BA350 Principles of Finance: Ch02 P14 Build A Model (Cumberland Industries)

BA350 Principles of Finance: Ch03 P15 Build A Model (Joshua & White Technologies)

Ch02 P14 Build A Model (Excel Template)a. Cumberland Industries’ most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland’s income statement. Also calculate total dividends and the addition to retained earnings.b. Cumberland Industries’ partial balance sheets are shown below. Cumberland issued $10,000,000 of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity.c. Construct the statement of cash flows for the most recent year.

Chapter 3. Solution to 3-15 Joshua & White Technologies

Chapter 3. Solution to 3-15

Joshua & White Technologies: December 31 Balance Sheets
(Thousands of Dollars)

Assets 2010 2009
Cash and cash equivalents $21,000 $20,000
Short-term investments 3,759 3,240
Accounts Receivable 52,500 48,000
Inventories 84,000 56,000
Total current assets $161,259 $127,240
Net fixed assets 218,400 200,000
Total assets $379,659 $327,240

Liabilities and equity
Accounts payable $33,600 $32,000
Accruals 12,600 12,000
Notes payable 19,929 6,480
Total current liabilities $66,129 $50,480
Long-term debt 67,662 58,320
Total liabilities $133,791 $108,800
Common stock 183,793 178,440
Retained Earnings 62,075 40,000
Total common equity $245,868 $218,440
Total liabilities and equity $379,659 $327,240

Joshua & White Technologies December 31 Income Statements
(Thousands of Dollars)
2010 2009
Sales $420,000 $400,000
Expenses excluding depr. and amort. 327,600 320,000
EBITDA $92,400 $80,000
Depreciation and Amortization 19,660 18,000
EBIT $72,740 $62,000
Interest Expense 5,740 4,460
EBT $67,000 $57,540
Taxes (40%) 26,800 23,016
Net Income $40,200 $34,524

Common dividends $18,125 $17,262
Addition to retained earnings $22,075 $17,262

Other Data 2010 2009
Year-end Stock Price $90.00 $96.00
# of shares (Thousands) 4,052 4,000
Lease payment (Thousands of Dollars) $20,000 $20,000
Sinking fund payment (Thousands of Dollars) $0 $0

Ratio Analysis 2010 2009 Industry Avg
Liquidity Ratios
Current Ratio 2.58
Quick Ratio 1.53
Asset Management Ratios
Inventory Turnover 7.69
Days Sales Outstanding 47.45
Fixed Assets Turnover 2.04
Total Assets Turnover 1.23
Debt Management Ratios
Debt Ratio 32.1%
Times-interest-earned ratio 15.33
EBITDA coverage ratio 4.18
Profitability Ratios
Profit Margin 8.86%
Basic Earning Power 19.48%
Return on Assets 10.93%
Return on Equity 16.10%
Market Value Ratios
Earnings per share NA
Price-to-earnings ratio 10.65
Cash flow per share NA
Price-to-cash flow ratio 7.11
Book Value per share NA
Market-to-book ratio 1.72

a. Has Joshua & White’s liquidity position improved or worsened? Explain.

b. Has Joshua & White’s ability to manage its assets improved or worsened? Explain.

c. How has Joshua & White’s profitability changed during the last year?

d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009.
ROE = PM x TA Turnover x Equity Multiplier
2010
2009

e. Perform a common size analysis. What has happened to the composition
(that is, percentage in each category) of assets and liabilities?

Common Size Balance Sheets
Assets 2010 2009
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets

Liabilities and equity 2010 2009
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

Common Size Income Statements 2010 2009
Sales
Expenses excluding depr. and amort.
EBITDA
Depreciation and Amortization
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income

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