Question

Lan & Chen Technologies: Income Statements for Year Ending December 31
(Thousands of Dollars)				2010	2009
Sales				$945,000	$900,000
Expenses excluding depreciation and amortization				812,700	774,000
EBITDA				$132,300	$126,000
Depreciation and amortization				33,100	31,500
EBIT				$99,200	$94,500
Interest Expense				10,470	8,600
EBT				$88,730	$85,900
Taxes (40%)				35,492	34,360
Net income				$53,238	$51,540
Common dividends				$43,300	$41,230
Addition to retained earnings				$9,938	$10,310
Lan & Chen Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets				2010	2009
Cash and cash equivalents				$47,250	$45,000
Short-term investments				3,800	3,600
Accounts Receivable				283,500	270,000
Inventories				141,750	135,000
Total current assets				$476,300	$453,600
Net fixed assets				330,750	315,000
Total assets				$807,050	$768,600
Liabilities and equity
Accounts payable				$94,500	$90,000
Accruals				47,250	45,000
Notes payable				26,262	9,000
Total current liabilities				$168,012	$144,000
Long-term debt				94,500	90,000
Total liabilities				$262,512	$234,000
Common stock				444,600	444,600
Retained Earnings				99,938	90,000
Total common equity				$544,538	$534,600
Total liabilities and equity				$807,050	$768,600
Key Input Data
Tax rate				40%
Net operating working capital
2010	NOWC =	Operating current assets	-	Operating current liabilities
2010	NOWC =		-
2010	NOWC =
2009	NOWC =	Operating current assets	-	Operating current liabilities
2009	NOWC =		-
2009	NOWC =
Total net operating capital
2010	TOC =	NOWC	+	Fixed assets
2010	TOC =		+
2010	TOC =
2009	TOC =	NOWC	+	Fixed assets
2009	TOC =		+
2009	TOC =
Investment in total net operating capital
		2010		2009
2010	Inv. In TOC =	TOC	-	TOC
2010	Inv. In TOC =		-
2010	Inv. In TOC =
Net operating profit after taxes
2010	NOPAT =	EBIT	x	( 1 - T )
2010	NOPAT =		x
2010	NOPAT =
Free cash flow
2010	FCF =	NOPAT	-	Net investment in operating capital
2010	FCF =		-
2010	FCF =
Return on invested capital
2010	ROIC =	NOPAT	/	Total net operating capital
2010	ROIC =		/
2010	ROIC =
b. Assume that there were 15 million shares outstanding at the end of the year, the year-end closing stock price was $65 per share, and the after-tax cost of capital was 8%. Calculate EVA and MVA for the most recent year.
Additional Input Data
Stock price per share		$65.00
# of shares (in thousands)		15,000
After-tax cost of capital		8.0%
Market Value Added
MVA =	Stock price	x	# of shares	-	Total common equity
MVA =		x		-
MVA =				-
MVA =
Economic Value Added
EVA =	NOPAT	-	(Operating Capital	x	After-tax cost of capital)
EVA =		-		x
EVA =		-
EVA =
Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2010 2009 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 218,400 200,000 Total assets $379,659 $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 183,793 178,440 Retained Earnings 62,075 40,000 Total common equity $245,868 $218,440 Total liabilities and equity $379,659 $327,240 Joshua & White Technologies December 31 Income Statements (Thousands of Dollars) 2010 2009 Sales $420,000 $400,000 Expenses excluding depr. and amort. 327,600 320,000 EBITDA $92,400 $80,000 Depreciation and Amortization 19,660 18,000 EBIT $72,740 $62,000 Interest Expense 5,740 4,460 EBT $67,000 $57,540 Taxes (40%) 26,800 23,016 Net Income $40,200 $34,524 Common dividends $18,125 $17,262 Addition to retained earnings $22,075 $17,262 Other Data 2010 2009 Year-end Stock Price $90.00 $96.00 # of shares (Thousands) 4,052 4,000 Lease payment (Thousands of Dollars) $20,000 $20,000 Sinking fund payment (Thousands of Dollars) $0 $0 Ratio Analysis 2010 2009 Industry Avg Liquidity Ratios    Current Ratio 2.58    Quick Ratio 1.53 Asset Management Ratios    Inventory Turnover 7.69    Days Sales Outstanding 47.45    Fixed Assets Turnover 2.04    Total Assets Turnover 1.23 Debt Management Ratios    Debt Ratio 32.1%    Times-interest-earned ratio 15.33    EBITDA coverage ratio 4.18 Profitability Ratios    Profit Margin 8.86%    Basic Earning Power 19.48%    Return on Assets 10.93%    Return on Equity 16.10% Market Value Ratios    Earnings per share NA    Price-to-earnings ratio 10.65    Cash flow per share NA    Price-to-cash flow ratio 7.11    Book Value per share NA    Market-to-book ratio 1.72 a. Has Joshua & White's liquidity position improved or worsened? Explain. b. Has Joshua & White's ability to manage its assets improved or worsened? Explain. c. How has Joshua & White's profitability changed during the last year? d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009. ROE =           PM     x TA Turnover    x    Equity Multiplier 2010 2009

Answer 1