Cochrane Furniture Company has been experiencing lowprofitability in recent year
ID: 2705447 • Letter: C
Question
Cochrane Furniture Company has been experiencing lowprofitability in recent years. As a result, the board of directorshas replaced the president of the firm with a new president, AndrewAlston who has asked you to make an analysis of the firm'sfinancial position using the extended Du Pont equation. In additionto the information given below, you have been informed by the newpresident that the firm has no lease payment, but has a $2 millionsinking fund payment on its debt. Cochrane's financial statementsare as follows:
Cochrane Furniture: Balance Sheet as of December 31, 2002(Milllions of Dollars)
Cash $45 Accounts Payable $45
MarketableSecurities 33 NotesPayable 45
NetReceibables 66 Othercurrent liabilities 21
Inventories 159 Total current liab. $111
Total Current asst. $303 Long TermDebt 24
TotalLiabilities $135
Gross fixed assets 225 CommonStock $114
RetainedEarnings 201
Lessdeprec. 78 Total Stockholder's eq. $315
Net fixedassets $147 Total Liab &Equ. $450
TotalAssets $450
_________________________________________________________
Cochrane Furniture: Income Statement for year Ended Dec. 31,2002(Mill of Doll)
NetSales $795.0
Cost of GoodsSold 660.0
GrossProfit $135.0
Sellingexpenses 73.5
EBITDA 61.5
DepreciationExp. 12.0
EBIT $49.5
InterestExpense 4.5
Earnings BeforeTaxes 45.0
Taxes(40%) 18.0
NetIncome 27.0
Calculate the following ratios:
1. Current ratio
2. Debt to asset
3. Times interest earned
4. EBITDA Coverage
5. Inventory Turnover
6. DSO (Days of sales outstanding)
7. Total Asset Turnover
8. ROE
9. ROA
10. Profit Margin
My lines did not even up on the Balance sheet. The TotalAssets should equal total liabilities and equity, of course, so mylines should be up 1 on the balance sheet. If there are anyquestions, please email me.
Thanks
Explanation / Answer
1. Current ratio = Current asset/current liab
= (Cash+Mktaable security+Net Rxable+Inventory)/(Acct Payable+Note payabe+Other CA)
= 303/111 = 2.73
2. Debt to asset = Total Liab/Total Aset = 135/450 = 0.30
3. Times interest earned = EBIT/Interest charges = 49.5/4.5 = 11.0
4. EBITDA Coverage =(EBITDA+Lease payments)/(Interest+Principal payments+Lease payments)
= (61.5+0)/(4.5+2+0) = 9.46
5. Inventory Turnover = Sales/Invemtory = 795/159 = 5.0
6. DSO (Days of sales outstanding) = Acct Rxables/(Sales/365)
= 66/(795/365) = 30.30 days
7. Total Asset Turnover = Sales/Total assets = 795/450 = 1.77
8. ROE = Net income available to common stockholders/Common equity
= 27/315 = 8.57%
9. ROA = Net income availableto common stockholders/Total assets
= 27/450 = 6.00%
10. Profit Margin = Net income/Sales = 27/795 = 3.40%