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ames Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position.  Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover.  How does Computron's utilization of assets stack up against other firms in its industry?

ames Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position.  Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover.  How does Computron's utilization of assets stack up against other firms in its industry?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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James Madison was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position.  Madison must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers.
  1. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. 
  2. How does Computron's utilization of assets stack up against other firms in its industry?
Additional Information Projection 2018 2019 2020E Year-end common stock price $8.50 $7.50 $11.15 Shares outstanding (millions) Common dividends (millions) 100,000 $9,500 100,000 $8,560 100,000 $10,000 Таx rate 25% 25% 25% Additions to retained earnings (millions) Lease payments (millions) $379,225 $35,000 -$14,185 $35,000 $556,325 $35,000 Per Share Information Projection 2018 2019 2020E $3.89 $0.10 $12.43 $5.66 $0.10 $17.85 EPS -$0.06 $0.09 $12.28 DPS Book Value Per Share Ratio Analysis Industry Average 7.2% 2018 2019 2020E Profit margin 11.0% -0.1% Operating profit margin Basic earning power 16.5% 2.6% 10.4% 28.7% 4.5% 15.6% ROA 19.1% -0.2% 10.8% ROE 31.3% -0.5% 15.4% Inventory turnover 3.1 3.2 9.0 Days sales outstanding 25.9 35.1 28.0 Fixed assets turnover 4.0 4.9 3.0 Total assets turnover 1.736 1.719 1.5 Current 2.1 1.7 2.5 Quick 0.6 0.5 1.9 Debt ratio 24.3% 43.2% 15.0% Debt-to-equity ratio 0.40 1.16 0.22 Liabilities-to-assets ratio 38.9% 62.6% 32.0% TIE 8.9 1.0 13.0 EBITDA coverage 6.3 1.9 17.2 Price/earnings (P/E) Market/book 2.2 -133.3 16.8 0.7 0.6 2.7
Transcribed Image Text:Additional Information Projection 2018 2019 2020E Year-end common stock price $8.50 $7.50 $11.15 Shares outstanding (millions) Common dividends (millions) 100,000 $9,500 100,000 $8,560 100,000 $10,000 Таx rate 25% 25% 25% Additions to retained earnings (millions) Lease payments (millions) $379,225 $35,000 -$14,185 $35,000 $556,325 $35,000 Per Share Information Projection 2018 2019 2020E $3.89 $0.10 $12.43 $5.66 $0.10 $17.85 EPS -$0.06 $0.09 $12.28 DPS Book Value Per Share Ratio Analysis Industry Average 7.2% 2018 2019 2020E Profit margin 11.0% -0.1% Operating profit margin Basic earning power 16.5% 2.6% 10.4% 28.7% 4.5% 15.6% ROA 19.1% -0.2% 10.8% ROE 31.3% -0.5% 15.4% Inventory turnover 3.1 3.2 9.0 Days sales outstanding 25.9 35.1 28.0 Fixed assets turnover 4.0 4.9 3.0 Total assets turnover 1.736 1.719 1.5 Current 2.1 1.7 2.5 Quick 0.6 0.5 1.9 Debt ratio 24.3% 43.2% 15.0% Debt-to-equity ratio 0.40 1.16 0.22 Liabilities-to-assets ratio 38.9% 62.6% 32.0% TIE 8.9 1.0 13.0 EBITDA coverage 6.3 1.9 17.2 Price/earnings (P/E) Market/book 2.2 -133.3 16.8 0.7 0.6 2.7
2018 2019 2020E Assets Cash and equivalents $ $ $ 7,782 25,000 542,460 15,500 72,632 85,700 10,000 Short-term investments 52,600 250,600 Accounts receivable 1,779,572 $ 1,953,404 1,785,600 Inventories 837,982 1,546,252 $1,151,182 $2,121,494 1,164,085 Total current assets Net Fixed Assets 882,982 Total Assets $2,034,164 $3,285,579 $ 3,739,004 Liabilities and equity Accounts payable Notes payable $ $ $ 154,600 250,000 382,500 620,000 452,300 450,000 Аccruals 142,000 254,700 352,000 $ 1,257,200 800,000 Total current liabilities $ 546,600 $ 1,254,300 Long-term bonds 245,000 700,000 Total liabilities $ 791,600 $ 2,057,200 $ 1,954,300 Common stock (100,000 shares) Retained earnings 1,000,000 1,000,000 1,000,000 242,564 $ 1,242,564 $ 2,034,164 228,379 784,704 $ 1,228,379 $ 3,285,579 Total common equity $ 1,784,704 Total liabilities and equity $ 3,739,004 Income Statements (Millions of Dollars) Projection 2018 2019 2020E $3,532,000 $2,547,000 $ 7,453,600 $ 5,750,000 Net sales $5,648,500 $4,687,500 Cost of goods sold (Excluding depr.) Depreciation Other operating expenses $ 187,500 $ $ 16,500 $ 150,000 $385,000 $ 583,500 $ $ 625,000 $ 148,500 $ 156,000 723,500 Earnings before interest and taxes (EBIT) $ 830,100 Less interest 65,200 75,000 $ 518,300 Pre-tax earnings Taxes (25%) $ (7,500) $ 755,100 $ 129,575 $ (1,875) 2$ 188,775 Net Income $ 388,725 $ (5,625) 566,325 Notes: Computron has no amortization charges. a
Transcribed Image Text:2018 2019 2020E Assets Cash and equivalents $ $ $ 7,782 25,000 542,460 15,500 72,632 85,700 10,000 Short-term investments 52,600 250,600 Accounts receivable 1,779,572 $ 1,953,404 1,785,600 Inventories 837,982 1,546,252 $1,151,182 $2,121,494 1,164,085 Total current assets Net Fixed Assets 882,982 Total Assets $2,034,164 $3,285,579 $ 3,739,004 Liabilities and equity Accounts payable Notes payable $ $ $ 154,600 250,000 382,500 620,000 452,300 450,000 Аccruals 142,000 254,700 352,000 $ 1,257,200 800,000 Total current liabilities $ 546,600 $ 1,254,300 Long-term bonds 245,000 700,000 Total liabilities $ 791,600 $ 2,057,200 $ 1,954,300 Common stock (100,000 shares) Retained earnings 1,000,000 1,000,000 1,000,000 242,564 $ 1,242,564 $ 2,034,164 228,379 784,704 $ 1,228,379 $ 3,285,579 Total common equity $ 1,784,704 Total liabilities and equity $ 3,739,004 Income Statements (Millions of Dollars) Projection 2018 2019 2020E $3,532,000 $2,547,000 $ 7,453,600 $ 5,750,000 Net sales $5,648,500 $4,687,500 Cost of goods sold (Excluding depr.) Depreciation Other operating expenses $ 187,500 $ $ 16,500 $ 150,000 $385,000 $ 583,500 $ $ 625,000 $ 148,500 $ 156,000 723,500 Earnings before interest and taxes (EBIT) $ 830,100 Less interest 65,200 75,000 $ 518,300 Pre-tax earnings Taxes (25%) $ (7,500) $ 755,100 $ 129,575 $ (1,875) 2$ 188,775 Net Income $ 388,725 $ (5,625) 566,325 Notes: Computron has no amortization charges. a
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