Question

I need Answers to Question from P - V!

I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.

Dallas & Associates Financial Statement Preparation & Analysis

You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.

Overview of Dallas & Associate’s Balance Sheet

The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associate’s only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firm’s current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.

Dallas & Associates Income Statement in 2017 (dollars are in millions)

Sales	15
Operating costs excluding depreciation and amortization	5
EBITDA	10
Depreciation & Amortization	0.6
EBIT	9.4
Interest	0.4
EBT	9
Taxes (40%)	3.6
Net Income Cash Dividends	5.4 2.0

Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.

Questions:

a. Prepare the balance sheet.

Total Assets	Liabilities & Shareholder’s Equity

b. What is the amount of total liabilities and equity that appears on the firm’s balance?

c. What is the amount of current assets?

d. What is the balance of current liabilities?

e. What is the amount of company’s inventory?

f. What is the amount of total liabilities?

g. What is the amount of total debt?

h. What is the amount of total capital?

i. What is the amount of net working capital?

j. What is the amount of net operating working capital?

k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?

l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?

m. As the Income of Statement shows in 2017 Dallas associates actually gave out $2 million cash dividends, what is the amount of retained earnings?

n. What is the amount of operating income?

o. What are the operating margin and the profit margin?

p. What is the average length of time that Dallas associates must wait after making a sale before it receives cash?

q. What is the ratio we generally use to estimate a firm’s ability to meet its annual interest payments? And calculate that ratio for Dallas associates.

r. What are the fixed assets turnover ratio and the total asset turnover ratio?

s. What is the ratio of total debt to total capital?

t. What is the ratio of return on common equity?

u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate Dallas & Associates free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] – [Capital Expenditures + Change on Net Operating Working Capital])

v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?

THANK YOU!

Answer 1

Assets		Liabilities and shareholders' equity
Cash and cash equivalents	1500000	Accounts Payable	400000
Accounts receivables	400000	Accruals	600000
Inventory	600000	Total Current liabilities	1000000
Total Current Assets	2500000
		Notes Payable	500000
		Long-term debt	2500000
		Total iabilities	4000000
Plant and Equipment (net)	5000000
		Common Equity	3500000
Total Assets	7500000	Total Liabilities and shraeholders' equity	7500000

b. $7,500000

c. $2,500,000

d. $1,000,000

e. $600,000

f. $4,000,000

g. $3,000,000

h. $6,500,000

i. $1,500,000 (Current assets - current liabilities)

j. $1,500,000 (In the question all current assets and liabilities are operating items)

k. $1,000,000 ($3,500,000 - $2,500,000)

l. There will be no change in the total current assets as the form of the asset changes from cash to marketeable securities.

m.

n. Operating margin = $9.4m ( EBIT)

o. Operating marin = 62.67% ($9.4 / $15)

Profit Margin = 36.00% ($5.4 / $15)

p. 9.73 days . -- Working is given below.

Receivables turnover		37.5
(Receivables / Sales)
Average collection period		9.73	days
(365 / receivables turnover)

q. times interest earned = 23.5 times. (Working is given below.)

EBIT	A	9.4
Interest Expense	B	0.4
Times interest earned (A/B)		23.5	times