Evaluate the baugh companys financial performance

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Reference no: EM131182023

SITUATION

In 2008, Carter Dalton purchased the Baugh Company, Although the firm has consistently earned profits, little cash has been available for other than business needs, Before purchasing Baugh, Dalton thought that cash flows were generally equal to profits plus depreciation, However, this does not seem to be the case, The finan-cial statements (in thousands) for the Baugh Company, 2007-2008, and the Industry norms for the financial ratios follow,

BALANCE SHEET
	2007	2008
ASSETS
Current assets:
Cash	$ 8,000	$ 10,000
Accounts receivable	15,000	20,000
Inventory	22,000	25,000
Total current assets	$ 45,000	$ 55,000
Fixed assets:
Gross plant and equipment	$ 50,000	$ 55,000
Accumulated depreciation	15,000	20,000
Net fixed assets	$ 35,000	$ 35,000
Other assets	12,000	10,000
TOTAL ASSETS	$ 92,000	$100,000

DEBT (LIABILITIES) AND EQUITY
Current liabilities:
Accounts payable	$ 10,000	$ 12,000
Accruals	7,000	8,000
Short-term notes	5,000	5,000
Total current liabilities	$ 22,000	$ 25,000
Long-term liabilities	15,000	15,000
Total liabilities	$ 37,000	$ 40,000
Total ownership equity	55,000	60,000
TOTAL DEBT AND EQUITY	$ 92,000	$100,000 ,
Income Statement,	2008
Sales revenue		$175,000
Cost of goods sold		105,000
Gross profit on sales		$ 70,000
Operating expenses:
Marketing expenses	$ 26,000
General and administrative expenses	20,000
Depreciation expense	5,000
Total operating expenses		$ 51,000
Operating income		$ 19,000
Interest expense		3,000
Earnings before taxes		$ 16,000
Income tax		8,000
Net income		$ 8,000

Financial Ratios	Industry Norms
Current ratio	2.50
Average collection period	30.00
Inventory turnover	6.00
Debt ratio	50.0%
Return on assets	16.0%
Operating profit margin	8.0%
Total asset turnover	2.00
Fixed asset turnover	7.00
Times interest earned	5.00
Return on equity	14.0%

Question 1 Why doesn't Dalton have cash for personal needs? (As part of your analysis, measure cash flows, )

Question 2 Evaluate the Baugh Company's financial performance, given the financial ratios for the industry,

Reference no: EM131182023

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