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
icon
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.
  1. Use the extended DuPont equation to provide a summary and overview of Computron's projected financial condition. 
  2. What are the firm's major strengths and weaknesses?
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
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Financial Planning
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education