Question

CONDENCED STATEMENT OF CASH FLOW

FOR THE YEAR ENDED DECEMBER 31 (IN THOUSANDS)  

2011

Cash flows from operating activities  

Cash receipts from operating activities  

$12,000

   Cash payments for operating activites  

10,000

Net cash provided by operating activities   3,000

Cash flows from investing activities  

Purchases of property, plant, and equipment   (500)

Other investing activities  

(130)

Net cash used in investing activities  

(630)

Cash flows from financing activities  

Issuance of common stock  

160

Issuance of debt  

2,179

Reductions of debt  

-2,01

Payment of dividends  

-475

Repurchase of common stock and other items   -645

Net cash provided (used) by financing activities   -792

Increase (decrease) in cash and cash equivalents   1,578

Cash and cash equivalents at beginnign of year   411

Cash and cash equivalents at end of year  

$1,989

Additional information  

2011

Average number of shares (thousands)  

500

Stock price atr year-end  

$60.00

					2011		2010
Net sales					$12,000		$11,000
Cost of goods sold					7,000		6,500
Gross profit					5,500		5,000
Selling and administrative expenses					3,000		3,000
Income from operations					2,500		2,000
Interest expense					320		310
Other income (expense), net					10		5
Income before income taxes					2,190		1,695
Income taxe expens					440		460
Net Income					$1,750		$1,235
	Assets Assets Assets Assets Assets Assets Current Assets      cash $600 $500      Accounts Recievable 1,200 1000      Marketable Securities (short term investments) 100 90     Inventory 924 824    Prepaid Expenses and other current Assets 243 247             Total Current Assets 3,067 2,661 Prperty assets (net) 2,990 2,816 Intangaibles and other assets 5,690 5,471             Total Assets $11,747 $10,948 Liabilities and Stockholders' Equity Current Liabilites $4,200 $4,184 Long-term Liabilites 4,900 4,625 Stockholdrs' equity- Common 2,647 2,139             Total Liabilites and Stockholders' Equity $11,747 $10,948

1. Compute the following from the spreadsheet. I need the numerical answer, a brief discussion of what the ratio means and if the company is in a position of strength or weakness (to the best you can without having a company to compare)

Current ratio

Quick Ratio

Debt to Asset

Debt to Equity

ROA (for year 2011)

ROE (for year 2011)

Inventory Turnover

EPS

P/E

Answer 1

Sr No	Ratio	General Meaning	Formula	2011	2010	Interpretation
1	Current Ratio	It is companys strength or capacity to fulfil its liabilities	Current Assets/ Current Liabilities
			Current assets	3067	2661
			Current Liabilities	4200	4184
			Current ratio	0.730238095	0.635994264	Since this has gone up. Co is in a better position to repay its liabilities.
2	Quick Ratio	It is companys strength or capacity to fulfil its Short term liabilities	(Current Assets- Inventory) / Current Liabilities
			Current assets	3067	2661
			Inventory	-924	-824
			Subtotal	2143	1837
			Current Liabilities	4200	4184
			Quick Ratio	0.510238095	0.439053537	It means more liquidity in the company. The company is more financially secure in near future.
3	Debt to Asset Ratio	How much % of Assets of the company are financed by Debt. This ratio indicates Financial Risk.	Total Debt/Total Assets
			Total Debt	4900	4625
			Total Assets	11747	10948
			Debt to Asset Ratio	0.417127777	0.422451589	This has come down, so it is a good sign as it indicates lower Financial risk.
4	Debt to Equity Ratio	Indicates Proportion of Debt and Equity in the company	Total Liabilities/Owners Equity
			Total Debt	4900	4625
			Owners Equity	2647	2139
			Debt to Equity Ratio	1.851152248	2.162225339	This should be seen along with the cost of debt to take a view as more debt leads to more earnings but also leads to moere Interest Cost.
5	Return on Assets	How much profit is earned in relation to its assets by a company	Net income / Total Assets
			Net Income	1750	1235
			Total Assets	11747	10948
			Return on Assets	14.90%	11.28%	This has increased so Co is earning more and is a good sign.
6	Return on Equity	How much profit is earned for the Owners Capital	Net income / Owners Equity
			Net Income	1750	1235
			Owners Capital	2647	2139
			Return on Equity	66.1%	57.7%	This has increased so Co is earning more for the Equity Shareholders also. This is a good sign and boosts confidence in the company.
7	Inventory Turnover	how many times a companys inventory is sold in the year	Sales / Inventory
			Sales	12000	11000
			Inventory	924	824
			Inventory Turnover	12.98701299	13.34951456	As this is increasing it is good as more sales are been made with same amount of inventory.
8	Earnings per Share	How much does the company earn for Equity	Net Income/ Average no of Shares
			Net Income	1750	1235
			Avg No of Shares	500	500
			Earnings per Share	3.5	2.47	This has gone up means the company is earning more for the each share. This is a very good sign and indicates a upward trend in the growth of the company.
9	PE Ratio	Measure of Price in relation to EPS	Mkt Price/ EPS
			Market Price	60
			EPS	3.5
			PE Ratio	17.14285714		This indicates how many times more is the investor willing to pay for the company i.e. here Investor is willing to pay 17.14 times more than the EPS of the Company. Generally higher PE means good. It should be compared with industry Average also.