MF group 1 - Management
The purpose of the second part of the comprehensive project is to compute the financial statement ratios. Based on the company you selected in Part I, complete the following:
A. Compute the following ratios for two years. You may use Excel to compute your ratios.
1. Debt ratio
2. Gross profit margin
3. Free cash flow
4. Times interest earned
5. Accounts receivable turnover
6. Inventory turnover
B. Prepare a DuPont Analysis of ROE for two years, including computations of
1. Return on Sales
2. Asset Turnover
3. Return on Assets
4. Financial Leverage
5. Return on Equity
C. Evaluate the ratio trends. Your evaluation should be consistent with your calculations for the two (2) years.
Write a 3-6 page report evaluating trends in all of the above ratios. Discuss whether your companys profitability, efficiency, liquidity, and solvency are improving or deteriorating. Suggest ways the company can improve the ratios that show problems. The report should be well written with a cover page, introduction, the body of the paper (with appropriate subheadings), conclusion, and reference page. References must be appropriately cited. Use APA throughout.
Format: Double-spaced, one-inch margins, using a 12-point Times New Roman font.
Sheet1
Part A 2019 2020
3.Free Cash Flow
Free Cash Flow=
Operating Cash Flow −
Capital Expenditures
(1,384,000-205000) (708000-92000)
Result 1,179,000 616,000
5.Accounts Receivebles
NetSales/AvgAccountReceivebles 9452000/724.29 4307000/476.96
Result 1305 903
6.Total asset turnover
Revenue / Average Fixed Assets 636 Billion / 1.085 Billion 3.766 Billion /807 M
Result 1.6 4.7
Ratios
Debt ratio: Total Liabilities /Total Assets 2019 2020 The debt Ratio shall be signifying the companys financial stability. From the year 2019-2020, the given debt ratio has been increased a bit suggesting the liabilities of the company has increased, also as that is a very low increase the company could be planning to completely recover from this in the next year. Weak
Total Liabilities [$$]65,283,000.00 [$$]66,012,000.00
Total Assets [$$]86,381,000.00 [$$]87,296,000.00
Debt Ratio 0.7557564742 0.7561858504
Gross Profit Margin: (Sales - Cost of goods sold)/Sales 2019 2020 As that of the Gross Profit Margin has been eventually decreased from around 60.7\% to 59.3\% that is from the year 2019-2020, that shall be indicating the unfavourable known trend in the reduction form in selling prices which are not accompanied through any of the proportionate decreases within the cost of goods or certain increase in the cost of production. Weak
Sales [$$]37,266,000.00 [$$]33,014,000.00
Cost of Goods Sold [$$]14,619,000.00 [$$]13,433,000.00
Sales-Cost of Goods Sold [$$]22,647,000.00 [$$]19,581,000.00
Gross Profit Margin 0.6077121237 0.5931120131
60.70\% 59.30\%
Times interest earned = EBIT/ Interest
2019 2020 Times ratio earned shall be measuring the ability of the company for continuing service its debt, also as that would have been lowered from 12.4X to 7.784X from 2019 to 2020, means fewer identified earnings are completely available for meeting the interest payments of the company. Stronger in 2019 than it is in 2020
EBIT [$$]11,732,000.00 [$$]11,186,000.00
Interest [$$]946,000.00 [$$]1,437,000.00
Times interest earned: 12.4016913319 7.7842727905
Part B 1,2,3,4,5
Financial Leverage: Return on sales: net income/sales 2020 2019 The return on sales decreased since 2019 as the net income drastically decreased it became negative which means their income was less than what they could make in 2020 comre to 2019 where they they had about 1 pecent retrn on their sales
Net Income -[$$]715,000.00 [$$]881,000.00
Sales [$$]4,307,000.00 [$$]9,452,000.00
Return on Sales -[$$]0.17 [$$]0.09
Financial Leverage: Asset turnover= sales/total sales 2020 2019 While they had almost same amount of assets in 2019 and 2020, but their sales decreased in 2020 comre to the other year. They stated that their sales decreased due to the COVID pandemic.
Sales [$$]4,307,000.00 [$$]9,452,000.00
Total asstes [$$]16,755,000.00 [$$]14,957,000.00
Asset turnover [$$]0.26 [$$]0.63
Financial Leverage: Return on assets=net income/total assets 2020 2019 As the net incmoe decreased and became negative while they had almost same amount of assets, their return on their assets became negative in 2020. The covid caused them to face with low income and most of their rooms were unoccupied in 2020 compare to 2019.
Net income -[$$]715,000.00 [$$]881,000.00
Total Assets [$$]16,755,000.00 [$$]14,957,000.00
Return on assets -4\% 6\%
Financial Leverage: Average Assets /Average Equity 2019 2020 After calculating financial leverage for year 2019 and 2020 it is clear that the company is doing good as it is 0.7\% meaning the lenders or investors are profiting their shares in the company where as if the Financial Leverage is more than 1\% then the Investors will lose the profitable amount of money which puts company management in a bad shape as they will lose more lenders and shareholders.
Total Assets 14,957,000 [$$]16,755,000.00
Total Equity [$$]21,098,000.00 [$$]21,284,000.00
Average Assets [$$]15,856,000.00
Average Equity [$$]21,191,000.00
Financial Leverage 0.7482421783
Return on Equity: Return on Assets * Financial Leverage 2019 2020 Comparitively 2019 has more ROE 4.2\% than 2020 where it is -3.12\%. Which means returns for the common stockholders investment has been decreased over the previous year meaning the company is not generating good profitable amounts. In general 15-20\% Return on Equity is measured as a good standing of a company on the returns.
Return on Assets 6 -4
Financial Leverage 0.70\% 0.78\%
Return on Equity 4.20\% -3.12\%
Ratios
Debt ratio: Total Liabilities /Total Assets 2016 2017 The debt Ratio shall be signifying the companys financial stability. From the year 2016-2017, the given debt ratio has been increased form 0.54 to 0.8 suggesting the liabilities of the company has increased, also as that is a good increase that the company could be planning to completely recover from this in the next year.
Total Liabilities [$$]805,032.00 [$$]2,328,960.00
Total Assets [$$]1,468,800.00 [$$]2,886,592.00
Debt Ratio 0.5480882353 0.8068199455
Gross Profit Margin: (Sales - Cost of goods sold)/Sales 2016 2017 As that of the Gross Profit Margin has been eventually decreased from around 16.5\% to 14.64\% that is from the year 2016-2017, that shall be indicating the unfavourable known trend in the reduction form in selling prices which are not accompanied through any of the proportionate decreases within the cost of goods or certain increase in the cost of production. Weak
Sales [$$]3,432,000.00 [$$]5,834,400.00
Cost of Goods Sold [$$]2,864,000.00 [$$]4,980,000.00
Sales-Cost of Goods Sold [$$]568,000.00 [$$]854,400.00
Gross Profit Margin 0.1655011655 0.1464417935
16.55\% 14.64\%
Times interest earned = EBIT/ Interest
2016 2017 Times ratio earned shall be measuring the ability of the company for continuing service its debt, also as that would have been lowered from 3.346X to 0.099X from 2016 to 2017, means fewer identified earnings are completely available for meeting the interest payments of the company. Stronger in 2016 than it is in 2017.
EBIT [$$]209,100.00 [$$]17,440.00
Interest [$$]62,500.00 [$$]176,000.00
Times interest earned: 3.3456 0.0990909091
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