M2 A1 Discussion Corrections
Statements
| Widgit Corporation's December 31 Balance Sheets | ||||
| Assets | 2012 | 2011 | ||
| Cash | $ 72,000 | $ 65,000 | ||
| Accounts receivable | 439,000 | 328,000 | ||
| Inventories | 894,000 | 813,000 | ||
| Total current assets | $ 1,405,000 | $ 1,206,000 | ||
| Land and building | 238,000 | 271,000 | ||
| Machinery | 132,000 | 133,000 | ||
| Other fixed assets | 61,000 | 57,000 | ||
| Total assets | $ 1,836,000 | $ 1,667,000 | ||
| Liabilities and equity | ||||
| Accounts payable | $ 432,000 | $ 409,500 | ||
| Accrued liabilities | 170,000 | 162,000 | ||
| Total current liabilities | $ 602,000 | $ 571,500 | ||
| Long-term debt | 404,290 | 258,898 | ||
| Common stock | 575,000 | 575,000 | ||
| Retained earnings | 254,710 | 261,602 | ||
| Total liabilities and equity | $ 1,836,000 | $ 1,667,000 | ||
| Widgit Corporation's December 31 Income Statements | ||||
| 2012 | 2011 | |||
| Sales | $ 4,240,000 | $ 3,635,000 | ||
| Cost of goods sold | 3,680,000 | 2,980,000 | ||
| Gross profit | $ 560,000 | $ 655,000 | ||
| General admin. and selling expenses | 236,320 | 213,550 | ||
| Depreciation | 159,000 | 154,500 | ||
| Miscellaneous | 134,000 | 127,000 | ||
| EBT | $ 30,680 | $ 159,950 | ||
| Taxes (40%) | 12,272 | 63,980 | ||
| Net income | $ 18,408 | $ 95,970 | ||
Horizontal
| Widgit Corporation's December 31 Balance Sheets | ||||||
| Assets | 2012 | 2011 Dr. Letsch: Dr. Letsch: Step 1: Set up your financial statements in this format. | Dollar Change Dr. Letsch: Dr. Letsch: Determine the dollar amount of change between periods. | Percentage Change Dr. Letsch: Dr. Letsch: Determine the percentage change by dividing the Dollar Change by the initial year data. |
||
| Cash | $ 72,000 | $ 65,000 | 7,000 | 10.8% | ||
| Accounts receivable | 439,000 | 328,000 | 111,000 | 33.8% | ||
| Inventories | 894,000 | 813,000 | 81,000 | 10.0% | ||
| Total current assets | $ 1,405,000 | $ 1,206,000 | 199,000 | 16.5% | ||
| Land and building | 238,000 | 271,000 | (33,000) | -12.2% | ||
| Machinery | 132,000 | 133,000 | (1,000) | -0.8% | ||
| Other fixed assets | 61,000 | 57,000 | 4,000 | 7.0% | ||
| Total assets | $ 1,836,000 | $ 1,667,000 | 169,000 | 10.1% | ||
| Liabilities and equity | ||||||
| Accounts payable | $ 432,000 | $ 409,500 | 22,500 | 5.5% | ||
| Accrued liabilities | 170,000 | 162,000 | 8,000 | 4.9% | ||
| Total current liabilities | $ 602,000 | $ 571,500 | 30,500 | 5.3% | ||
| Long-term debt | 404,290 | 258,898 | 145,392 | 56.2% | ||
| Common stock | 575,000 | 575,000 | 0 | 0.0% | ||
| Retained earnings | 254,710 | 261,602 | (6,892) | -2.6% | ||
| Total liabilities and equity | $ 1,836,000 | $ 1,667,000 | 169,000 | 10.1% | ||
| Widgit Corporation's December 31 Income Statements | ||||||
| 2012 | 2011 | |||||
| Sales | $ 4,240,000 | $ 3,635,000 | 605,000 | 16.6% | ||
| Cost of goods sold | 3,680,000 | 2,980,000 | 700,000 | 23.5% | ||
| Gross profit | $ 560,000 | $ 655,000 | (95,000) | -14.5% | ||
| General admin. and selling expenses | 236,320 | 213,550 | 22,770 | 10.7% | ||
| Depreciation | 159,000 | 154,500 | 4,500 | 2.9% | ||
| Miscellaneous | 134,000 | 127,000 | 7,000 | 5.5% | ||
| EBT | $ 30,680 | $ 159,950 | (129,270) | -80.8% | ||
| Taxes (40%) | 12,272 | 63,980 | (51,708) | -80.8% | ||
| Net income | $ 18,408 | $ 95,970 | (77,562) | -80.8% | ||
Vertical
| Widgit Corporation's December 31 Balance Sheets | ||||||
| Assets | 2012 | Percent | 2011 | Percent Dr. Letsch: Dr. Letsch: Separate columns; add percent columns; calculate percentages based on total assets, total L&E, and total sales depending on the statement or part of statement analyzed. |
||
| Cash | $ 72,000 | 3.9% | $ 65,000 | 3.9% | ||
| Accounts receivable | 439,000 | 23.9% | 328,000 | 19.7% | ||
| Inventories | 894,000 | 48.7% | 813,000 | 48.8% | ||
| Total current assets | $ 1,405,000 | 76.5% | $ 1,206,000 | 72.3% | ||
| Land and building | 238,000 | 13.0% | 271,000 | 16.3% | ||
| Machinery | 132,000 | 7.2% | 133,000 | 8.0% | ||
| Other fixed assets | 61,000 | 3.3% | 57,000 | 3.4% | ||
| Total assets | $ 1,836,000 | 100.0% | $ 1,667,000 | 100.0% | ||
| Liabilities and equity | ||||||
| Accounts payable | $ 432,000 | 23.5% | $ 409,500 | 24.6% | ||
| Accrued liabilities | 170,000 | 9.3% | 162,000 | 9.7% | ||
| Total current liabilities | $ 602,000 | 32.8% | $ 571,500 | 34.3% | ||
| Long-term debt | 404,290 | 22.0% | 258,898 | 15.5% | ||
| Common stock | 575,000 | 31.3% | 575,000 | 34.5% | ||
| Retained earnings | 254,710 | 13.9% | 261,602 | 15.7% | ||
| Total liabilities and equity | $ 1,836,000 | 100.0% | $ 1,667,000 | 100.0% | ||
| Widgit Corporation's December 31 Income Statements | ||||||
| 2012 | Percent | 2011 | Percent | |||
| Sales | $ 4,240,000 | 100.0% | $ 3,635,000 | 100.0% | ||
| Cost of goods sold | 3,680,000 | 86.8% | 2,980,000 | 82.0% | ||
| Gross profit | $ 560,000 | 13.2% | $ 655,000 | 18.0% | ||
| General admin. and selling expenses | 236,320 | 5.6% | 213,550 | 5.9% | ||
| Depreciation | 159,000 | 3.8% | 154,500 | 4.3% | ||
| Miscellaneous | 134,000 | 3.2% | 127,000 | 3.5% | ||
| EBT | $ 30,680 | 0.7% | $ 159,950 | 4.4% | ||
| Taxes (40%) | 12,272 | 0.3% | 63,980 | 1.8% | ||
| Net income | $ 18,408 | 0.4% | $ 95,970 | 2.6% | ||
Ratios
| Widgit Corporation's December 31 Balance Sheets | |||||||
| Assets | 2012 | 2011 | |||||
| Cash | $ 72,000 | $ 65,000 | |||||
| Accounts receivable | 439,000 | 328,000 | |||||
| Inventories | 894,000 | 813,000 | |||||
| Total current assets | $ 1,405,000 | $ 1,206,000 | |||||
| Land and building | 238,000 | 271,000 | |||||
| Machinery | 132,000 | 133,000 | |||||
| Other fixed assets | 61,000 | 57,000 | |||||
| Total assets | $ 1,836,000 | $ 1,667,000 | |||||
| Liabilities and equity | |||||||
| Accounts payable | $ 432,000 | $ 409,500 | |||||
| Accrued liabilities | 170,000 | 162,000 | |||||
| Total current liabilities | $ 602,000 | $ 571,500 | |||||
| Long-term debt | 404,290 | 258,898 | |||||
| Common stock | 575,000 | 575,000 | |||||
| Retained earnings | 254,710 | 261,602 | |||||
| Total liabilities and equity | $ 1,836,000 | $ 1,667,000 | |||||
| Widgit Corporation's December 31 Income Statements | |||||||
| 2012 | 2011 | ||||||
| Sales | $ 4,240,000 | $ 3,635,000 | |||||
| Cost of goods sold | 3,680,000 | 2,980,000 | |||||
| Gross profit | $ 560,000 | $ 655,000 | |||||
| General admin. and selling expenses | 236,320 | 213,550 | |||||
| Depreciation | 159,000 | 154,500 | |||||
| Miscellaneous | 134,000 | 127,000 | |||||
| EBT | $ 30,680 | $ 159,950 | |||||
| Taxes (40%) | 12,272 | 63,980 | |||||
| Net income | $ 18,408 | $ 95,970 | |||||
| Per-Share Data | 2012 | 2011 | |||||
| Cash comon dividends/share | $0.50 | $2.25 | |||||
| Market price (average) | $5.00 | $24.00 | |||||
| Number of shares outstanding | 21,000 | 20,000 | |||||
| Interest Expense in GASabove | $ 2,000 | $ 5,000 | |||||
| Once we have this information set, we can calculate the necessary ratios for this analysis. | |||||||
| Ratio Analysis | 2012 | 2011 | Industry Avg Dr. Letsch: Dr. Letsch: Use industry average from public companies or private companies from Hoovers from your online library. You also can use a benchmark number from a specific competitor if you feel this is better. | Calculation for 2012 | |||
| Liquidity Ratios | |||||||
| Current ratio | 2.33 | 2.11 | 2.8 | =D7/D16 | |||
| Quick Acid | 0.85 | 0.69 | 1.0 | =(D4+D5)/D16 | |||
| Receivables turnover | 11.06 | 11.08 | 9.0 | =D24/((D5+E5)/2) - for 2011 I just used 2011 since I did not have 2010 to average | |||
| Days sales outstanding | 33.01 | 32.94 | 32 | =365/D45 | |||
| Inventory turnover | 4.31 | 3.67 | 7.0 | =D25/((D6+E6)/2) - for 2011 I just used 2011 since I did not have 2010 to average | |||
| Days in inventory | 84.65 | 99.58 | 100 | =365/D47 | |||
| Asset Management | |||||||
| Fixed assets turnover | 9.84 | 7.89 | 13.0 | =D24/(D8+D9+D10) | |||
| Total assets turnover | 2.31 | 2.18 | 2.6 | =D24/D11 | |||
| Profitability | |||||||
| Profit margin on sales | 0.43% | 2.64% | 3.5% | =D32/D24 | |||
| Asset Turnover | 242.08% | 218.06% | =D24/((D11+E11)/2) | ||||
| Return on assets | 1.05% | 5.76% | 4.2% | =D32/((D11+E11)/2) | |||
| Return on equity | 4.44% | 11.47% | 18.2% | =D32/((D18+D19)/2) | |||
| Earnings Per Share-EPS | 0.88 | 4.80 | 6.0 | =D32/D37 | |||
| P/E ratio | 5.70 | 5.00 | 6.0 | =D36/D57 | |||
| Payout Ratio | 0.57 | 0.47 | 6.0 | =D36/D57 | |||
| Solvency Ratios | |||||||
| Debt ratio | 54.81% | 49.81% | 50.0% | =(D16+D17)/D11 | |||
| Times Interest Earned | 16.34 | 32.99 | 18.00 | =(D30+D38)/D38 |
Text Analysis
| a. Assess Widgit's liquidity position, and determine how it compares with peers and how the liquidity |
| position has changed over time. |
| Widgit's liquidity position has improved from 2011 to 2012; however, its current ratio is still |
| below the industry average of 2.8. |
| b. Assess Widgit's asset management position, and determine how it compares with peers and |
| how its asset management efficiency has changed over time. |
| Widgit's inventory turnover, fixed assets turnover, and total assets turnover have improved from |
| 2011 to 2012; however, they are still below industry averages. The firm's days sales outstanding ratio |
| has increased from 2011 to 2012--which is bad. In 2011, its DSO was close to the industry average. |
| In 2012, its DSO is somewhat higher. If the firm's credit policy has not changed, it needs to |
| look at its receivables and determine whether it has any uncollectibles. If it does have uncollectible |
| receivables, this will make its current ratio look worse than what was calculated above. |
| c. Assess Widgit's debt management position, and determine how it compares with peers and how its |
| debt management has changed over time. |
| Widgit's debt ratio has increased from 2011 to 2012, which is bad. In 2011, its debt ratio was right |
| at the industry average, but in 2012 it is higher than the industry average. Given its weak current and |
| asset management ratios, the firm should strengthen its balance sheet by paying down liabilities. |
| d. Assess Widgit's profitability ratios, and determine how they compare with peers and how its |
| profitability position has changed over time. |
| Widgit's profitability ratios have declined substantially from 2011 to 2012, and they are substantially |
| below the industry averages. Widgit needs to reduce its costs, increase sales, or both. |
| e. Assess Widgit's market value ratios, and determine how its valuation compares with peers |
| and how it has changed over time. |
| Widgit's P/E ratio has increased from 2011 to 2012, but only because its net income has declined |
| significantly from the prior year. Its P/CF ratio has declined from the prior year and is well below |
| the industry average. These ratios reflect the same information as Widgit's profitability ratios. |
| Widgit needs to reduce costs to increase profit, lower its debt ratio, increase sales, and improve |
| its asset management. |
| There should be text descriptive analysis for every material ratio. You should compare against time (yourself or benchmark) or against the benchmark/indusry ratios. |