MicroDrive Case

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Case: MICRODRIVE Financial Statements Year 2022 and 2023

INCOME STATEMENT

(in millions of dollars) 2022 2023 (Current Yr)

Sales 2850.00 3000.00

Costs except depreciation 2497.00 2616.20

Depreciation 90.00 100.00

Total operating costs 2587.00 2716.20

EBIT 263.00 283.80

Less Interest 60.00 88.00

Earnings before taxes (EBT) 203.00 195.80

Taxes (40%) 81.20 78.32

NI before preferred dividends 121.80 117.48

Preferred dividends 4.00 4.00

NI available to common 117.80 113.48

Dividends to common 53.00 57.50

Add. to retained earnings (RE) 64.80 55.98

Shares of common equity 50.00 50.00

Dividends per share 1.06 1.15

Price per share 26.00 23.00


BALANCE SHEET

(in millions of dollars)

2022 2023 (Current Yr)

Assets

Cash 15.00 9.98

ST Investments 65.00 0.00

Accounts receivable 315.00 375.00

Inventories 415.00 615.00

Total current assets 810.00 999.98

Net plant and equipment 870.00 1000.00

Total assets 1680.00 1998.98

Liabilities and equity

Accounts payable 30.00 60.00

Accruals 130.00 140.00

Notes payable 60.00 110.00

Total current liabilities 220.00 310.00

Long-term bonds 580.00 754.00

Total liabilities 800.00 1064.00

Preferred stock 40.00 40.00

Common stock 130.00 130.00

Retained earnings 710.00 765.98

Total common equity 840.00 895.98

Total liabilities and equity 1680.00 1998.98

Step 1:
The sales figures of the Microdrive company for the past 5 years given below.

Year Sales Growth Rate

2018 2058.00

2019 2534.00

2020 2472.00

2022 2850.00

2023 (Current Yr) 3000.00

Step 2:
Pro Forma Ratios Actual Historical Industry Forecast
2022 2023 Average Composite 2024
Costs / Sales 87.1%
Depreciation / Net plant &
equip. 10.2%
Cash / Sales 1.0%
Accounts Rec. / Sales 10.0%
Inventory / Sales 11.1%
Net plant & equip. / sales 33.3%
Accounts Pay. / Sales 1.0%
Accruals / Sales 2.0%
Long-term bonds/operating
assets 30.9%

Other Inputs 2022 2023 2024

Long Term bonds/Operating Assets


Tax rate
Dividend growth rate
Interest rate on notes payable and short-term
investments
Interest rate on long-term bonds
Coupon rate on preferred stock
Step 3:

Forecast Bases
INCOME STATEMENT Forecast
(in millions of dollars)
2022 2023 2024
2850.0 3000.0
Sales 0 0
2497.0 2616.2
Costs except depreciation 0 0
Depreciation 90.00 100.00
2587.0 2716.2
Total operating costs 0 0
EBIT 263.00 283.80
Less Interest 60.00 88.00
Earnings before taxes (EBT) 203.00 195.80
Taxes (40%) 81.20 78.32
NI before preferred dividends 121.80 117.48
Preferred dividends 4.00 4.00
NI available to common 117.80 113.48

Dividends to common 53.00 57.50


Add. to retained earnings
(DRE) 64.80 55.98

Shares of common equity 50.00 50.00


Dividends per share 1.06 1.15
Price per share 26.00 23.00
BALANCE SHEET
(in millions of dollars) Forecast Forecast basis
2022 2023 2024
Assets
Cash 15.00 9.98
ST Investments 65.00 0.00
Accounts receivable 315.00 375.00
Inventories 415.00 615.00
Total current assets 810.00 999.98
Net plant and equipment 870.00 1000.00
Total assets 1680.00 2000.00

2018 2019
Liabilities and equity
Accounts payable 30.00 60.00
Accruals 130.00 140.00
Notes payable 60.00 110.00
Total current liabilities 220.00 310.00
Long-term bonds 580.00 754.00
Total liabilities 800.00 1064.00
Preferred stock 40.00 40.00
Common stock 130.00 130.00
Retained earnings 710.00 765.98
Total common equity 840.00 895.98
Total liabilities and equity 1680.00 2000.00
Step 4:

CALCULATION FOR NET OPERATING WORKING CAPITAL (NOWC)


2022 2023 2024
cash
A/R
inventories
total current assets

A/P
accruals
total current liabilities
NOWC
TOTAL OPERATING CAPITAL = NOWC+NET PLANT AND EQUIPMENT
2022 2023 2024
net plant and EQIP

TOTAL OPERATING
CAPITAL
Step 5:

Ratio Analysis Preliminary Industry


Actual Forecast Average
2023 2024 2023
(1) (2) (4)
Current ratio 4.2
Inventory turnover 9.0
Days sales outstanding 36.0
Total assets turnover 1.8
Debt ratio 40.0%
Profit margin 5.0%
Return on assets 9.0%
Return on equity 15.0%
Return on invested capital 11.4%

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