Solution 7/16/15
Chapter: 3
Problem: 15
Joshua & White Technologies: December 31 Balance Sheets
(Thousands of Dollars)
Assets 2016 2015
Cash and cash equivalents $21,000 $20,000
Short-term investments 3,759 3,240
Accounts Receivable 52,500 48,000
Inventories 84,000 56,000
Total current assets $161,259 $127,240
Net fixed assets 218,400 200,000
Total assets $379,659 $327,240
Liabilities and equity
Accounts payable $33,600 $32,000
Accruals 12,600 12,000
Notes payable 19,929 6,480
Total current liabilities $66,129 $50,480
Long-term debt 67,662 58,320
Total liabilities $133,791 $108,800
Common stock 183,793 178,440
Retained Earnings 62,075 40,000
Total common equity $245,868 $218,440
Total liabilities and equity $379,659 $327,240
Joshua & White Technologies December 31 Income Statements
(Thousands of Dollars)
2016 2015
Sales $420,000 $400,000
COGS except excluding depr. and amort. 300,000 298,000
Depreciation and Amortization 19,660 18,000
Other operating expenses 27,600 22,000
EBIT $72,740 $62,000
Interest Expense 5,740 4,460
EBT $67,000 $57,540
Taxes (40%) 26,800 23,016
Net Income
Michael C. Ehrhardt: Due to rounding, the numbers calculated in the Chapter 2 problem may differ slightly from these. $40,200 $34,524
Common dividends $18,125 $17,262
Addition to retained earnings $22,075 $17,262
Other Data 2016 2015
Year-end Stock Price $90.00 $96.00

of shares (Thousands) 4,052 4,000

Lease payment (Thousands of Dollars) $20,000 $20,000
Sinking fund payment (Thousands of Dollars) $5,000 $5,000
Ratio Analysis 2016 2015 Industry Avg
Liquidity Ratios
Current Ratio 2.58
Quick Ratio 1.53
Asset Management Ratios
Inventory Turnover (Total COGS/Inventories) 7.69
Days Sales Outstanding 47.45
Fixed Assets Turnover 2.04
Total Assets Turnover 1.23
Debt Management Ratios
Debt Ratio (Total debt-to-assets) 20.0%
Liabilities-to-assets ratio 32.1%
Times-interest-earned ratio 15.33
EBITDA coverage ratio 4.18
Profitability Ratios
Profit Margin 8.86%
Basic Earning Power 19.48%
Return on Assets 10.93%
Return on Equity 16.10%
Market Value Ratios
Earnings per share NA
Price-to-earnings ratio 10.65
Cash flow per share NA
Price-to-cash flow ratio 7.11
Book Value per share NA
Market-to-book ratio 1.72
a. Has Joshua & White’s liquidity position improved or worsened? Explain.
b. Has Joshua & White’s ability to manage its assets improved or worsened? Explain.
c. How has Joshua & White’s profitability changed during the last year?
d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009.
ROE = PM x TA Turnover x Equity Multiplier
2016
2015
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 2016 2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and equity 2016 2015
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 2016 2015
Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income
f. Perform a percent change analysis. What does this tell you about the change in profitability
and asset utilization?
Percent Change Balance Sheets Base
Assets 2016 2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Base
Liabilities and equity 2016 2015
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity
Base
Percent Change Income Statements 2016 2015
Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income