M2 A1 Discussion Corrections

Financialstatementanalysisdiscussionsinmodule2.xlsx

Home >Business & Finance homework help >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.