Question

Balance Sheet
	2014		2015		2016
Assets
Cash	$9,000		$7,282		$14,000
Short-term investments	48,000		20,000		71,632
Accounts receivable	351,200		632,160		878,000
Inventories	751,200		1,287,360		1,716,480
Total current assets	$1,124,000		$1,946,802		$2,680,112
Gross fixed assets	491,000		1,202,950		1,220,000
Less: Accumulated depreciation	146,200		263,160		383,160
Net fixed assets	$344,800		$39,790		$36,840
Total assets	$1,468,800		$2,886,592		$,516,952
	2011		2012		2013
Liabilities & Equity
Accounts payable	$145,600		$324,000		$359,800
Notes payable	200,000		720,000		300,000
Accruals	136,000		284,960		380,000
Total current liabilities	$481,600		$1,328,960		$1,039,800
Long-term debt	323,432		1,000,000		500,000
Common stock (100,000 shares)	460,800		460,000		1,680,936
Retained earnings’	203,768		97,632		296,216
Total equity	$663,768		$557,632		$1,977,152
Total liabilities & Equity	$1,468,800		$2,886,592		$3,516,952
Note: “E†denotes, “estimated†; the 2013 data for forecasts.
Income Statement
	2014		2015		2016
Sales	$3,432,000		$5,834,400		$7,035,600
Cost of goods sold	2,864,000		4,980,000		5,800,000
Other expenses	340,000		720,000		612,960
Depreciation & Amortization	18,900		116,960		120,000
Total operating Cost	$3,222,900		$5,816,960		$6,532,962
EBIT	$209,100		$17,440		$502,640
Interest expense	62,500		176,000		80,000
EBT	$146,600		($158,560)		$422,640
Taxes (40%)	58,640		(63,424)		169,056
Net Income	$87,960		($95,136)		$253,584
Other Data
Stock price	$8.50		$6.00		$12.17
Shares outstanding	100,000		100,000		250,000
	2011		2012		2013E
EPS	$0.880		($0.951)		$1.014
DPS	$0.220		0.110		0.220
Tax rate	40%		40%		40%
Book value per share	$6.638		$5.576		$7.909
Lease payment	$40,000		$40,000		$40,000
Note: “E†denotes “estimated†; the 2013 data are forecasts.
Ratio Analysis
	2014	2015		2016E		Industry Average
Current	2.3	1.5		------------------		2.7
Quick	0.8	0.5		------------------		1.0
Inventory turnover	4.8	4.5		------------------		6.1
Days sales outstanding	37.3	39.6		------------------		32.0
Fixed assets turnover	10.0	6.2		-----------------		7.0
Total assets turnover	2.3	2.0		---------------		2.5
Debt ratio	54.8%	80.7%		--------------		50.0%
TIE	3.3	0.1		--------------		6.2
EBITDA Coverage	2.6	0.8		--------------		8.0
Profit margin	2.6%	-1.6%		--------------		3.6%
Basic earning power	14.2%	0.6%		--------------		17.8%
ROA	6.0%	-3.3%		--------------		9.0%
ROE	13.3%	-17.1%		--------------		17.9%
Price / Earnings (P/E)	9.7	-6.3		--------------		16.2
Price / Cash flow	8.0	27.5		-------------		7.6
Market / Book	1.3	1.1		-------------		2.9

Use the extended DuPont equation to provide a summary and overview of Computron’s finan- cial condition as projected for 2016. What are the firm’s major strengths and weaknesses?

Answer 1

Extended dupont ROE Analysis equation=NI/EBT xEBT/EBITxEBIT/SxS/AxA/E

Extended dupont ROE Analysis equation=Tax burden x Interest burden xEBIT Margin xTotal asset turnover ratio x financial leverage ratio

S=Sales

A=Average total assets

EBIT=Earning before interests and taxes

EBT=Earning before taxes

NI=Net Income

E=Average shareholder's equity.

Now let's calulate these ratios one by one for our analysis for year 2016

Sales for 2016 S= $7,035,600

Average total assets;= ($2,886,592+$516,952)/2=$1,701,772

EBIT=$502,640

EBT=$422,640

NI=$253,584

Assuming the commo stock value in year 2013 includes both( Sharecapital raisea at par value and excees paid capital in excess of par value)

Now in year 2016, we see the outstandin shares have been increased by 150,00, therefore the paid up capital + excess paid up capital will refelect for dditional shares issued;

E =($1936976+$3961060)/2( I have calculated shareholder's equity for year 2014-2016( attached excel below for your referene)

E=$2,949,018

Let Put all the values in extende Dupont equation for ROE analysis.

ROE=NI/EBT xEBT/EBITxEBIT/SxS/AxA/E

ROE=253584/422640 x422640/502640x502640/7035600x7035600/1701772x1701772/2949018

ROE=0.6 x 0.84 x .071 x 4.13 x 0.577

ROE=0.085989=8.6%

Company's EBIT margins are on the lower side, asset turover ration is also healthy, tax burden seems on the higher side,interest burden is also on the higher side, and ROE is also on the lower side.

The company seems to highly levereged , impacting is bottom line heavily.

It;s operting expenses are also increasing.,

Strenths are good use of assets,

Fair liquidity