Minicase Ch 3: Computron Industries

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Data is attached. Do calculations and answer the below: (no outside sources – just use info provided)
A. Why are ratios useful? What three groups use ratio analysis and for what reasons?
B. Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data
What can you say about the company’s liquidity position in 2012, 2013 and as projected for 2014?
We often think of ratios as being useful
(1) To managers to help run the business
(2) To bankers for credit analysis
(3) To stockholders for stock valuation
Would these different types of analysts have an equal interest in the liquidity ratios?
C. Calculate the 2014
Inventory turnover:
Days Sales Outstanding (DSO):
Fixed Assets Turnover:
Total Assets Turnover:
How does Computron’s utilization of assets stack up against that of the other firms in its industry?
D. Calculate the 2014
Debt ratio:
Liabilities-to-assets ratio:
Times-interest-earned:
EBITDA coverage ratio:
How does Computron compare with the industry with respect to financial leverage?
What can you conclude from these ratios?
E. Calculate the 2014
Profit margin:
Basic Earning Power (BEP):
Return on Assets (ROA):
Return on Equity (ROE):
What can you say about these equities?
F. Calculate the 2014
Price/Earnings ratio:
Price/Cash Flow ratio:
Market/Book ratio:
Do these ratios indicate that investors are expected to have a high or low opinion of the company?
G. Perform a
Common Size Analysis:
Percentage Change Analysis:
What do these analyses tell you about Computron?
H. Use the extended DuPont equation to provide a summary and overview of the Computron’s financial condition as projected for 2014.
What are the firm’s
Major strengths:
Weaknesses:
I. What are some potential problems and limitations of financial ratio analysis?
J. What are some qualitative factors that analysts should consider when evaluation a company’s likely future financial performance?
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