turnover 1.88 2.00 2.04
Total Assets Turnover 1.09 1.22 1.23
Debt Management Ratios
Debt Ratio (Total debt-to-assets) 22.8% 19.8% 20.0%
Liabilities-to-assets ratio 34.8% 33.2% 32.1%
Times-interest-earned ratio 12.67 13.90 15.33
EBITDA coverage ratio 3.66 3.39 4.18
Profitability Ratios
Profit Margin 11.96% 8.63% 8.86%
Basic Earning Power 18.93% 18.95% 19.48%
Return on Assets 13.07% 10.55% 10.93%
Return on Equity 20.05% 15.80% 16.10%
Market Value Ratios
Earnings per share $12.40 $8.63 NA
Price-to-earnings ratio 7.26 11.12 10.65
Cash flow per share $17.25 $13.13 NA
Price-to-cash flow ratio 5.22 7.31 7.11
Book Value per share $61.84 $54.61 NA
Market-to-book ratio 1.46 1.76 1.72

a. Has Joshua & White's liquidity position improved or worsened? Explain.

Joshua & White's current and quick ratio were both below indsutry average for 2018 & 2019. It is diffic
if the co's liquidity position has worsened. From a creditors perspective, the decrease could imply that
current liabilities are increasing . And from a shareholder's perspective, the decrease could mean the
tied up in nonproductive assets.

b. Has Joshua & White's ability to manage its assets improved or worsened? Explain.

Joshua & White's ability to manage assets has worsened. Not only is the 2019 debt-asset ratio higher
standard but it has also increased from 2018. Which means that the company has increased liabilites
putting itself at risk of defaulting in the instance that interest rates were to rise suddenly.

c. How has Joshua & White's profitability changed during the last year?
Joshua & White's sales and net income have increased since 2018. Therefore, the company saw a ris

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profit margin or their profit per dollar of sales. Their profit margin is significantly over the industry avera

d. Perform an extended Du Pont analysis for Joshua & White for each year.
ROE = PM x TA Turnover x Equity Multiplier
2019 20.05% 11.96% 1.09 1.53
2018 15.80% 8.63% 1.22 1.50

The ROE has improved because of the profit margin increases - regardless of the decrease in total as
This company became more profitable and financially leveraged

e. Perform a common size analysis. What has happened to the composition

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11/26/2018

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cult to dtermine
t the co.'s
less money

r than industry
and potentially

se in their net

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age for 2019 .

sset turnover.

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