FIN 335 Introductions to Finance

FIN 335 Introductions to Finance
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Part 1Case #3
[a] Financial analysis
Ratios 2012 2013Current ratio2.652.5Quick ratio$1.54 $1.50 Day in inventories59.1979.08Operating profit margin14.70%9.60%Asset turnover1.221.06Fixed asset turnover1.931.96Debt ratio41%44%Return on equity14.80%6.30%Times interest earned (TIE)-4.2-1.89Divided per share(DPS)$0.80 $0.80 Earnings per Share (EPS)$2.73 $1.20 Market price per share$36.00 $18.00 Book value per share$18.50 $18.90 Price-earnings ratio13.1715Market/ Book1.950.95Net investment410180Actual return on investment$2,775.00 1,735Percentage cost of capital10.50%10.50%Operating Return on Assets17.97%10.20%Total assets$4,675 $5,100 EVA$349.22 ($15.30)ROA-Cost of capital7.47%-0.30%B] Conclusions from the financial analysis
The current ratio and quick (asset-test) ratio show that the liquidity of the warehouse has declined marginally from 2012 to 2013. However, there is no concern about the company’s ability to meet the financial obligations as they fall due. The profit margin ratios dependent on the profit and net sales, and the operating profit margin has reduced from 14.70 % to 9.60 %, the gross profit ratio also reduced from 35.1% to 33.3 %, indicating the company’s challenges in maintaining profitability. The fall in the company’s market share reflects the company’s performance with the earning per share having declined to $ 1.20 from $ 2.73. The main trend is declining profitability, and the company needs to invest in more profitable ventures.
C] Since the bonus is dependent on the EVA, in 2012 the bonus will be $349,222., but in 2013, the EVA was negative and there will be no bonus. The total bonus payable is 1 % of $349,222 being $ 3492.22, and the amount payable in cash is $ 1746.11 and the other half is payable in stocks
D] What recommendations to the management
The management’s approach to use the EVA as the basis for the bonus is right as it supports the need to maximize profits. However, with a fall in the earnings and market value, the bonus need not be expanded in future. The level of capital expenditures can be increased, since the EVA also focuses on the shareholder return. The return on equity was 6.3% in 2013 and compared to 14.8 % in 2012, highlighting the challenges facing G& S Corporation.
PART 1 Case # 2
Problems and factors encountered in international financial management?
In international finance one has to deal with different legal systems, internal control problems, exchange rate fluctuations associated wit...