Question

Start with the partial model in the file Ch03 P15 Build a Model.xls from the textbook’s
Web site. Joshua & White (J&W) Technologies’s financial statements are also shown
below. Answer the following questions. (Note: Industry average ratios are provided in
Ch03 P15 Build a Model.xls.)
a. Has J&W’s liquidity position improved or worsened? Explain.
b. Has J&W’s ability to manage its assets improved or worsened? Explain.
c. How has J&W’s profitability changed during the last year?
d. Perform an extended Du Pont analysis for J&W for 2009 and 2010. What do
these results tell you?
e. Perform a common size analysis. What has happened to the composition (that is,
percentage in each category) of assets and liabilities?
f. Perform a percentage change analysis. What does this tell you about the change
in profitability and asset utilization?

Joshua & White Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets 2010 2009

Liabilities
& Equity 2010 2009

Cash and cash
equivalents $ 21,000 $ 20,000 Accounts payable $ 33,600 $ 32,000
Short-term
investments 3,759 3,240 Accruals 12,600 12,000
Accounts
receivable 52,500 48,000 Notes payable 19,929 6,480
Inventories 84,000 56,000

Total current
liabilities $ 66,129 $ 50,480

Total current
assets $161,259 $127,240

Long-term
debt 67,662 58,320
Net fixed assets 218,400 200,000 Total liabilities $133,791 $108,800
Total assets $379,659 $327,240 Common stock 183,793 178,440

Retained
earnings 62,075 40,000
Total common
equity $245,868 $218,440
Total liabilities
& 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. & amort. 327,600 320,000
EBITDA $ 92,400 $ 80,000
Depreciation and amortization 19,660 18,000
EBIT $ 72,740 $ 62,000

resource
116 Part 1: Fundamental Concepts of Corporate Finance

2010 2009
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
Other Data 2010 2009
Year-end stock price $ 90.00 $ 96.00
Number of shares (Thousands) 4,052 4,000
Lease payment (Thousands of Dollars) $20,000 $20,000
Sinking fund payment (Thousands of Dollars) $ 0 $ 0

Answer 1

A) Liquidity ratio of a company can be determined by Current Ratio and Quick Ratio         

The liquidity position of JW is worsened because the current ration has fallen from 2.53 to 2.44 time and also the quick ration has fallen from 1.41 to 1.17 times

b) Asset Management position of a company can be determined by:

1. Total asset turnover ratio

2. Fixed asset turnover ratio

3. Day’s sales outstanding

4. Inventory turnover ratio

c) Probability ration of a company can be determined by

1. Operating Profit

2. Profit Margin

3. Return on total asset

4. Basic energy power

5. Return on Equity

d)

Also there is increase in the profit of the company by 0.55% from 2012

e)

Current liability increased by 2% and the common equity decreased by 2%

The overall analysis was increase in current assets and liability on reducing the non-current assets or fixed assets and common equity

f)