Question

The following statements are from Sanderson Farms Inc.’s annual report for 2017.

Task 1: Perform a ratio analysis using at least seven ratios of your choosing.

Explain what these ratios tell you about the company and for each one provide at least ONE

recommendation of an action that management could take to improve that ratio.

Task 2: Create a cash flow statement for the company for 2017.

Sanderson’s Farm Inc. and Subsidiaries
CONSOLIDATED BALANCED SHEETS
	October 31,
	2017	2016
Assets Current Assets:
Cash and Cash Equivalents	$419,285	$234,111
Accounts receivable, net of allowance for uncollectible accounts	138,868	124,348
Inventories	252,756	220,306
Prepaid expenses	38,620	34,559
Total current assets	$49,538	613,324
Property, plant and equipment:	685,811	579,051
Land and buildings	906,804	793,632
Machinery and equipment	906,084	793,632
Construction-in-process	65,189	132,913
	1,657,084	1,505,596
Accumulated depreciation	-780,276	-701,605
	876,808	803,991
Other Assets	6,879	5,385
Total Assets	$1,733,243	$1,422,700
Liabilities and Stockholders’ Equity Current liabilities:
Current Liabilities
Accounts Payable	$90,904	$72,774
Accrued expenses	101,168	57,918
Accrued income expenses	6,649	17,497
Total current liabilities	198,721	148,189
Claims payable and other liabilities	9,762	8,501
Deferred income taxes	91,898	75,743
Total liabilities	300,381	232,438
Shareholder’s Equity:
Common Stock, $1 par value: authorized shares-100,000,000; issued and outstanding
shares - 22,802,690 in 2017 and 22,693,225 in 2016	22,803	22,693
Paid - in capital	134,999	125,855
Retained earnings	1,275,060	1,041,714
Total stockholders’ equity	1,432,862	1,190,262
Total liabilities and stockholders’ equity	$1,733,243	$1,422,700

CONSOLIDATED STATEMENTS OF OPERATIONS
	Years ended October 31,
	2017	2016
Net Sales Cost and expenses:	3,342,226	2,816,057
Cost of sales	2,700,684	2,362,056
Gross profit	641,542	454,001
Selling, general and administrative exp.	216,303	159,890
Operating income	425,239	294,111
Other income (expense):
Interest income	1,167	244
Interest expense	-1,886	-1,708
Other	10	30
	-709	-1,434
Income before income taxes	424,530	292,677
Income tax expense	144,785	103,716
Net income	$279,745	$188,961
Earnings per share: Basic	$12.30	$8.37
Diluted	$12.30	$8.37
Dividends per share	$2.04	$1.90

B. Budgeting.Create a budget for the following project:

B. Budgeting. Create a budget for the following project: Blazer Company plans on purchasing new equipment to retool its manufacturing process. The project will involve the acquisition of equipment, installation of the new equipment, selling off the old equipment, and training the workforce on the new equipment and processes. Blazer expects this project to take two years from beginning to end. Costs and expected income for the project are as shown below. Your task is to create a two-year cash budget for the project and compute a return on investment (ROI) for the project. You may ignore the time value of money in your calculation. You may make reasonable assumptions to complete this problem so long as you document them.

Facts: a. The equipment to be purchased will cost $455,000. The equipment will be purchased and paid for at the beginning of Year 1.

b. The installation cost will be $55,000.

c. Blazer will purchase a maintenance contract for the equipment. The first year of maintenance is included in the purchase price, but maintenance for the second year will cost $28,500

.d.Initial training costs for the equipment will cost $750 per operator. The company has 25 operators. The company expects to have a 20% turnover of its operators in Year 2 and will have to train their replacements.

e. To go along with the new equipment, Blazer will implement a TQM program. This program will cost $14,000 in Year 1 and $32,000 in Year 2. The TQM is expected to save the company $42,500 in manufacturing and material costs in Year 2 when fully implemented, but only half of that in Year 1 during implementation.

f. Because of the new product that the new machinery will produce, the company expects to have increased sales of $675,000 in Year 1 and $1,100,000 in Year 2.

Answer 1

Current Ratio	4.27
Current assets/Current Liabilities
(419285+138868+252756+38620)/198721
The current assets are almost 4 times than current liabilities which is good as for short term, but steps can be taken to reduce accounts receivable and inventory, as lesses current ratio tha 4 can also work
b) Profit margin	8.37
Net Income/sales*100
279745/3342226*100
The profit margin is 8.7%, steps should be taken to decraese the cost of sales and operating expenses , work more efficiently to increase the margin
3) Receivable Turnover	25.4
Sales/Avg accounts Receivable
3342226/((138868+124348)/2)
4) Day sales outstanding	14.37
365/25.4
Receivable turnover is good , the company is able to collect timely from
its customers. This also gets prove from the day sales outstanding.
5) Return on Assets	17.73	%
Net Income/Avg assets*100
279745/((1733243+1422700)/2)*100
ROA is decent but still steps must be taken to imprive it.
6) Gross proft margin	19.2	%
641542/3342226*100
GP ratio needs to be improved bu=y trying to increase the sales and decreasing
the cost of sales which are controllable
7) Inventory Turnover
Cost of good sold/Average inventory	11.42
2700684/((252756+220306)/2)
Stepsshould be taken to improve it as inventory is turned 11 time only.
ans b
Statement of cash flow
Cash flows from operating activities
Net Income		$2,79,745
Adjustments to convert net income to cash basis
Depreciation expenses (780276-701605)	78671
Increase in Accounts receivable	-14520
Increase in Inventories	-32450
Increase in prepaud expenses	-4061
Increase in Accounts paybale	18130
DEcrease in Income tax paybale	-10848
Increase in accured expenses payable	43250
Incraese in claim payable	1,261
Increase in deferred income taxes	16,155.00	95588
Net cash from operating activities		3,75,333.00
Cash flows from investing activities
Purchase of machinery	-112452
Sale of construction in process	67724
Purchase of land and building	-112452
INcraese in other assets	-1494
Net cash used investing activities		(1,58,674.00)
Cash flows from financing activities
Cash payment of dividend(2.04*22802690)/1000	-46517
Issue of Common stock ((22802690-22693225)/1000)+(134999-125855)	9253
		(37,264.02)
Net cash from financing activities		(37,264.02)
Net Increase in cash and cash equivalents		1,79,394.98
Cash and cash equivalents at beginning of period		2,34,111.00
Ending Balance		4,13,505.98
Dear student there are two different questions. I have answered the first one