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In: Finance

Analyze the financial statements below as an individual who would invest in this company. Would you...

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?

Solutions

Expert Solution

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

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