Financial Management - Annual Report Analysis.

Executive Memo:

1. Profitability/Net Income Margins

· What are the after-tax net income margins (i.e., net profit margins) for both companies?

Mohawk net margin in FY2019 is 7% and Dixie is -4%

How do they compare?

Mohawk net margin is significantly better because Dixie’s net margin is in the negative

· Who achieves the higher net income margin? Why? Mohawk achieves the higher net income margin based on the COGS $7,294.63, SG&A 19% sales and net profit 744, the cost structure items are higher compared with Dixie cost of sales 288, 22%

Tip: Analyze the major cost structure line items in the income statement (COGS, SG&A, interest, other, and taxes) as percentages of net sales, so you can identify reasons for better net income margins. Identify and comment on the differences. You may not know why a particular cost item like COGS is higher or lower, and that’s okay. Your CEO only wants to know which cost-structure items are higher or lower for each company.

2. Inventory Management

· Who does a better job managing their inventory (Inventory Days on Hand ratio)?

· What are their respective 3-year trends for Inventory DOH?

· What options could the company consider improving inventory management?

3. Cash Is King

· How much net cash from operations did each company generate last year?

· Which company has done a better job generating cash from operations?

· In layman's terms, how is each company spending their cash with respect to reinvestments in

the business, changes in debt, and returning money to shareholders?

4. Liquidity

· How do the companies compare in terms of the current ratio, and what are their respective 3- year trends?

· Do their current ratios indicate that either of these companies could go bankrupt soon?

Explain.

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