Financial Management Class. Integrative Case 2, Track Software, Inc.
Integrative Case 2, Track Software, Inc., places you in the role of financial decision maker to introduce the basic concepts of financial goal-setting, measurement of the firm’s performance, and analysis of the firm’s financial condition. Because this seven-year-old software company has cash flow problems, you must prepare and analyze the statement of cash flows. Interest expense is increasing, and the firm’s financing strategy should be evaluated in view of current yields on loans of different maturities. A ratio analysis of Track’s financial statements is used to provide additional information about the firm’s financial condition. You are faced with a cost/benefit tradeoff: Is the additional expense of a new software developer, which will decrease short-term profitability, a good investment for the firm’s long-term potential? In considering these situations, you have become familiar with the importance of financial decisions to the firm’s day-to-day operations and long-term profitability.
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Year |
|
Net Profits After Taxes |
|
EPS (NPAT ¸ 50,000 shares) |
|
2009 |
|
($50,000) |
|
$ 0 |
|
2010 |
|
(20,000) |
|
0 |
|
2011 |
|
15,000 |
|
0.30 |
|
2012 |
|
35,000 |
|
0.70 |
|
2013 |
|
40,000 |
|
0.80 |
|
2014 |
|
43,000 |
|
0.86 |
|
2015 |
|
48,000 |
|
0.96 |
Earnings per share has increased steadily, confirming that Stanley is concentrating his efforts on profit maximization.
1. Calculation of Operating and Free Cash Flows.
2. Earnings per share (EPS) calculation.
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Ratio Analysis Track Software, Inc. |
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Industry |
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|
|
|
Actual |
Average |
TS: Time-Series |
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Ratio |
2014 |
2015 |
2015 |
CS: Cross-Sectional |
|
|
Net working |
|
|
|
TS: Improving |
|
|
capital |
$21,000 |
$58,000 |
$96,000 |
CS: Poor |
|
|
Current ratio |
1.06 |
1.16 |
1.82 |
TS: Improving |
|
|
|
|
|
|
CS: Poor |
|
|
Quick ratio |
0.63 |
0.63 |
1.10 |
TS: Stable |
|
|
|
|
|
|
CS: Poor |
|
|
Inventory turnover |
10.40 |
5.39 |
12.45 |
TS: Deteriorating |
|
|
|
|
|
|
CS: Poor |
|
|
Average collection |
|
|
|
TS: Deteriorating |
|
|
period |
29.6 days |
35.8 days |
20.2 days |
CS: Poor |
|
|
Total asset |
|
|
|
TS: Improving |
|
|
turnover |
2.66 |
2.80 |
3.92 |
CS: Poor |
|
|
Debt ratio |
0.78 |
0.73 |
0.55 |
TS: Decreasing |
|
|
|
|
|
|
CS: Poor |
|
|
Times interest |
|
|
|
TS: Stable |
|
|
earned |
3.0 |
3.1 |
5.6 |
CS: Poor |
|
|
Gross profit |
|
|
|
TS: Improving |
|
|
margin |
32.1% |
33.5% |
42.3% |
CS: Fair |
|
|
Operating profit |
|
|
|
TS: Improving |
|
|
margin |
5.5% |
5.7% |
12.4% |
CS: Poor |
|
|
Net profit margin |
3.0% |
3.1% |
4.0% |
TS: Stable |
|
|
|
|
|
|
CS: Fair |
|
|
Return on total |
|
|
|
TS: Improving |
|
|
assets (ROA) |
8.0% |
8.7% |
15.6% |
CS: Poor |
|
|
Return on |
|
|
|
TS: Deteriorating |
|
|
equity (ROE) |
36.4% |
31.6% |
34.7% |
CS: Fair |
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Analysis of Track Software based on ratio data: Find and comment on the ratios below relating to the company.
1. Liquidity.
2. Operating Activity
3. Debt.
4. Profitability.
The case study is required to be completed. The case study due on Sunday at 11:59pm. You are to write a minimum of 5 pages using in-text citations and the most recent published journals. All assignments must follow APA format style and submit for grading. The format of the cover page: Title, First Last Name, Course Title, Professor’s Name, Date Submitted. See attached APA format of referencing your paper.