Chapter 2 Mini Case: Financial Statement and Cash Flow Analysis
Jaedan Industries
Income Statement
For the year ending December 31, 2010
Sales
$42,000,000
COGS
$26,460,000
Gross Profit
$15,540,000
Operating Expenses
Selling, General & Administrative
$1,621,000
Depreciation
$800,000
Earnings Before Interest & Tax
$13,119,000
Interest Expense
$375,000
Earnings before Taxes
$12,744,000
Taxes
$4,332,960
Net Income
$8,411,040
Dividends Paid
$2,102,760
Additions to Retained Earnings
$6,308,280
Jaedan Industries
Statement of Retained Earnings
For the year ending December 31, 2010
Balance from beginning of the year
$1,628,819
Addition: Net Income of 2010
$8,411,040
Less: Cash dividends paid during 2010
Preferred Stock
$8,000
Common Stock
$2,102,760
Total dividends paid
$2,110,760
Retained Earnings Balance as on Dec 31, 2010
$7,929,099
Jaedan Industries
Balance Sheet
December 31, 2010
Assets
Cash
$3,689,000
Marketable securities
$1,836,000
Accounts Receivable
$5,423,000
Inventory
$4,118,000
Total Current Assets
$15,066,000
Fixed Assets
$14,811,000
Less: Accumulated Depreciation
$5,960,000
Net Fixed Assets
$8,851,000
Total Assets
$23,917,000
Liabilities & Equity
Accounts Payable
$3,136,000
Notes Payable
$706,000
Accruals
$500,000
Total Current Liabilities
$4,342,000
Long term bonds
$3,046,000
Preferred stock
$100,000
Common Stock (at par)
$4,000,000
Paid-in capital in excess of par
$4,500,000
Retained Earnings
$7,929,099
Total Liabilities & Equity
$23,917,099
Jaedan Industries
Statement of Cash Flows
For the year ended December 31, 2010
Cash flow from operating activities
Net Income
$8,411,040
Depreciation
$800,000
Increase in Accounts Receivable
($2,556,000)
Increase in Inventory
($908,000)
Increase in accounts payable
$190,000
Increase in Accruals
$150,000
Cash provided by operating activities
$6,087,040
Cash flow from investment activities
Increase in gross fixed assets
($2,932,000)
Cash provided by investment activities
($2,932,000)
Cash flow from financing activities
Increase in notes payable
$22,000
Dividends paid:
Preferred
($8,000)
Common
($2,102,760)
Cash provided by financing activities
($2,088,760)
Net increase in cash and marketable securities
$1,066,280
Free Cash Flow:
OCF = [13119000*(1-0.34)] + 800000 =
$9,458,540
Change in Fixed Assets =
$2,932,000
Change in Current Assets =
$4,530,181
Change in Accounts Payable =
$190,000
Change Accruals =
$150,000
FCF = $9,458,540 – $2,932,000 ($4,530,181 – $190,000 -$150,000)
= $2,336,359
Ratios for 2010 for Jaedan vs. Industry
Jaedan
Industry
Liquidity Ratios
Current Ratio
3.47
3.26
Quick Ratio
2.52
2.19
Current ratio for Jaedan = Total Current Assets/Total Current Liabilities
= $15,066,000/$4,342,000
= 3.469
Quick ratio for Jaedan = (Total Current Assets Inventory)/Total Current Liabilities
= ($15,066,000 – $4,118,000)/$4,342,000
= 2.52
Debt Ratios
Jaedan
Industry
Debt Ratio
30.89%
39.36%
Assets-to-equity ratio
145.58%
163.13%
Debt-to-equity ratio
18.43%
30.23%
Times interest earned
34.98
16.81%
Debt ratio for Jaedan = (Total Current Liabilities + Long Term Bonds)/Total Assets
= ($4,342,000 + $3,046,000)/$23,917,000
= 30.89
Asset-to-equity-ratio for Jaedan = Total Assets/ (Total Liabilities & Equity Long term bonds Total Current Liabilities-Preferred Stock)
= $23,917,000/ ($23,917,000 – $3,046,000 – $4,342,000 – $100,000)
= 145.58
Debt-to-equity-ratio for Jaedan = Long Term Bonds/ (Total Liabilities & Equity Long term bonds Total Current Liabilities)
= $3,046,000/ ($23,917,000 – $3,046,000 – $4,342,000)
= 18.43
Time Interest earned = EBIT/ Interest Expense
= $13,119,000/ $375,000
= 34.98
Profitability Ratios
Jaedan
Industry
Gross profit margin
37.00%
23.74%
Operating profit margin
31.24%
20.89%
Net profit margin
20.03%
17.97%
Earnings per share
8.40
4.58
Return on Total Assets
35.13%
41.87%
Return on Common Equity
51.15%
68.30%
Gross profit margin = Gross Profit/ Sales = $15,540,000/ $42,000,000
= 37.00%
Operating profit margin = EBIT/ Sales = $13,119,000/ $42,000,000
= 31.235%
Net profit margin = Net Income/Sales = $8, 411, 040/ $42,000,000
= 20.026%
Earnings per Share = Earnings avail for common stockholders/ number of common stock shares outstanding.
= $8, 403,040/ $1,000,000
= $8.40
Return on Total Assets = Earnings avail for common stockholders/Total Assets
= $8, 403,040/ $23,917,000
= 35.134%
Return on Common Equity = Earnings avail for common stockholders/Common Stock Equity
= $8, 403,040/ $16,429,000
= 51.147%
Market ratios
Jaedan
Industry
P/E Ratio
6.76%
5.97%
Market/Book Ratio
3.46%
4.32%
P/E Ratio = Market Price per share of common stock/ EPS
= $56.82/$8.40 = 6.76%
Market/Book Ratio = Market Price per share of common stock/ Book Value per share of common stock.
Book value per share of common stock = common stock equity/ shares outstanding
= 16,429,000/1,000,000
= $16.43
Market/Book Ratio = $56.82/$16.43 = 3.46%
