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    D.1. Financial Statement Analysis

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    Irfan Poonawala
    1) The document contains a homework assignment on financial analysis for a company from 2003-2005. It includes income statements, balance sheets, and cash flow statements. 2) Key metrics like operating margin, return on invested capital, leverage, and return on equity are calculated for each year. Sales, EBIT, and net income increased each year. 3) Working capital requirements decreased over the period while leverage increased. Owners' equity also increased. 4) An alternative calculation of items in the working capital section and operating cycle is provided for 2005, resulting in a reduced working capital and higher cash balance.

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    D.1. Financial Statement Analysis

    Uploaded by

    Irfan Poonawala
    19 views3 pages
    1) The document contains a homework assignment on financial analysis for a company from 2003-2005. It includes income statements, balance sheets, and cash flow statements. 2) Key metrics like operating margin, return on invested capital, leverage, and return on equity are calculated for each year. Sales, EBIT, and net income increased each year. 3) Working capital requirements decreased over the period while leverage increased. Owners' equity also increased. 4) An alternative calculation of items in the working capital section and operating cycle is provided for 2005, resulting in a reduced working capital and higher cash balance.

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    1) The document contains a homework assignment on financial analysis for a company from 2003-2005. It includes income statements, balance sheets, and cash flow statements. 2) Key metrics like operating margin, return on invested capital, leverage, and return on equity are calculated for each year. Sales, EBIT, and net income increased each year. 3) Working capital requirements decreased over the period while leverage increased. Owners' equity also increased. 4) An alternative calculation of items in the working capital section and operating cycle is provided for 2005, resulting in a reduced working capital and higher cash balance.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    19 views3 pages

    D.1. Financial Statement Analysis

    Uploaded by

    Irfan Poonawala
    1) The document contains a homework assignment on financial analysis for a company from 2003-2005. It includes income statements, balance sheets, and cash flow statements. 2) Key metrics like operating margin, return on invested capital, leverage, and return on equity are calculated for each year. Sales, EBIT, and net income increased each year. 3) Working capital requirements decreased over the period while leverage increased. Owners' equity also increased. 4) An alternative calculation of items in the working capital section and operating cycle is provided for 2005, resulting in a reduced working capital and higher cash balance.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Name : Irfan Poonawala Id # 82210015

    Homework on Financial Analysis

    Q1. Part A:

    Managerial Income Statement


    2003 2004 2005 Remarks
    1 Sales 22,100 24,300 31,600
    2 EBIT 650 900 1,350
    3 NOPAT (2x.6) 386 538 810 Tax 40%
    4 Interest A Tax (Interest x 0.6) 110 66 130 78 267 160
    5 Net Income 320 460 650

    Managerial Balance Sheet


    6 Cash 600 350 300
    7 Accts. Receivable 2,730 3,100 4,200
    8 Inventories 2,800 3,200 4,300
    9 Accts. Payables 1,400 1,600 2,050
    10 Accrued Expenses 200 260 350
    11 WCR (7+8-9-10) 3,930 4,440 6,100
    12 Net Fixed Assets 1,200 1,300 1,440
    13 Invested Cap (11+12+6) 5,730 6,090 7,840

    14 Short Term Debt 300 500 1,900


    15 Long Term Debt 1,300 1,200 1,100
    16 Owners Equity 4,130 4,390 4,840
    17 Cap Employed (14+15+16) 5,730 6,090 7,840

    Managerial Cash Flow Statement Inflow/Outflow


    18 NOPAT 538 810
    19 Depreciation 100 101
    20 Operating Cash Flow (18+19) 638 911
    21  Cash Balance 250 50
    22  WCR (510) (1660)
    23  Net Fixed Assets (100) (140)
    24 Depreciation (100) (101)
    25 Capital Expenditures (23+24) (200) (241)
    26 Investment CF (22+25+21) (460) (1851)
    27 Free Cash Flow (20+26) 178 (940)
    28 Financial Cash Flows
    29 Interest After Taxes (78) (160)
    30  Short Term Debt 200 1400
    31  Long Term Debt (100) (100)
    32 CF to Debt (29+30+31) 22 1140
    33 Dividends to Equity (200) (200)
    34 New Equity Issued 0 0
    35 CF to Equity (33+34) (200) (200)
    36 Free Cash Flow (32+35) (178) 940

    Problem on Fin Analysis 1 Suren Mansinghka


    Name : Irfan Poonawala Id # 82210015

    Part B:

    Ratio Formula 2003 2004 2005 Remarks


    1 Op. Margin EBIT/Sales 650/22100 2.9% 3.7% 4.3%
    2 Turnover Sales/Inv. Cap 22100/573 3.86 3.99 4.03%
    0
    3 ROICBTax EBIT/Inv. Cap 650/5730 11.34% 14.8% 17.2%
    4 Int. Factor EBT/EBIT 540/650 0.83 0.86 0.80
    5 Lev. Factor Inv. Cap/Equity 5730/4130 1.39 1.39 1.62
    6 Financial EBT/EBIT x Inv 0.83 x 1.39 1.155 1.20 1.30
    Multiplier Cap/Equity
    7 Tax Factor Net Inc/EBT 320/540 0.59 0.60 0.60
    8 ROE Net Inc/Equity 320/4130 7.75% 10.48% 13.43%
    Alternate Formula: ROE = Net Income/Equity = ROICAT + (ROICAT – Int. RateAT) x Debt/Equity
    9 ROICAT NOPAT/InvCap 386/5730 6.74% 8.83% 10.33%
    10 Int. RateBT Int./Total Debt 110/1600 6.88% 7.65% 8.90%
    11 Int. RateAT IntAT/T0tal Debt 66/1600 4.13% 4.59% 5.33%
    12 Spread (9-11) (ROICAT – Int.RateAT) 2.63% 4.24% 5.0%
    13 Debt Equity T. Debt/Equity 1600/4130 38.7% 38.7% 61.98%
    14 ROE Net Income/Equity 320/4130 7.75% 10.48% 13.43%

    Part C:
    1. Increase in sales over the three years period
    2. Decrease in WCR over 3 year period
    3. Increase in leverage ratio
    4. Increase in Owners equity

    Part D:
    Revised Amounts of Items in WCR/Operating Cycle in 2005
    Item Accounts Receivable Inventories Acct. Payables
    Formula Sales/365 x 30 days COGS/8 (COGS +  Inventory)/365x 33
    New AMT 31600/365 x 30 =2,597 25100/8 = 3,138 25100+(3200-4300)/365 x 33 = 2170
    Old AMT. 4,200 4,300 2,050

    Balance Sheet New Income Statement New Cash Flow Statement


    Item New Amt Old Amt Item Amount Item Amount
    Cash $1285 $300 1. Sales $31,600 1. NOPAT .6 x EBIT 810
    WCR 3215 6,100 2. EBIT 1,350 2.  WCR2 1,225
    Net Fixed Assets 1,440 1,440 3. NOPAT 810 3.  Net Fixed Assets (140)
    Invested Capital 5,940 7,840 4. Interest1 54 4.  Cash Balance3 (935)
    5. Interest A Tax 32 5. FCF (1+2+3+4) 960
    Short Term Debt 0 1,900 6.EBT (2-4) 1,296 6. Dividends 328
    Long Term Debt 1,100 1,100 7. Tax 40% of 6 518 7. Int. A. Taxes 32
    Owners Equity 4,840 4,840 8. NI (3-5 or 6-7) 778 8.  S.T & LT Debt4 600
    Cap. Employed 5,940 7,840 9. Dividends 328 9. FCF (6+7+8) 960

    Problem on Fin Analysis 2 Suren Mansinghka


    Name : Irfan Poonawala Id # 82210015

    Due to improved working capital cycle (A/R and A/P) there is reduction in WCR and
    improvement of cash in hand

    Q. 2:

    A. SGR = 0.6*0.08*0.9*1*0.6 = 2.59%


    Since SGR< target growth rate (5%) – it is not sustainable growth rate

    B. Firm needs to increase the turnover by 1.7 times to achieve the growth rate of 5%.
    Alternatively it will need to increase the profit margin ratio by 15.43%

    C. If the firm borrows @ 10%, the growth rate is still not sustainable since ROE is
    less than cost of debt. It implies that ROIC is also less then cost of debt. Hence
    the firm should not borrow

    Problem on Fin Analysis 3 Suren Mansinghka

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