In: Finance
Analyze the financial statements below as an individual who would invest in this company. Would you invest? Why or why not? Support your answer using what you have learned and type an essay supporting your answer. (5 points)
(2) Sales increase by 10 percent. What are the Additional Funds Needed (AFN)? (2 points)
The balance sheet and income statement shown below are for Flowers, Inc.
Balance Sheet (Millions of $)
Assets 2012
Cash and securities $ 1,554.0
Accounts receivable 9,660.0
Inventories 13,440.0
Total current assets $24,654.0
Net plant and equipment 17,346.0
Total assets $42,000.0
Liabilities and Equity Accounts payable $ 7,980.0
Notes payable 5,880.0 Accruals 4,620.0
Total current liabilities $18,480.0
Long-term bonds 10,920.0
Total debt $29,400.0
Common stock 3,360.0
Retained earnings 9,240.0
Total common equity $12,600.0
Total liabilities and equity $42,000.0
Income Statement (Millions of $)
2012
Net sales $58,800.0
Operating costs except depr'n $54,978.0
Depreciation $ 1,029.0
Earnings bef int and taxes (EBIT) $ 2,793.0
Less interest 1,050.0
Earnings before taxes (EBT) $ 1,743.0
Taxes $ 610.1
Net income $ 1,133.0
Other data:
Shares outstanding (millions) 175.00
Common dividends $ 509.83
Int rate on notes payable & L-T bonds 6.25%
Federal plus state income tax rate 35%
Year-end stock price $77.69
Please provide why or why not invest on this company. and why or why not AFN?
Income Statement (Millions of $) | |||
2012 | 2012 | Forecast | Basis |
Net sales | 58800 | 64680 | 2012 sales*1.1 |
Operating costs except depr'n | -54978 | -60476 | sales*93.5% as in 2012 |
Depreciation | -1029 | -1132 | 2012 depn.*1.1 |
Earnings bef int and taxes (EBIT) | 2793 | 3072 | |
Less interest | -1050 | -1050 | Same as in 2012 |
Earnings before taxes (EBT) | 1743 | 2022 | |
Taxes | -610 | 708 | EBT*35% |
Net income | 2353 | 1314 | 4.00% |
Other data: | |||
Shares outstanding (millions) | 175 | 175 | Same as in 2012 |
Common dividends(Div./Net Income) | 509.83 | 284.80 | 21.67% |
Additions to Retained earnings(RE/NI) | 1843 | 1030 | 78.33% |
Int rate on notes payable & L-T bonds | 6.25% | ||
Federal plus state income tax rate | 35% | ||
Year-end stock price | 77.69 | 43.40 | 77.69/13.45*7.51 |
EPS= | 13.45 | 7.51 | |
NI/No.of shares o/s |
Balance Sheet (Millions of $) | |||
Assets | 2012 | Basis | Forecast |
Cash and securities | 1554 | 1554*1.1= | 1709.4 |
Accounts receivable | 9660 | 9660*1.1= | 10626 |
Inventories | 13440 | 13440*1.1= | 14784 |
Total current assets | 24654 | 24654*1.1= | 27119.4 |
Net plant and equipment | 17346 | 17346*1.1= | 19080.6 |
Total assets | 42000 | 42000*1.1= | 46200 |
Liabilities and Equity | |||
Accounts payable | 7980 | 7980*1.1= | 8778 |
Notes payable | 5880 | Same | 5880 |
Accruals | 4620 | 4620*1.1= | 5082 |
Total current liabilities | 18480 | 19740 | |
Long-term bonds | 10920 | Same | 10920 |
Total debt | 29400 | 30660 | |
Common stock | 3360 | 3360 | 3360 |
Retained earnings | 9240 | 9240+1030= | 10270 |
Total common equity | 12600 | 13630 | |
Total liabilities and equity | 42000 | 44290 | |
Additional Financing Needed(Bal.fig.) | TA-(L&E) | 1910 | |
Total assets (From above) | 46200 |
1.The Price/Earnings ratio , the price after this expansion, seems to fall to---- 77.69/13.45*7.51=$ 43.40 |
2. This may be due to the very heavy cost of goods sold % age at 93.5% |
3. Also with increase in debt(the effect of which have not been included in the forecast , as the AFN is supposed to occur at the last day of the fiscal yr.) interest expenses are bound to go up, pushing the net income & the EPS further down--- which will have a further downward effect in prices, if 2012 P/E multiple is used. |
So, it is suggested NOT TO INVEST in this Company. |
2.Additional financing is needed because |
when sales increases by 10%, additional investment in working capital assets as well as fixed assets are needed to support this increase. |
AFN is calculated as |
Increase in total assets-Increase in spontaneous liabilities-Increase in Retained Earnings |
ie.(42000*0.1)-((7980+4620)*0.1)-1030= |
1910 |