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1. Calculate Computron’s market value ratios—that is, its price/earnings ratio and its market/book ratio. What do these ratios tell you about investors’ opinions of the company? 2. Use the DuPont equation to provide a summary and overview of Computron’s financial condition. What are the firm’s major strengths and weaknesses?

1. Calculate Computron’s market value ratios—that is, its price/earnings ratio and its market/book ratio. What do these ratios tell you about investors’ opinions of the company? 2. Use the DuPont equation to provide a summary and overview of Computron’s financial condition. What are the firm’s major strengths and weaknesses?

Financial Accounting
Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter17: Financial Statement Analysis
Section: Chapter Questions
Problem 3PB: Effect of transactions on current position analysis Data pertaining to the current position of...
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1. Calculate Computron’s market value ratios—that is, its price/earnings ratio and its market/book ratio.
What do these ratios tell you about investors’ opinions of the company?

2. Use the DuPont equation to provide a summary and overview of Computron’s financial condition. What
are the firm’s major strengths and weaknesses?

 

Assignment 1 Donna Jamison was recently hired a financial analyst by Computron Industries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data. Balance Sheets Assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less accumulated depreciation Net fixed assets Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity (continued) $ 2019 52,000 402,000 836,000 $1,290,000 527,000 166,200 $360,800 $1,650.800 $ 175,200 225,000 140,000 $540,200 424,612 460,000 225,988 $ 685,988 $1,650.800 $ 2018 57,600 351,200 715,200 $1,124,000 491,000 146,200 $ 344,800 $1,468,800 $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $1,468,800 Income Statements Sales Cost of goods sold Other expenses Depreciation Total operating costs EBIT Interest expense EBT Taxes (40%) Net income EPS Statement of Cash Flows (2019) Operating Activities Net income Other additions (sources of cash) Depreciation Increase in accounts payable Increase in accruals Subtractions (uses of cash) Increases in accounts receivable Increase in inventories Net cash flow from operations Long-Term Investing Activities Investment in fixed assets Financing Activities Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from financing Net reduction in cash account Cash at beginning of year Cash at end of year 2019 $3,850,000 (3,250,000) (430,300) (20,000) $3,700,300 $ 149,700 ( 76,000) $ 73,700 (29,480) $ 44,220 $0.442 (continued) $ 44,220 20,000 29,600 4,000 (50,800) (120,800) $ 25,000 101,180 (22,000) 2018 $3,432,000 (2,864,000) (340,000) (18,900) $3,222,900 $ 209,100 (62,500) $ 146,600 ( 58,640) $ 87,960 $0.880 $( 73,780) $( 36,000) $104,180 $( 5,600) 57,600 $ 52,000 Other Data December 31 stock price Number of shares Dividends per share Lease payments Industry average data for 2019: Ratio Current Quick Inventory turnover Days sales outstanding (DSO) Fixed assets turnover Total assets turnover Debt ratio TIE Fixed charge coverage Net profit margin ROA ROE Price/earnings Market/book 2019 $6.00 100,000 $ 0.22 $40,000 2018 $8.50 100,000 $0.22 $40,000 Industry Average 2.7x 1.0x 6.0x 32.0 days 10.7x 2.6x 50.0% 2.5x 2.1x 3.5% 9.1 % 18.2% 14.2x 1.4x
Transcribed Image Text:Assignment 1 Donna Jamison was recently hired a financial analyst by Computron Industries, a manufacturer of electronic components. Her first task was to conduct a financial analysis of the firm covering the last two years. To begin, she gathered the following financial statements and other data. Balance Sheets Assets Cash Accounts receivable Inventories Total current assets Gross fixed assets Less accumulated depreciation Net fixed assets Total assets Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term debt Common stock (100,000 shares) Retained earnings Total equity Total liabilities and equity (continued) $ 2019 52,000 402,000 836,000 $1,290,000 527,000 166,200 $360,800 $1,650.800 $ 175,200 225,000 140,000 $540,200 424,612 460,000 225,988 $ 685,988 $1,650.800 $ 2018 57,600 351,200 715,200 $1,124,000 491,000 146,200 $ 344,800 $1,468,800 $ 145,600 200,000 136,000 $ 481,600 323,432 460,000 203,768 $ 663,768 $1,468,800 Income Statements Sales Cost of goods sold Other expenses Depreciation Total operating costs EBIT Interest expense EBT Taxes (40%) Net income EPS Statement of Cash Flows (2019) Operating Activities Net income Other additions (sources of cash) Depreciation Increase in accounts payable Increase in accruals Subtractions (uses of cash) Increases in accounts receivable Increase in inventories Net cash flow from operations Long-Term Investing Activities Investment in fixed assets Financing Activities Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash flow from financing Net reduction in cash account Cash at beginning of year Cash at end of year 2019 $3,850,000 (3,250,000) (430,300) (20,000) $3,700,300 $ 149,700 ( 76,000) $ 73,700 (29,480) $ 44,220 $0.442 (continued) $ 44,220 20,000 29,600 4,000 (50,800) (120,800) $ 25,000 101,180 (22,000) 2018 $3,432,000 (2,864,000) (340,000) (18,900) $3,222,900 $ 209,100 (62,500) $ 146,600 ( 58,640) $ 87,960 $0.880 $( 73,780) $( 36,000) $104,180 $( 5,600) 57,600 $ 52,000 Other Data December 31 stock price Number of shares Dividends per share Lease payments Industry average data for 2019: Ratio Current Quick Inventory turnover Days sales outstanding (DSO) Fixed assets turnover Total assets turnover Debt ratio TIE Fixed charge coverage Net profit margin ROA ROE Price/earnings Market/book 2019 $6.00 100,000 $ 0.22 $40,000 2018 $8.50 100,000 $0.22 $40,000 Industry Average 2.7x 1.0x 6.0x 32.0 days 10.7x 2.6x 50.0% 2.5x 2.1x 3.5% 9.1 % 18.2% 14.2x 1.4x
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