Finance case analyze-Princeton pigs case

Case: Princeton Pigs

BUSN 6020 Fall 2016

Professor Cox

Princeton Pigs is a widget maker in Southern British Columbia established in 1970. It has grown over

time by making high quality widgets and providing excellent customer service. The production plant is

located in Kamloops and is operating near 100% capacity. Sales are concentrated with 1 large customer,

Vancouver Vagabonds, under accounts receivable terms of net 60. Raw materials are purchased from a

Vernon distributor under terms of net 60 with overdue accounts paying 8% per annum. Financing is

from various sources one of which is Scotiabank under a 3 year term revolving line of credit of $5

million. Security for this financing is pledging inventory and accounts receivable as well as a $2 million

personal guarantee by the owner-CEO Victoria Vavavoom. Scotiabank will lend up to 75% of accounts

receivable, 30% of raw materials, 40 of work-in-process and 50% of finished goods inventory. The

revolving line of credit must have a zero balance for at least 1 month of the year. Covenants with the

loan include maintaining a current ratio of 1.5, cash flow coverage of 1.5 and a long-term debt to total

capitalization ratio no more than 60%. No dividends are paid and all profits are reinvested in the

company for growth. Scotiabank is concerned that Princeton Pigs is floundering financially speaking and

is reviewing its performance over the last 4 years. Conduct a thorough financial analysis based on the 5

years of income statements and balance sheets provided as well as industry average benchmarks.

Include in your report ratio analysis, common size analysis and index series analysis for 2006-2010 as

well as cash flow statements for 2007-2010 plus an annual DuPont Identity ROE analysis. Your report

should include a 2 page summary of your analysis. The date is January 2011.

Princeton Pigs Income Statement $

Account 2006 2007 2008 2009 2010

Sales 15015500 26130560 39403320 58532340 71511720

COGS 10434500 18595530 28323060 42565660 53000150

GP 4581000 7535030 11080260 15966680 18511570

S & D 1650340 2450630 3763400 5400350 6001230

R&D 145340 453640 765340 1580340 1900450

Admin 550340 1050750 1950600 3400000 4080520

Amort 579944 908884 1880284 2999199 3838790 Operating Profit 1660036 2671126 2720636 2586791 2690580

Interest 224139 392759 952308 1653235 2301176

EBT 1435897 2278367 1768328 933556 389404

Taxes 502564 797429 618915 326744 136291

Net Income 933333 1480939 1149413 608811 253112

Princeton Pigs Balance Sheet $

Account 2006 2007 2008 2009 2010

Cash 400840 790670 1034690 823580 765340

A/R 2459600 4340540 6450340 9950340 11550420

RM Inv 675340 1103400 1789340 2450340 3240340

WIP Inv 874320 1440530 1950340 2340680 2489390

F/G Inv 802160 1674293 2614583 4413753 6751713

CA 5212170 9349433 13839293 19978693 24797203

L,P,E net 5504440 8756340 18345340 29453350 37689560

Intang 245000 332500 457500 538640 698340

T Assets 10961610 18438273 32642133 49970683 63185103

A/P 1760340 4009870 6498227 9922996 12885442

CPLTD 399534 649188 1518833 2636739 3545726

CL 2159874 4659058 8017060 12559735 16431168

LTD 3995340 6491880 15188326 26367389 35457263

Equity 4806396 7287335 9436748 11043559 11296671

TL & E 10961610 18438273 32642133 49970683 63185103

Benchmarks for Financial Ratios (assume the same for all years)

Current 3.17

Cash 0.16

RM turnover (days) 36

WP turnover (days) 12

FG turnover (days) 92

A/R turnover (days) 31

A/P turnover (days) 52

Cash conversion cycle (days) 119

Fixed Assets turnover 2.2X

Total Asset turnover 1.0X

Long-term debt to total capitalization 30%

Cash flow coverage 2X

Gross profit margin 41%

Operating profit margin 16%

Net profit margin 9%

ROA 6%

ROE 14.7%

Benchmark Common Size % Balance Sheet (assume the same for all years)

Cash 16.45

A/R 8.34

RM Inv 5.38

WIP Inv 1.54

F/G Inv 15.34

CA 47.05

L,P,E net 45.65

Intang 7.3

T Assets 100

A/P 9.45

CPLTD 5.39

CL 14.84

LTD 23.45

Equity 61.71

TL & E 100

Benchmark Common Size Income Statement % (assume the same for all years)

Sales 100

COGS 58

GP 42

S & D 14.45

R&D 1.56

Admin 5.67

Amort 4.77

Operating Profit 15.55

Interest 1.59

EBT 13.97

Taxes 4.89

Net Income 9.08