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TECHTRON Questions
1. Selected risk ratios are presented for 2011 and 2010 for Techtron Company. Also, refer to the financial statement data for the company.
2011
2010
Revenues to Cash Ratio
6.8
7.7
Days Revenues Held in Cash
54
47
Current Ratio
1.5
Quick Ratio
1.1
Operating Cash Flow to Average Current Liabilities Ratio
47.3%
55.7%
Days Accounts Receivable
68
73
Days Inventory
51
Days Accounts Payable
49
Net Days Working Capital
72
91
Liabilities to Assets Ratio
0.559
0.621
Liabilities to Shareholders' Equity Ratio
1.266
1.639
Long-Term Debt to Long-Term Capital Ratio
0.330
0.418
Long-Term Debt to Shareholders' Equity Ratio
0.492
0.720
Operating Cash Flow to Total Liabilities Ratio
0.243
0.242
Interest Coverage Ratio
5.6
2.3
Financial Statements
INCOME STATEMENT (in millions)
Fiscal year end
2012
Sales
$2,500
$ 3,139
$ 2,816
Cost of Goods Sold
(1,252)
(1,288)
(1,099)
Selling, General & Admin. Exp.
Advertising
(387)
(364)
(297)
Research and Development
(157)
(143)
(154)
Royalty Expense
(223)
(248)
(296)
Other Selling and Administrative
(385)
(799)
(788)
Interest expense
(32)
(53)
(78)
Income tax expense
(64)
(69)
(29)
Net income
$ 196
$ 175
$ 75
Balance Sheet
2009
ASSETS (in millions)
Cash
$ 625
$421
$ 496
$233
Accounts Receivable
579
607
555
572
Inventories
195
169
190
217
Prepayments
219
212
191
346
Total current assets
$1,618
$1,409
$1,432
$1,368
Property, plant & equipment
207
200
213
236
Other Assets
1,416
1,554
1,498
1,765
Total assets
$3,241
$3,163
$3,143
$3,369
LIABILITIES
Accounts payable
$ 168
$ 159
$ 166
$ 123
Short-term borrowing
342
24
223
36
Other current liabilities
584
749
578
599
Total current liabilities
$1,094
$ 939
$ 967
$ 758
Long term debt
303
687
857
1,166
Other noncurrent liabilities
149
141
128
92
Total liabilities
$1,546
$1,767
$1,952
$2,016
Common stock
$ 105
Additional Paid-in Capital
381
398
458
455
Retained earnings
1,776
1,558
1,430
1,622
Accumulated Other Comprehensive Income
82
30
(47)
(68)
Treasury Stock
(649)
(695)
(755)
(761)
Total Shareholders' equity
$1,695
$1,396
$1,191
$1,353
Total Liabilities & Shareholders' Equity
STATEMENT OF CASH FLOWS (in millions)
Operations
Net Income
Depreciation & Amortization
146
164
184
(Increase) Decrease Accounts Receivables
28
(52)
17
(Increase) Decrease Inventories
(26)
21
27
(Increase) Decrease Prepayments
7
(21)
155
(Decrease) Increase Accounts Payable & Other Current Liabilities
(90)
23
Net Addbacks and Subtractions from operations
(147)
112
221
Cash flows from operations
$ 195
$451
$480
Investing
Property Plant and Equipment acquired
($79)
($63)
($59)
Other Investing Transactions
(6)
(2)
(3)
Cash Flows from Investing
($85)
($65)
($62)
Financing
Increase in Common Stock
0
Increase (Decrease) in Short-term Borrowing
(318)
199
(187)
Increase (Decrease) in Long-term Borrowing
(384)
(170)
309
Acquisition of Common Stock
(46)
60
Dividends
(37)
Other Financing Transactions
879
243
(250)
Cash flow from Financing
$94
($311)
($155)
Change in Cash
$204
$75
$263
Cash - Beginning of Year
421
496
233
Cash - End of Year
$ 421
Required:
a. Calculate the amounts of these ratios for 2012.
b. Assess the changes in the short-term liquidity risk of Techtron between 2010 and 2012 and the level of that risk at the end of 2012.
c. Assess the changes in the long-term solvency risk of Techtron between 2010 and 2012 and the level of that risk at the end of 2012.
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