You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011. Required: (b) Analyze the current financial position for the company from a time series and cross section viewpoint. (c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios. Historical and Industry Average Ratios HTS Software , Inc. Ratio 2010 2011 Industry 2011 Current Ratio 2.6 — 2.7 Quick Ratio 1.8 — 1.75 Inventory Turnover 4.5 — 4.7 Average Collection Period 40days — 42 days Total Asset Turnover 1.2 — 1 Debt Ratio 20% — 21% Times Interest Earned 9 — 8.9 Gross Profit Margin 43% — 44% Operating Profit Margin 30% — 32% Net Profit Margin 20% — 21% Return on total assets 12% — 13% Return on Equity Price/Earnings Ratio 15% 7.3 — — 16% 8 Balance Sheet HTS Software, Inc. December 31, 2011 Assets Cash EGP 740,000 Accounts receivable 580,000 Inventories 760,000 Total current assets 2,080,000 Gross fixed assets 4,080,000 Less: Accumulated depreciation (1,200,000) Net fixed assets 2,880,000 Total assets 4,960,000 Liabilities and stockholders’ equity Current liabilities Accounts payable EGP 400,000 Notes payable 600,000 Total current liabilities 1,000,000 Long-term debt 400,000 Total liabilities 1,400,000 Stockholders’ equity: Common stock (60,000 shares) Paid-in capital in excess of par-CS Retained Earnings Total stockholders’ equity Total liabilities & stockholders’ equity 610,000 1,550,000 1,400,000 3,560,000 4,960,000 Income Statement HTS Software, Inc. For the Year Ended December 31, 2011 Sales Revenue EGP 3,990,000 Less: Cost of Goods Sold 2,280,000 Gross Profits 1,710,000 Less: Operating Expenses 690,000 Operating Profits 1,020,000 Less: Interest Expense 171,000 Net Profits Before Taxes 849,000 Less: Taxes 169,800 Net Profits After Taxes 679,200 * Current market prices per share EGP 50. ** There are 365 days in a year.
You are provided with the Income Statement and the
Required:
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
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Historical and Industry Average Ratios HTS Software , Inc. |
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Industry |
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Current Ratio |
2.6 |
— |
2.7 |
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Quick Ratio |
1.8 |
— |
1.75 |
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Inventory Turnover |
4.5 |
— |
4.7 |
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Average Collection Period |
40days |
— |
42 days |
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Total Asset Turnover |
1.2 |
— |
1 |
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Debt Ratio |
20% |
— |
21% |
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Times Interest Earned |
9 |
— |
8.9 |
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Gross Profit Margin |
43% |
— |
44% |
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Operating Profit Margin |
30% |
— |
32% |
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Net Profit Margin |
20% |
— |
21% |
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12% |
— |
13% |
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Price/Earnings Ratio |
15% 7.3 |
— — |
16% 8 |
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Balance Sheet |
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Assets |
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Cash |
EGP 740,000 |
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Accounts receivable |
580,000 |
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Inventories |
760,000 |
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Total current assets |
2,080,000 |
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Gross fixed assets |
4,080,000 |
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Less: Accumulated |
(1,200,000) |
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Net fixed assets |
2,880,000 |
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Total assets |
4,960,000 |
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Liabilities and |
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Current liabilities |
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Accounts payable |
EGP 400,000 |
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Notes payable |
600,000 |
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Total current liabilities |
1,000,000 |
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Long-term debt |
400,000 |
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Total liabilities |
1,400,000 |
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Stockholders’ equity: |
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Common stock (60,000 shares) Paid-in capital in excess of par-CS Total stockholders’ equity Total liabilities & stockholders’ equity |
610,000 1,550,000 1,400,000 3,560,000 4,960,000 |
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Income Statement |
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Sales Revenue |
EGP 3,990,000 |
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Less: Cost of Goods Sold |
2,280,000 |
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Gross Profits |
1,710,000 |
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Less: Operating Expenses |
690,000 |
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Operating Profits |
1,020,000 |
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Less: Interest Expense |
171,000 |
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Net Profits Before Taxes |
849,000 |
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Less: Taxes |
169,800 |
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Net Profits After Taxes |
679,200 |
* Current market prices per share EGP 50.
** There are 365 days in a year.
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