Managerial finance – assignment due on 9/28/2018 @3pm

  

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Managerial Finance: 

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Johnson Company

The Johnson company and wants to increase its sales and would like to seek additional borrowing. The company’s management and investors are concerned about the firm’s survival and its expansion plans. The President wants to improve the financial condition of the company and wants to make sure that the company can survive in the short term. The company’s 2015 actual balance sheet is given and its projected 2016 projected balance sheet is based on getting additional financing.

You are a newly hired Berkeley graduate and the president of the company wants you to conduct an analysis of the company’s financial position and recommend what steps or actions Johnson must take to improve its financial health. 

     Balance Sheet

Projected 2016          2015         

Cash                                                                 $          85,632        $           7,282       

Accounts receivable                                                 878,000                 632,160                             

Inventories                                                             1,716,480       1,287,360 

Total current assets                                    $     2,680,112        $     1,926,802       

Gross fixed ssets                                                    1,197,160              1,202,950                             

Less accumulated depreciation                                380,120           263,160 

Net fixed assets    $        817,040 $        939,790 

Total assets                                                      $     3,497,152 $     2,866,592 

Liabilities and Equity

Accounts payable                                            $        436,800        $        524,160       

Notes payable                                                            300,000                 636,808                             

Accruals                                                                     408,000           489,600 

Total current liabilities                               $     1,144,800        $     1,650,568       

Long-term debt                                                         400,000                 723,432                             

Common stock                                                      1,721,176                 460,000                             

Retained earnings                                                     231,176             32,592 

     Total equity                                               $     1,952,352 $        492,592 

Total liabilities and equity                              $     3,497,152 $     2,866,592 

       Income Statement

       2015         

Sales                                                                 $     7,035,600                             

Cost of goods sold                                                  5,875,992                             

Other expenses                                                          550,000 

Total operating costs
      excluding depreciation                              $     6,425,992 

EBITDA                                                          $        609,608     

Depreciation                                                              116,960  

EBIT                                                                $        492,648     

Interest expense                                                           70,008 

EBT                                                                 $        422,640     

Taxes (40%)                                                              169,056 

Net income                                                       $        253,584 

 Ratio Analysis

                                                                                                                                            Industry

2016   2015          Average   

Current                                                                                                                                   2.7´

Quick                                                                                                                                       1.0´

Inventory turnover                                                                                                                 6.1´

Days sales outstanding                                                                                                          32.0

Fixed assets turnover                                                                                                              7.0´

Total assets turnover                                                                                                              2.6´

Debt ratio                                                                                                                            50%

Times  interest earned                                                                                                            6.2´   

Operating margin (EBIT)                                                                                                      7.3%

Net Profit margin                                                                                                                    3.5%

ROA                                                                                                                                        9.1%

ROE                                                                                                                                      18.2%

Answer the following questions:

1. Calculate the free cash flows from an operating perspective for the company for 2016.

2. Calculate the ratios for 2015 and analyze and compare these ratios to the industry ratios.

3. As a supplier of materials to Johnson Company, would you still give it credit?

4. As a banker, will you give Johnson a loan in 2016? Explain in detail the financial reasons based on the ratios.

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