Question
In: Finance
Dec 31 Industry Average Balance Sheet (000) 2015 2016 2017 $ % of TA $ %...
| Dec 31 | Industry Average | ||||||||||||||
| Balance Sheet (000) | 2015 | 2016 | 2017 | ||||||||||||
| $ | % of TA | $ | % of TA | $ | % of TA | ||||||||||
| Assets | |||||||||||||||
| Current assets | |||||||||||||||
| Cash | 1,512 | 6.81% | 1,176 | 3.6% | 1,097 | 2.3% | 6% | ||||||||
| Accounts receivable | 6,237 | 28.09% | 10,271 | 31.2% | 15,919 | 33.4% | 20% | ||||||||
| Inventories | 4,536 | 20.43% | 7,838 | 23.8% | 12,570 | 26.4% | 31% | ||||||||
| Prepaid expenses | 3,780 | 17.02% | 5,140 | 15.6% | 6,840 | 14.3% | 5% | ||||||||
| Total current assets | 16,065 | 72.35% | 24,425 | 74.2% | 36,426 | 76.4% | 62% | ||||||||
| Gross fixed assets | 6,300 | 28.37% | 9,080 | 27.6% | 12,918 | 27.1% | 25% | ||||||||
| Less: Accumulated depreciation | 2,050 | 9.23% | 2,958 | 9.0% | 4,250 | 8.9% | 9% | ||||||||
| Net fixed assets | 4,250 | 19.14% | 6,122 | 18.6% | 8,668 | 18.2% | 28% | ||||||||
| Intangible assets | 567 | 2.55% | 588 | 1.8% | 605 | 1.3% | 4% | ||||||||
| All other noncurrent assets | 1,323 | 5.96% | 1,790 | 5.4% | 1,985 | 4.2% | 6% | ||||||||
| Total Assets | 22,205 | 100.00% | 32,925 | 100.0% | 47,684 | 100.0% | 100% | ||||||||
| Liabilities and Stockholders Equity | |||||||||||||||
| Current liabilities | |||||||||||||||
| Notes payable | 1,205 | 5.4% | 3,243 | 9.8% | 6,323 | 13.3% | 8% | ||||||||
| Current maturities--L.T.D. | 1,008 | 4.5% | 1,460 | 4.4% | 2,246 | 4.7% | 5% | ||||||||
| Accounts payable | 3,570 | 16.1% | 5,958 | 18.1% | 9,955 | 20.9% | 16% | ||||||||
| Income taxes payable | 84 | 0.4% | 336 | 1.0% | 336 | 0.7% | 0% | ||||||||
| Accruals & other Non Current Liabilities | 1,995 | 9.0% | 3,360 | 10.2% | 5,016 | 10.5% | 8% | ||||||||
| Total current liabilities | 7,862 | 35.4% | 14,357 | 43.6% | 23,876 | 50.1% | 36% | ||||||||
| Long-term debt | 2,940 | 13.2% | 6,100 | 18.5% | 9,350 | 19.6% | 13% | ||||||||
| Total Liabilities | 10,802 | 48.6% | 20,457 | 62.1% | 33,226 | 69.7% | 61% | ||||||||
| Stockholder’s equity | |||||||||||||||
| Common stock | 3,360 | 15.1% | 3,360 | 10.2% | 3,360 | 7.0% | |||||||||
| Paid-in capital | 2,100 | 9.5% | 2,100 | 6.4% | 2,100 | 4.4% | |||||||||
| Retained earnings | 5,943 | 26.8% | 7,008 | 21.3% | 8,998 | 18.9% | |||||||||
| Total stockholders’ equity | 11,403 | 51.4% | 12,468 | 37.9% | 14,458 | 30.3% | 39% | ||||||||
| Total liabilities & equity | 22,205 | 32,925 | 100.0% | 47,684 | 100.0% | 100% | |||||||||
| Industry Average | |||||||||||||||
| Income Statement | 2015 | 2016 | 2017 | ||||||||||||
| $ | % of Sales | $ | % of Sales | $ | % of Sales | ||||||||||
| Sales Revenue (All Sales are on account) | 50,400 | 100% | 65,100 | 100% | 81,312 | 100% | 100.0% | ||||||||
| Less Cost of Goods Sold | 35,431 | 70% | 45,872 | 70% | 57,098 | 70% | 71.5% | ||||||||
| Gross Profit | 14,969 | 30% | 19,228 | 30% | 24,214 | 30% | 28.5% | ||||||||
| Less Operating Expenses | |||||||||||||||
| Gen & Admin and Selling | 12,331 | 24% | 15,099 | 23% | 17,296 | 21% | 19.6% | ||||||||
| Depreciation Expense | 630 | 1% | 908 | 1% | 1,292 | 2% | 3.4% | ||||||||
| Total Operating Expenses | 12,961 | 26% | 16,007 | 25% | 18,588 | 23% | 23.0% | ||||||||
| Operating Income (EBIT) | 2,008 | 4% | 3,221 | 5% | 5,626 | 7% | 5.5% | ||||||||
| Less Interest Expense | 335 | 1% | 756 | 1% | 1,343 | 2% | 1.1% | ||||||||
| Earnings before taxes (EBT) | 1,673 | 3% | 2,465 | 4% | 4,283 | 5% | 4.4% | ||||||||
| Less Income Taxes (34%) | 569 | 1% | 838 | 1% | 1,456 | 2% | 1.8% | ||||||||
| Net Income | 1,104 | 2% | 1,627 | 2% | 2,827 | 3% | 6.9% | ||||||||
| Common Stock Dividends (000) | 314 | 562 | 837 | ||||||||||||
| Number shares common stock (000) | 1,120 | 1,120 | 1,120 | ||||||||||||
| Earnings per Common Share (EPS) | 0.71 | 0.95 | 1.78 | ||||||||||||
| Market price per common share | 17.25 | 17.71 | 18.43 | ||||||||||||
| Industry Average | |||||||||||||||
| Financial Ratios | 2015 | 2016 | 2017 | ||||||||||||
| Liquidity | |||||||||||||||
| Accounts receivables turnover (times) | 8.08 | 6.34 | 5.11 | 9.4 | |||||||||||
| Average Collection Period (days) | 45.17 | 57.59 | 71.46 | 38.8 | |||||||||||
| Inventory turnover (times) | 7.81 | 5.85 | 4.54 | 3.8 | |||||||||||
| Average days in inventory (days) | 46.73 | 62.37 | 80.35 | 96.1 | |||||||||||
| Current ratio (times) | 2.04 | 1.70 | 1.53 | 1.6 | |||||||||||
| Quick or Acid-test ratio (times) | 0.99 | 0.80 | 0.71 | 0.8 | |||||||||||
| Solvency | |||||||||||||||
| Debt to Equity Ratio | 94.7% | 164.1% | 229.8% | 0.667 | |||||||||||
| Times interest earned (times) | 5.99 | 4.26 | 4.19 | 3.4 | |||||||||||
| Profitability | |||||||||||||||
| Gross profit ratio (%) | 29.7% | 29.5% | 29.8% | 5.4% | |||||||||||
| Profit margin (%) [before tax] | 2.2% | 2.5% | 3.5% | 4.4% | |||||||||||
| Asset Turnover | 2.26975906 | 1.977221 | 1.705226 | 1.8 | |||||||||||
| Return on assets (%) [before tax] | 7.5% | 7.5% | 9.0% | 8.0% | |||||||||||
| Return on equity (%) [before tax] | 14.7% | 19.8% | 29.6% | 17.10% | |||||||||||
| Price to earnings ratio | $ 24.46 | $18.62 | $10.37 | ||||||||||||
| Cash Flow Statement | 2016 | 2017 | |||||||||||
| Cash, beginning of year | $ 1,512.00 | $ 1,176.00 | |||||||||||
| Operating Activities | |||||||||||||
| Net Income | $ 1,627.00 | $ 2,827.00 | |||||||||||
| Plus Depreciation | $ 908.00 | $ 1,292.00 | |||||||||||
| Minus increase in accounts receivable | $ (4,034.00) | $ (5,648.00) | |||||||||||
| Minus increase in inventory | $ (3,302.00) | $ (4,732.00) | |||||||||||
| Minus increase in prepaid expenses | $ (1,360.00) | $ (1,700.00) | |||||||||||
| Plus increase in accounts payable | $ 2,388.00 | $ 3,997.00 | |||||||||||
| Plus increase in income taxes payable | $ 252.00 | $ - | |||||||||||
| Plus increase in accruals & other cur. Liab. | $ 1,365.00 | $ 1,656.00 | |||||||||||
| Net Cash from operating activities | $ (2,156.00) | $ (2,308.00) | |||||||||||
| Investment Activities | |||||||||||||
| Fixed asset acquisitions | $ (2,780.00) | $ (3,838.00) | |||||||||||
| Change in intangible assets | $ (21.00) | $ (17.00) | |||||||||||
| Change in all other noncurrent activities | $ (467.00) | $ (195.00) | |||||||||||
| Net Cash from investing activities | $ (3,268.00) | $ (4,050.00) | |||||||||||
| Financing Activities | |||||||||||||
| Change in notes payable | $ 2,038.00 | $ 3,080.00 | |||||||||||
| Change current maturities--L.T.D. | $ 452.00 | $ 786.00 | |||||||||||
| Change in long-term debt | $ 3,160.00 | $ 3,250.00 | |||||||||||
| Change in Com Stock & paid-in cap | $ - | $ - | |||||||||||
| Dividends paid | $ (562.00) | $ (837.00) | |||||||||||
| Net Cash from financing Activities | $ 5,088.00 | $ 6,279.00 | |||||||||||
| Net Change in Cash | $ (336.00) | $ (79.00) | |||||||||||
| Cash, end of year | $ 1,176.00 | $ 1,097.00 | |||||||||||
9.what is your overall evaluation of HTCM’s financial condition?
10. What is the market’s assessment of HTCM’s financial condition? Explain. Does the market’s assessment confirm or refute your analysis?
11. Based on your evaluation of HTCM and the market’s assessment of the firm, would you accept employment with the company? Explain.
Solutions
Expert Solution
9) The financial condition of the company depends on six key 6 key ratios namely current ratio, quick ratio, return on equity (ROE), earnings per share (EPS), price to earnings (P/E) and debt to equity (D/E). From the given data, all these parameters have improved simultaneously.
Current ratio has improved from 2.04x in CY15 to 1.53x in CY16, quick ratio also improved from 0.99x in CY15 to 0.71x in CY17, ROE also grew from 14.70% in 29.60% in CY17, EPS grew from $ 0.71 in CY15 to $ CY1.78 & hence P/E ratio has declined from 24.3x to 10.4x during the same period, D/E also improved from 94.70% to 229.80% in the same period. Hence, HTCM’s financial condition sounds healthy.
10) Sales grew at a compunded annual growth rate (cagr) of 17% from CY15 to CY17. EBITDA margins grew by 130 bps from 2.2% in CY15 to 3.5% in CY17. Similarly, Net Income margins (PAT to Sales) also grew from 2.2% in CY15 to 3.5% in CY17. Dividend payout ratio consistent at 0.3 of Net Income. The FCFF (free cashflow to the firm) is declined from $-1611.2 in CY16 to $-1314.8 to CY17 due to increase in capital expenditure during the same period, which is fine. So, market’s assessment of HTCM’s financial condition will confirm my analyses.
| CY16 | CY17 | |
| EBIT | 3,221 | 5,626 |
| Tax rate | 0.34 | 0.34 |
| Depreciation | 908 | 1292 |
| Capex | 2,780 | 3,838 |
| Change in WC | 1,865 | 2,482 |
| FCFF | -1611 | -1315 |
11) Based on my evaluation of HTCM and the market’s assessment of the firm, I would accept employment with the company because every financial parameters is improving which states that the company is doing good in its business operations. It will be a good opportunity to work for this company due to sound career progression.
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