Question
Financial Analysis
(5)
1. When evaluating any investment in a firm what is the key goal that you want to examine and
assess?
(10)
2. Mayport Industries is a well-respected and high growth firm in the communications equipment
manufacturing industry. This is, and is expected to continue to be, a very strong growth industry.
Mayport is also well known for its highly efficient production & marketing operations. Over the
next 12 18 months, what would you expect Mayports needs and issues to be?
(10)
3. After years of dominance by domestic firms in your industry, there are increasing signals of a
competitive shift. Notably, there is an increasing incursion of Southeast Asia firms, and they are
producing both a high caliber and lower cost product line. What are the implications for your firm
and its management AND what do you recommend the firm do?
(10)
4. Elmer Corp. has approached your firm for a loan. They are pursuing a 5 yr loan intended to
support the expansion of their operations. Elmer Corp. is a very well established and a very
highly regarded firm in its industry. But it is a brand new customer for your firm and you have little
understanding of their business. Before preparing a full analysis, what key information do you
need to obtain & understand?
(5)
5. What is the most important cash flow measure of any business? Why?
(10)
6. You have been asked to provide business advice to a firm that is in a highly competitive but
mature industry environment. Despite their highly efficient operations and relatively tight cash
position, they very much want to boost their sales. They believe the best way to accomplish this is
to extend the required customer payment periods and are ready to pursue this course of action.
For your review: assess and evaluate this plan and its implications for the firm.
(10)
7. Your firm has been asked to invest in a new, early stage firm. The firm is in a brand new industry
and, although the firm is still in its early stages, it believes it has a very promising new product.
Other new firms are also in this industry and also have their own new products. At this stage, long
term demand for products in this industry are expected to be strong.
You have been asked to evaluate this situation for your firm before they make any investment.
What are your recommendations and why?
(10)
8. Corey & Jones Corp. is a well-established firm with a long term history of moderate but positive
performance. The firm produces high precision valves and has a very strong reputation with its
customers, who incorporate the valves into their products. Notably their regional marketing has
been very solid and reflects both their quality and their well-developed marketing and sales
relationships. Very importantly, repeat customers dominate the firms sales. However, the firm is
also in a highly competitive regional market, where competition is fierce, and annual sales have
stabilized at a relatively flat $5 million per year.
The Firm recognizes its need to expand and grow sales in order to further develop and sustain its
business. They realize that to accomplish this they must expand their customer base beyond the
current regional market. They also believe they have sufficient production capacity to support a
50% sales increase before any need to add new equipment.
You have been asked to review the firm, assess their plan, and provide recommendations for an
effective strategy to support the expansion.
(10)
9. Sara Corp. is a well-established industrial component firm. Reflecting its history, the firm produces
to order and has a low fixed cost & high variable cost operational structure. The Firm now wishes
to move forward and pursue a very high growth strategy. You have been asked to review the firm
from a production perspective and then provide recommendations and guidance to its
management.
Question #10 involves the evaluation of Johnson Controls. Attached are copies of their Income
Statements & Balance Sheets that are to be used in your evaluations.
(10)
10. Measure and assess the Cash Conversion Cycle for 2011 and 2012. What are the cycles
dynamics in 2011, 2012? What are the firms short-term needs? What are the longer term
considerations?
Johnson Controls
Income Statement
Balance Sheet
2011
1,200,000
795,000
405,000
2012
1,300,000
860,000
440,000
129,986
47,511
125,219
49,346
Total Curr Assets
Total Oper Expenses
177,497
174,565
Gross FA
Less Accum Deprec
EBIT
227,503
265,435
19,352
17,204
208,151
248,231
83,260
99,292
EAT
124,891
148,939
EACS
124,891
148,939
Sales
CGS
Gross Profit
Mktg, G&A
Depreciation
Interest Expense
EBT
Income tax
Common Dividends
55,000
2011
Net Fixed Assets
70,000
135,000
145,000
295,000
–
2012
75,000
110,000
110,000
Assets
Cash
A/R
Inventory
350,000
795,000 811,098
(395,000) (434,000)
400,000
377,098
695,000
727,098
70,000
21,000
42,000
72,000
18,159
36,000
133,000
126,159
275,000
220,000
408,000
346,159
Common Stock
Ret Earnings
Total Equity
48,000
239,000
287,000
48,000
332,939
380,939
Total Liab & Equity
695,000
727,098
Total Assets
A/P
Notes Payable
Accruals
Total Curr Liab
LTD
Total Liabilities