Reference no: EM132477716
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 assets 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 mce_markernbsp;2,866,592
Liabilities and Equity 2016 2015
Accounts payable mce_markernbsp; 436,800 mce_markernbsp; 524,160
Notes payable 300,000 636,808
Accruals 408,000 489,600
Total current liabilities mce_markernbsp; 1,144,800 mce_markernbsp; 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 mce_markernbsp; 1,952,352 mce_markernbsp; 492,592
Total liabilities and equity mce_markernbsp; 3,497,152 mce_markernbsp; 2,866,592
Income Statement
2015
Sales mce_markernbsp; 7,035,600
Cost of goods sold 5,875,992
Other expenses 550,000
Total operating costs
excluding depreciation mce_markernbsp; 6,425,992
EBITDA mce_markernbsp; 609,608
Depreciation 116,960
EBIT mce_markernbsp; 492,648
Interest expense 70,008
EBT mce_markernbsp; 422,640
Taxes (40%) 169,056
Net income mce_markernbsp; 253,584
Ratio Analysis
2016 2015 Industry 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%
1. Calculate the free cash flows from an operating perspective for the company for 2016.
2. As a banker, will you give Johnson a loan in 2016 ? Explain in detail the financial reasons based on the ratios.