Reference no: EM131510691

Gardems was recently hired as a financial analyst by Taylor, Inc., which is a Pennsylvania based company. His first task is to conduct a financial statement analysis of firm covering the past 2 years. Balance Sheets 2012 2011 Cash $52,000 57,600 Accounts receivable 402,000 351,200 Inventory 836,000 715,200 Total current assets $1,290,000 $1,124,000 Gross fixed assets $527,000 $491,000 Less: Accumulated depreciation 166,200 146,200 Net fixed assets $360,800 344,800 Total assets $1,650,800 $1,468,800 Accounts payable $175,200 $145,600 Notes payable 225,000 200,000 Accruals 140,000 136,000 Total current liabilities $540,200 $481,600 Long-term debt 424,612 $323,432 Common stock 460,000 460,000 Retained earnings 225,988 203,768 Total equity $685,988 $663,768 Total Claims $1,650,800 $1,468,800 INCOME STATEMENTS Sales $3,850,000 $3,432,000 Cost of goods sold 3,250,000 2,864,000 Other expenses 430,300 340,000 Depreciation 20,000 18,900 EBIT $ 149,700 $209,100 Interest expense 76,000 62,500 EBT $73,700 146,600 Taxes (40%) 29,480 58,640 Net income $44,220 $87,960 OTHER DATA December 31 stock price $6.00 $8.50 Number of shares outstanding 100,000 100,000 Dividend per share $0.22 $0.22 Annual lease payment $40,000 $40,000 Earnings per share $0.442 $0.880 Gardems also developed the following industry average data for 2012: Ratio Industry Average Current 2.7 Quick 1.0 Inventory Turnover 7.0 Days sales outstanding (DSO) 32.0 days Fixed asset turnover 10.7 Total asset turnover 2.6 Debt ratio 50.0% Times Interest Expense 2.5 Profit margin 3.5% Basic earning power 19.1% ROA 9.1% ROE 18.2% P/E 14.2 How should Gardems interpret this financial information? Gardems is thinking along the following lines on this case a. Prepare an executive summary of your findings. b. Prepare a statement of cash flows for the firm for 2012. c. Assess the firm's liquidity position. d. How do the firm's asset management ratios stack up against the industry averages? e. Calculate firm's profitability ratios. f. Apply the Du Pont analysis to 2012 and 2011 data to obtain a general overview of the firm's financial condition. Gardems thinks that financial statement analysis can provide some useful information concerning a company's operations and financial conditions, yet it does have some inherent problems and limitations that necessitate care and judgement. Discuss the most important of these problems and limitations.