Build a Model Solutions

Solution
Chapter: 3
Problem: 15

Joshua & White Technologies: December 31 Balance Sheets

(Thousands of Dollars)

Assets
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Joshua & White Technologies December 31 Income Statements
(Thousands of Dollars)

Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income

Common dividends
Addition to retained earnings

Other Data
Year-end Stock Price
# of shares (Thousands)
Lease payment (Thousands of Dollars)
Sinking fund payment (Thousands of Dollars)

Ratio Analysis
Liquidity Ratios
Current Ratio
Quick Ratio
Asset Management Ratios
Inventory Turnover (Total COGS/Inventories)
Days Sales Outstanding
Fixed Assets Turnover
Total Assets Turnover
Debt Management Ratios
Debt Ratio (Total debt-to-assets)
Liabilities-to-assets ratio
Times-interest-earned ratio
EBITDA coverage ratio
Profitability Ratios
Profit Margin
Basic Earning Power
Return on Assets
Return on Equity
Market Value Ratios
Earnings per share
Price-to-earnings ratio
Cash flow per share
Price-to-cash flow ratio
Book Value per share
Market-to-book ratio

a. Has Joshua & White's liquidity position improved or worsened? Explain.

Joshua and White's liquidity position from 2012 to 2013 has not improved, based on current ra
were below but near industry averages. However, both ratios decreased in 2013. Ultimately, bo
increased substantially from 2012 to 2013, in comparison to the current assets on hand.

b. Has Joshua & White's ability to manage its assets improved or worsened? Explain.

Joshua and Whites ability to manage its assets from 2012 to 2013 has worsened, based on the
ratios in 2012 were near industry averages for J&W, however ratios worsened in 2013. Also, no
2013 and substantial turn over ratio decrease-far from industry average by 50%.

c. How has Joshua & White's profitability changed during the last year?
Joshua and Whites profitability has improved from 2012 to 2013, based on the profitability rat

d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009.
ROE = PM x
2013 16.35% 9.57%
2012 15.80% 8.63%

The ROE improved from 2012 to 2013, due to an increase in profit margin and increase in the
performance of turning over total inventory and assets by J&W.
The ROE improved from 2012 to 2013, due to an increase in profit margin and increase in the
performance of turning over total inventory and assets by J&W.

e. Perform a common size analysis. What has happened to the composition

(that is, percentage in each category) of assets and liabilities?

Common Size Balance Sheets

Assets
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

Common Size Income Statements

Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
The common analysis results reflects that inventories has increased and shows a higher percen
payables has more then doubled from 2012 to 2013. Profit margins has increase by 1% betwee

f. Perform a percent change analysis. What does this tell you about the change in profit
and asset utilization?

Percent Change Balance Sheets

Assets
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets

Liabilities and equity

Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Percent Change Income Statements
Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income

What does this tell you about the change in profitability?

For J&W, ithe change in sales increase by 5% in 2013; the EBIT grew more than 17% as well. A
more then 28%. Furthermore, there was very significant percentage increase by over 200% in
increase in 2013, and retained earning increase by 55% as well. Overall, profitability improved
should be noted as potential concern.
 2013 2012
$21,000 $20,000
3,759 3,240
52,500 48,000
84,000 56,000
$161,259 $127,240
218,400 200,000
$379,659 $327,240

$33,600 $32,000
12,600 12,000
19,929 6,480
$66,129 $50,480
67,662 58,320
$133,791 $108,800
183,793 178,440
62,075 40,000
$245,868 $218,440
$379,659 $327,240
 2013 2012
$420,000 $400,000
300,000 298,000
19,660 18,000
27,600 22,000
$72,740 $62,000
5,740 4,460
$67,000 $57,540
26,800 23,016
$40,200 $34,524

$18,125 $17,262
$22,075 $17,262

2013 2012
$90.00 $96.00
4,052 4,000
$20,000 $20,000
$5,000 $5,000

2013 2012 Industry Avg

2.44 2.52 2.58

1.17 1.41 1.53

3.81 5.64 7.69

45.63 43.80 47.45
1.92 2.00 2.04
1.11 1.22 1.23

22.67% 19.80% 20.0%

35.2% 33.2% 32.1%
12.67 13.90 15.33
3.66 3.39 4.18
 9.57% 8.63% 8.86%
19.16% 18.95% 19.48%
10.59% 10.55% 10.93%
16.35% 15.80% 16.10%

$9.92 $8.63 NA
9.07 11.12 10.65
$14.77 $13.13 NA
6.09 7.31 7.11
$60.68 $54.61 NA
1.48 1.76 1.72

d, based on current ratio and quick ratio calculations . In 2012, the ratios
n 2013. Ultimately, both the total current liabilities and inventories have
assets on hand.

rsened? Explain.

rsened, based on the asset management ratio calculations. Initially, the

ened in 2013. Also, noted a significant inventory increase from 2012 to
y 50%.

n the profitability ratio calculations. The 2013 ratios are near or above the i

8 and 2009.
TA Turnover x Equity Multiplier
1.11 1.54
1.22 1.50

and increase in the equity multiplier. There was not a improvement in the
 2013 2012
5.5% 6.1%
1.0% 1.0%
13.8% 14.7%
22.1% 17.1%
42.5% 38.9%
57.5% 61.1%
100.0% 100.0%

2013 2012
8.9% 9.8%
3.3% 3.7%
5.2% 2.0%
17.4% 15.4%
17.8% 17.8%
35.2% 33.2%
48.4% 54.5%
16.4% 12.2%
64.8% 66.8%
100.0% 100.0%

2013 2012
100.0% 100.0%
71.4% 74.5%
4.7% 4.5%
6.6% 5.5%
17.3% 15.5%
1.4% 1.1%
16.0% 14.4%
6.4% 5.8%
9.6% 8.6%
hows a higher percentage of assets from 2012 to2013, also the notes
crease by 1% between 2012 and 2013.

he change in profitability

Base
2013 2012
5.0% 0.0%
16.0% 0.0%
9.4% 0.0%
50.0% 0.0%
26.7% 0.0%
9.2% 0.0%
16.0% 0.0%

Base
2013 2012
5.0% 0.0%
5.0% 0.0%
207.5% 0.0%
31.0% 0.0%
16.0% 0.0%
23.0% 0.0%
3.0% 0.0%
55.2% 0.0%
12.6% 0.0%
16.0% 0.0%
 Base
2013 2012
5.0% 0.0%
0.7% 0.0%
9.2% 0.0%
25.5% 0.0%
17.3% 0.0%
28.7% 0.0%
16.4% 0.0%
16.4% 0.0%
16.4% 0.0%

e than 17% as well. Also notable is the large increase of interest expense by
ase by over 200% in notes payable. Additionally, inventories had a 50%
profitability improved in 2013 but the substantial increase in invertories