Question

Joshua & White Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets			2016	2015
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)
			2016	2015
Sales			$420,000	$400,000
COGS except excluding depr. and amort.			300,000	298,000
Depreciation and Amortization			19,660	18,000
Other operating expenses			27,600	22,000
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			2016	2015
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)			$5,000	$5,000
Ratio Analysis			2016	2015	Industry Avg
Liquidity Ratios
Current Ratio					2.58
Quick Ratio					1.53
Asset Management Ratios
Inventory Turnover (Total COGS/Inventories)					7.69
Days Sales Outstanding					47.45
Fixed Assets Turnover					2.04
Total Assets Turnover					1.23
Debt Management Ratios
Debt Ratio (Total debt-to-assets)					20.0%
Liabilities-to-assets 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
2016
2015
e. Perform a common size analysis. What has happened to the composition
(that is, percentage in each category) of assets and liabilities?
Common Size Balance Sheets
Assets			2016	2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets				100.0%
Liabilities and equity			2016	2015
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Common Size Income Statements			2016	2015
Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
pg 120
f. Perform a percent change analysis. What does this tell you about the change in profitability
and asset utilization?
Percent Change Balance Sheets				Base
Assets			2016	2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
				Base
Liabilities and equity			2016	2015
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
				Base
Percent Change Income Statements			2016	2015
Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
pg 121

Answer 1

1. Joshua & White's Liquidity Position

First we will calculate Current Ratios and Quick Ratios for both year.

Particulars	Year 2015	Year 2016
Current Ratio	Current Assets/Curret Liability	Current Assets/Current Liability
	= 127240/50480	161259/66129
	=2.52	2.43
Quick Ratio	Cash+Cash Equivalent+Short term Investents+Current Receivables/Current Liabilities	Cash+Cash Equivalent+Short term Investents+Current Receivables/Current Liabilities
	= 20000+3240+48000/50480	= 21000+3759+52500/66129
	= 71240/50480	= 77259/66129
	= 1.41	= 1.16

As per ratios , liquidity position of Joshua & White's has worsened.

2. Joshua & White's Ability to Manage its assets

We will be able to answer this question through following ratios calculation :

Particulars	Year 2015	Year 2016
Inventory Turnover	= Total COGS/Inventories	= Total COGS/Inventories
	= 298000/56000	= 300000/84000
	=5.32	= 3.57
Days sales Outstanding	= Receivables/Avg Sales per day	= Receivables/Avg Sales per day
	= 48000/400000divided by 365 i.e. (48000*365)/400000	= 52000/420000divided by 365 i.e. (52000*365)/420000
	= 43.80 Days	= 45.19 Days
Fixed Asset turnover Ratio	= Net Sales/ Average Fixed Assets	= Net Sales/ Average Fixed Assets
	= 400000/200000	= 420000/209200
	= 2	= 2.01
Total assets Turnover ratio	= Net sales/Average Total Assets	= Net Sales/Average Total Assets
	= 400000/327240	= 420000/353449
	= 1.22	= 1.19

From the ratios comparison for 2015 and 2016 we can say that Joshua & White's Ability to Manage its assets has worsened.

3. Joshua & White's Profitability

We will be able to answer this question through following ratios calculation :

Particulars	Year 2015	Year 2016
Profit Margin	= Net Income/Net Sales	= Net Income/Net Sales
	= 34524/400000	= 40200/420000
	= 8.63%	= 9.57%
Basic Earning Power	= EBIT/Total Assets	= EBIT/Total Assets
	= 62000/327240	= 72740/379659
	= 18.95%	= 19.16%
Return on Assets	= Net Income/Total Assets	= Net Income/Total Assets
	= 34524/327240	= 40200/379659
	= 10.55%	= 10.59%
Return on Equity	= Net Income/Average Equity	= Net Income/Average Equity
	= 34524/218440	= 40200/245868
	= 15.80%	= 16.35%

As per above ratio working we can say that Joshua & White's Profitability has improved.