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. Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses?
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. Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. What are the firm's major strengths and weaknesses?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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.
- Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition.
- What are the firm's major strengths and weaknesses?
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
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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