Project 1 Report
Instructions: Answer the five questions below. They focus entirely on the financial health of Largo Global Inc. (LGI) based on the three years of income statement and balance sheet data provided in the Excel workbook. Base your analysis only on the financial statements provided in the Excel workbook. Provide support for your reasoning from the readings in Project 1, Step 1, and the discussion in Project 1, Step 3. Be sure to cite your sources.
Provide a detailed response below each question. Use 12-point font and double spacing. Maintain the existing margins in this document. Your final Word document, including the questions, should not exceed 5 pages. Include a title page in addition to the five pages. Any tables and graphs you choose to include are also excluded from the five-page limit.
Name
your document as follows: P1_Final_lastname_Report_date.
You must address all five questions and make full use of the information on tabs 2–4 as well as the competitor and industry data in the Excel workbook (ratio, common-size, and cash flow analysis).
You are strongly encouraged to exceed the requirements by refining your analysis. Consider other tools and techniques that were discussed in the required and recommended reading for Project 1. This means adding an in-depth explanation of what happened in the three years for which data was provided to make precise recommendations to LGI.
Title Page
Name
Course and section number
Faculty name
Submission date
Questions:
1. What is your overall assessment of Largo Global Inc. (LGI)? Provide a broad view of the main trends that emerge from your analyses of the information in tabs 2, 3, and 4. Your key findings should be synthesized and highlight a clear diagnostic of LGI’s financial health.
[insert your answer here]
2. How is LGI doing in terms of operating efficiency? How would you assess its performance compared to its main competitor and the industry index? What are the principal areas that need to be addressed to strengthen LGI’ s bottom line? Identify and use key indicators from all 3 analyses that provide insight about LGI’s operations.
[insert your answer here]
3. How is LGI doing in terms of using assets efficiently? How would you assess it compared to its main competitor and the industry index? What are the principal areas that need to be addressed to strengthen the left-hand side of its balance sheet? Identify and use key indicators from all 3 analyses that provide insight about LGI’s assets.
[insert your answer here]
4. How is LGI doing in terms of financial leverage? How would you assess it compared to its main competitor and the industry index? What are the principal areas that need to be addressed to strengthen the right-hand side of its balance sheet? Identify and use key indicators from all 3 analyses that provide insight about LGI’s debt and equity mix.
[insert your answer here]
5. Based on the financial strengths and weaknesses of LGI, how would you prioritize actions that will ultimately satisfy LGI’ s shareholders? Make specific recommendations that clearly identify the decisions LGI’ s board and executives need to make. What actions do they need to take? Set quantifiable targets and objectives for LGI. Your answers must be supported by all arguments developed in questions 2, 3, and 4. In addition, make sure you use data not already used in previous questions.
[insert your answer here]
Instructions
| version | 1 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Project 1, Step 4: Instructions for This Excel Workbook | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| View the balance sheet and income statement for the client company, Largo Global Inc. (LGI), using this Excel workbook, which includes the following tabs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. Bal. Sheet & Inc. Statement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. Ratio Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. Common-size Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. Cash Flow Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| You may submit this workbook as a milestone in Step 4, so you can receive feedback on the accuracy of your calculations before submitting your final project in Step | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 1. You see the balance sheet and income statement for LGI for | 20 | 18 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Use this information to complete the calculations in tabs 2–4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Perform your calculations using the formula bar in the Excel workbook. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 2. You see six groups of financial ratios as well as an industry benchmark you can use for comparison with LGI’s | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Calculate the ratios for each year. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 3. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a common-size analysis. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a cash flow analysis. |
1. Bal. Sheet & Inc. Statement
| Largo Gobal Balance Sheet as of December 31 (millions) | |||||||||||||||
| 2020 | 2019 | ||||||||||||||
| Assets: | Liabilities and Stockholders’ Equity: | ||||||||||||||
| Cash and marketable securities | 228 | 366 | 169 | Accounts payable and accruals | 3 | 61 | 324 | 312 | |||||||
| Accounts receivable | 1 | 88 | 181 | 157 | Notes payable | 140 | 103 | ||||||||
| Inventory | 404 | 3 | 98 | 349 | Accrued taxes | 56 | 109 | ||||||||
| Other current assets | Total current liabilities | 557 | 515 | 482 | |||||||||||
| Total current assets | 838 | 955 | 68 | ||||||||||||
| Property, plant, and equipment | 4000 | 3358 | 2976 | Long-term debt | 457 | 379 | 283 | ||||||||
| Less: Accumulated depreciation | 2000 | 1826 | 1608 | Total liabilities | 1014 | 894 | 7 | 65 | |||||||
| Net property, plant, and equipment | 1532 | 1368 | Common Stock (98,051,400 shares) | 490 | 487 | 483 | |||||||||
| Goodwill and other assets | 1280 | Additional Paid-in capital | 2439 | 2222 | 1982 | ||||||||||
| Retained earnings | 270 | 179 | |||||||||||||
| Total assets | 4118 | 3767 | 3328 | Treasury stock | -95 | -15 | |||||||||
| Total stockholders’ equity | 3104 | 2873 | 2563 | ||||||||||||
| Total liabilities and equity | |||||||||||||||
| # of shares | 9805 | 1400 | 97302600 | 96521200 | |||||||||||
| estimate competitor | |||||||||||||||
| Sales (net sales) | $2,013 | $2,450 | $2,733 | 7564 | |||||||||||
| Cost of goods sold | 168 | 1765 | 3883 | ||||||||||||
| Gross profit | 613 | 761 | 968 | 3681 | |||||||||||
| Selling, general, and administrative expenses | 125 | 91 | 105 | ||||||||||||
| Earnings before Interest, taxes, depreciation, and amortization (EBITDA) | 488 | 663 | 877 | 3576 | |||||||||||
| Depreciation and amortization | 174 | 218 | 2 | 59 | 743 | ||||||||||
| Earning before interest and taxes (EBIT) Operating income (loss) | 314 | 445 | 618 | 2833 | |||||||||||
| Interest expense | 141 | 137 | 207 | ||||||||||||
| Earnings before taxes (EBT) | 173 | 308 | 493 | 2626 | |||||||||||
| Taxes | 893 | ||||||||||||||
| Net earnings (loss)/Net Income | 114 | 203 | 325 | 1733 |
2. Ratio Analysis
| Industry Benchmark | |||
| Liquidity Ratios | |||
| Current ratio | 1.92 | ||
| Quick ratio | 1.25 | ||
| Cash ratio | 0.86 | ||
| Efficiency Ratios | |||
| Inventory turnover ratio | 5.37 | ||
| Days’ sales in inventory | 50.6 | ||
| Accounts receivable turnover | 18.12 | ||
| Days’ sales outstanding | 21.5 | ||
| Total asset turnover ( | TAT | 0.9 | |
| Fixed assets turnover | 2.75 | ||
| Leverage Ratios | |||
| Total debt ratio | 0.21 | ||
| Debt to equity ratio | 0.27 | ||
| Equity multiplier ( | EM | 1.23 | |
| Times interest earned | 5.5 | ||
| Cash coverage | 9.3 | ||
| Profitability Ratios | |||
| Profit Margin ( | PM | 0.14 | |
| Gross profit margin | 0.48 | ||
| Operating profit margin | 0.24 | ||
| EBIT return on assets (E | ROA | 0.19 | |
| 0.17 | |||
| ROE | 0.15 | ||
| Market Value ratios (*) | |||
| Earning per share (EPS) | n.a. | ||
| Price-earnings ratio | |||
| DuPont Equation | |||
| (*) Price per share | 71 |
3. Common-size Analysis
| % of Assets | change | ||||||||||
| Other current assts | |||||||||||
| % of Sales | |||||||||||
| Net sales | |||||||||||
4. Cash Flow Analysis
| Operating Activities | ||
| Net income | ||
| Additions (sources of cash) | ||
| Depreciation | ||
| Increase in accounts payable | ||
| Subtractions (uses of cash) | ||
| Increase in accounts receivable | ||
| Decrease in accrued income taxes | ||
| Increase in other current assets | ||
| Increase in inventories | ||
| Net cash provided by operating activities | 272 | 334 |
| Long-Term Investing Activities | ||
| Increase in property equipment | ||
| Decrease in goodwill and other assets | ||
| Net cash used in investing activities | -642 | -382 |
| Financing Activities | ||
| Increase in notes payable | ||
| Increase in long-term debt | ||
| Sale of common stock | ||
| Payment of cash dividends | ||
| Purchase of treasury stock | ||
| Net cash provided by financing activities | 232 | 245 |
| (sum of 3 CFs) | -138 | 197 |
| Net increase in cash and marketable securities | ||
| Cash and marketable securities at beginning of year | ||
| Cash and marketable securities at end of year | ||
| all grey cells need to be filled |
UMGC
MBA 620: Financial
Decision Making
Project 1: Review and
Practice Guide
Project 1: Review and
Practice Guide
Analyzing Financial Statements
Contents
The Basics of Financial Statements …………………………………………………………………………………………………
3
Purpose of Financial Statements ……………………………………………………………………………………………….. 3
Who Can Use Financial Statements? ………………………………………………………………………………………….. 3
Generally Accepted Accounting Principles (GAAP) ……………………………………………………………………….. 3
Annual Report …………………………………………………………………………………………………………………………. 3
Key Financial Statements ………………………………………………………………………………………………………….. 3
The Balance Sheet ………………………………………………………………………………………………………………………..
4
Two Sides of Balance Sheet ………………………………………………………………………………………………………. 4
The accounting equation: ……………………………………………………………………………………………………… 4
Net Working Capital …………………………………………………………………………………………………………………. 4
Order of Items on the Balance Sheet ………………………………………………………………………………………….. 4
Income Statements ……………………………………………………………………………………………………………………… 4
The Income Statement ……………………………………………………………………………………………………………… 4
Profit and Loss: Four Key Equations ……………………………………………………………………………………………. 4
Profit and Loss Statement ……………………………………………………………………………………………………… 4
Income Statement: Depreciation ………………………………………………………………………………………………..
5
Income Statement: Amortization ………………………………………………………………………………………………. 5
Income Statement: EBITDA & EBIT …………………………………………………………………………………………….. 5
Statement of Cash Flows ………………………………………………………………………………………………………………
6
Cash Flow Statement ……………………………………………………………………………………………………………….. 6
Cash Flow Statement: Organization……………………………………………………………………………………………. 6
Cash Flows ………………………………………………………………………………………………………………………………. 6
Financial Statements Analysis ………………………………………………………………………………………………………..
7
Financial Ratios and Company Performance ……………………………………………………………………………….. 7
Liquidity ratios……………………………………………………………………………………………………………………… 7
Efficiency ratios ……………………………………………………………………………………………………………………. 7
Leverage (debt) ratios ……………………………………………………………………………………………………………
8
Profitability ratios ………………………………………………………………………………………………………………… 8
Market value ratios ………………………………………………………………………………………………………………. 8
DuPont Equation ……………………………………………………………………………………………………………………… 8
Problems/Exercises ………………………………………………………………………………………………………………………
9
Chapter 3 …………………………………………………………………………………………………………………………….. 9
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Chapter 4 …………………………………………………………………………………………………………………………….. 9
Solutions ……………………………………………………………………………………………………………………………………. 9
Questions and Problems, Intermediate, 3.18 …………………………………………………………………………… 9
Questions and Problems, Intermediate, 3.21 ………………………………………………………………………….
10
Questions and Problems, Intermediate, 3.26 …………………………………………………………………………. 10
Questions and Problems, Advanced, 4.31 ………………………………………………………………………………
11
Project 1 Review and Practice Guide
3
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The Basics of Financial Statements
Purpose of Financial Statements
To provide a foundation for evaluating the financial health of a company
Who Can Use Financial Statements?
• customers
• general public
• government/regulators
• suppliers
• creditors
• employees
• management
• stockholders
Generally Accepted Accounting Principles (GAAP)
• Rules developed by the Financial Accounting Standards Board (FASB) that public companies
must abide by in developing financial statements and reporting results
• Authorized by the Securities and Exchange Commission (SEC)
Annual Report
• A summary of an organization’s performance over the course of a fiscal year
• Usually includes three parts:
o a discussion of the business and its properties, risk factors, and legal proceedings
o equity-related issues, an analysis of the organization’s performance, market-risk exposure,
and audited financial statements
o corporate governance
Key Financial Statements
• Balance sheet—snapshot of a company’s assets and funding at a point in time
• Income statement—a statement showing a company’s profitability for a specific reporting
period (month, quarter, etc.)
• Cash flow statement—summarizes the cash inflows and outflows from a company’s operations,
investments, and financing activities during a specific period
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The Balance Sheet
Two Sides of Balance Sheet
• Left side—assets a firm owns and uses to generate revenue
• Right side—sources of the funds used to acquire assets
Net Working Capital
net working capital = total current assets − total current liabilities
Order of Items on the Balance Sheet
• Assets listed in order of liquidity
• Liabilities listed in order in which they are due to be paid
• Stockholders’ equity listed last
o Common stockholders are entitled to assets remaining after all other providers of funds
are paid.
Income Statements
The Income Statement
Shows a company’s profitability during a specific reporting period (month, quarter, etc.)
net income = revenue − expenses
o Revenue—includes both cash and credit sales of a company’s products and/or services
o Expenses—costs of producing or providing products and services, as well as
depreciation and amortization of assets used
Profit and Loss: Four Key Equations
• Profitability
net income = revenue − cost of goods sold − expenses − taxes
assets = liabilities + owners’ (stockholders’) equity
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• Revenue
revenue − cost of goods sold = gross profit (gross margin)
• Expenses
gross profit − expenses = operating income
• Net Income
operating income − taxes = net income
Income Statement: Depreciation
The cost of a physical asset like a plant or machinery written off over the lifetime of the asset.
Depreciation is a noncash expense.
Two methods of depreciation
▪ straight-line
▪ accelerated
A company may choose one method for internal documentation and the other for tax purposes or
publicly available reports.
Income Statement: Amortization
A noncash expense associated with intangible assets
• Examples
o Goodwill
o Patents
o Licenses
Income Statement: EBITDA & EBIT
• Earnings before interest, taxes, depreciation, and amortization (EBITDA)
o income from selling goods and services minus the cost of providing them
• Earnings before interest and taxes (EBIT)
o EBITDA minus depreciation and amortization
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Statement of Cash Flows
Cash Flow Statement
• Operating activities, investing activities, and financing activities generate cash flows.
• The cash flow statement summarizes cash flows in and out of a company during a specified
period:
net cash flow = cash inflows − cash outflows
Cash Flow Statement: Organization
• Cash at the beginning of the period
• Operating activities
• Investing activities
• Financing activities
• Cash at the end of the period
Cash Flows
• Statement of Cash Flows organization
o Operating Activities
▪ cash inflows
❑ sell goods and services
▪ cash outflows
❑ raw materials
❑ inventory
❑ salaries and wages
❑ utilities
❑ rent
o Investing Activities
▪ cash outflows and inflows from
❑ buying and selling long-term assets such as plant and equipment
❑ buying and selling bonds and stocks issued by other companies
o Financing Activities
▪ cash inflows
❑ issue debt
❑ issue equity
❑ borrow money
▪ cash outflows
❑ pay interest or dividends
❑ repay loan principal
❑ purchase treasury stock
Net increase or
decrease in cash
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Financial Statements Analysis
Financial Ratios and Company Performance
• Categories of Common Financial Ratios
o Liquidity
o Efficiency
o Leverage
o Profitability
o Market value
o Indicate a firm’s ability to pay short-term obligations with short-term assets without
endangering the company. In general, higher ratios are a favorable indicator.
Current Ratio =
Current assets
Current liabilities
Quick Ratio =
Current assets – Inventory
Current liabilities
o Indicate a firm’s ability to use assets to produce sales. These are also called turnover
ratios. In general, higher numbers are a favorable indicator.
Inventory Turnover =
Cost of Goods Sold
Inventory
Total Asset Turnover =
Net Sales
Total Assets
o For the efficiency ratio below, a lower number is generally a positive signal.
Days Sales in Inventory =
365 Days
Inventory Turnover
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o Indicate whether a firm is using the appropriate amount of debt financing. In general,
higher ratios indicate greater potential return and greater bankruptcy risk.
Total Debt Ratio =
Total Debt
Total Assets
Debt-to-Equity =
Total Debt
Total Equity
o Indicate whether a company is generating adequate profit from its assets. In general,
higher ratios indicate better performance.
Net Profit Margin =
Net Income
Net Sales
Return on Assets =
Net Income
Total Assets
Return on Equity =
Net Income
Total Equity
o Indicate how the market is valuing the firm’s equity. Higher ratios indicate greater
shareholder wealth.
Price-Earnings Ratio =
Price Per Share
Earnings Per Share
Market-to-Book =
Price Per Share
Book Value of Equity Per Share
DuPont Equation
• Return on Equity (ROE)
ROE =
Net Income
Net Sales
×
Net Sales
Total Assets
×
Total Assets
Total Equity
= Net Profit Margin x Total Asset Turnover x Equity Multiplier
Shows that return-on-equity is driven by profitability, operating efficiency, and amount of leverage
(debt)
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Problems/Exercises
• Self-study problems
• Questions and Problems, Intermediate, 3.18 (Balance sheet)
• Questions and Problems, Intermediate, 3.21 (Income statement)
• Questions and Problems, Intermediate, 3.26 (Cash flows)
• Self-study problems 4.1–4.5
• Questions and Problems, Advanced, 4.31
Solutions
Blackwell Automotive Inc.
Balance Sheet as of December 31
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Nimitz Rental Company
Income Statement as of March 31
Amount
Revenues $878,412
General and administrative expenses 352,666
Leasing expenses 108,195
EBITDA $417,551
Depreciation expenses 131,455
EBIT $286,096
Interest expenses 78,122
EBT $207,974
Taxes (34%) 70,711
Net income $137,263
Cash flow: Refer to the information in Problem 3.21
Cash flow from operations = Net income + Depreciation
= $137,263 + $131,45
= $268,718
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Ratio Industry Average Nederland
Current ratio 2.05 0.77
Quick ratio 0.78 0.57
Gross margin 23.9% 51.2%
Net Profit margin 12.3% 12.6%
Debt ratio 0.23 0.70
Long-term debt to equity 0.98 0.73
Interest coverage 5.62 20.6
ROA 5.3% 11.4%
ROE 18.8% 37.5%
Source: Based on information in Parrino, Kidwell, & Bates (2012)
Now that you have read this Review and Practice Guide and completed
the problems and exercises, you are ready to participate in the
discussion in Step 3.
Course Resource
MBA Discussion Guidelines
Throughout the MBA program, you will be asked to participate in discussions. Assigned discussions, both individual and group work, are part of the process of developing your project deliverables.
In general, address your discussion posts to your classmates, rather than the instructor. Do not attach files; use only the discussion textbox. Your posts do not need the structure or format of formal business memos or reports. These discussions should be an informal exchange of ideas with your peers. You should, of course, still adhere to the norms of standard written English.
To receive the maximum benefit, you should participate in accordance with the guidelines provided below.
· timeliness
· initial posting(s) submitted by 11:59 PM ET on Saturday
· response(s) to other discussion postings submitted by 11:59 PM ET on Tuesday
· proper citation
· cite sources any time you quote or paraphrase an idea or evidence from another work
· use APA citation style (example below)
· meaningful engagement
· posts contribute to substantive scholarly discussion
· student demonstrates professionalism in interaction with peers
· posts critically discuss topics presented in the current week and, when appropriate, in previous weeks
· posts are grounded in the theories and concepts presented in the course
As one of your main courses in your MBA program, this course has been designed to help integrate the financial, economics and managerial accounting knowledge with the different subject areas you have studied so far in the MBA program, including PRO 600. Our perspective throughout will be to view organizations from the perspective of a Chief Financial Officer or a VP of Finance. However, your role in each project is of a freelance consultant, part of a team assigned to turn around a firm in financial difficulty. When we look at a financial decision problem, we will attempt to develop a comprehensive business solution rather than a financing solution, investing solution, or an operations solution. It is important for your learning and for the success of the course that you participate actively and fully throughout. This will entail doing each week’s readings in advance, doing the project milestones on time, personal contemplation, and eventually relating the subject matter to current events. Some of the milestone, may be just exercises and problems that will help you digest new tools and technics.
To facilitate your learning experience, we have developed a set of material each week and, each week we will ask you to apply what you have learned to your course projects. Taken together, these mutual supporting educational tools will maximize your learning, retention, and ability to apply what you have learned.
We expect much of the learning in the course to come from synthesizing what you learn from the readings, videos, supporting PPTs, and if required doing exercises and problems as mid-step between the reading and the project, participating in discussion in the ELM classroom, instructor feedback, and applying the concepts, tools, and techniques of financial decision making to everyday decision problems at work.
Please read the syllabus in its entirety and visit other areas of the classroom – give particular attention to the schedule of the course at the end of the syllabus where you have all the milestone and due dates. For now, make sure that you have reviewed the readings. To get a head start, it will be useful to begin reading and viewing all organizational aspects of the course. Also, review all the projects in their entirety so you can have a good idea of the course map.
As you recall from your Project 2 in MBA 610, you did a Situation Audit of your own company or of a firm of your choice. You already have a firsthand experience in this program analyzing critical resources in step 7 of that project including financial resources. Obviously in this MBA 620 course, we are going to dive deeper so you can fully grasp and master the tools and technics that you are going to need throughout this program after MBA 620. The concepts and theories in this course are needed for a successful completion of your MBA 670 capstone course but also in MBA 640 or even MBA 630 where you are dealing with corporate information.
All 5 projects in this course are related and/or inter-connected. Project 1 will be setting up the background of all remaining projects and you will be asked to assess the financial health of a company by focusing exclusively in the Balance Sheet and Income Statement. Project 2 (team project) and Project 3 focus exclusively in company’s current operating profitability or short-term operational efficiency, with project 2 concentrating in revenues and project 3 in cost. Project 4 and 5 focus primarily in the balance sheet, with project 4 concentrating in Assets and Project 5 in Liability and Equity. Each new project will start where you ended the previous one and all projects will be referring to the initial one. Once you have competed your last project, you will be having a more resilient and financially stress-free company.
Additionally, I strongly recommend that you keep up with the pace of the course and do all your Milestones and/or mid-project assignment in the week where the particular milestone may be due. This is critical as this course is particularly intense and you cover 3 distinct and related subjects: Economics of the Firm, Managerial Accounting, and Corporate Finance. The philosophy behind the milestone is to encourage you to submit your assignments when they are due and not fall behind. For that reason, you are required to submit your milestone or assignment only during the week it is due while all milestones remain optional. In other words, if you are going to submit a milestone, you can only submit during the week where it is due – between Wednesday 00:01 am and Tuesday 11:59 pm. If you have project 2, Step 4 milestone due in week 3 then you should submit it only in week 3 and not submit it in week #4 where the entire project 2 is due. This rule is going to be reinforced and you need to understand that there is no milestone submission once we are in the week where the project is due. Likewise, once we move to a new project there is no milestone from previous project that you can submit. Your cooperation on this matter is highly appreciated and I do hope it is going to encourage you to stay on top of all projects – including your team project (project 2) that is starting in week 3 and will be requiring from you the fullest participation in order to receive a grade. Any student that is not effectively contributing to the group project will be failing the course.
Last but not least, I have 2 more pieces of advice. I strongly recommend that you brush up the skill you have acquired in PRO 600 Project 4 Conduct Quantitative Reasoning using Data where you learned manipulating data using Excel. It is going to be invaluable for every single project in MBA 620 that you will be submitting in Excel. Keep in mind that all your Excel Spreadsheets need to have required cells with formulas and calculations – you should not be providing a plain number as a solution. And for those who would like to better understand how a Balance Sheet and Income Statement are put together using basic principles of accounting, please watch the video How to Prepare an Income Statement and a Balance Sheet (Accounting University 8:28).
In case of any questions, please do not hesitate to post a question in your ELM course to your instructor or e-mail.
So, let’s shake hands (virtually) to signify our partnership in this learning journey. Best wishes for an exciting and challenging MBA 620 semester.
1/19: First milestone submission (incomplete submission).
Under the Ratio Analysis tab:
Double check your calculations for Earnings per share. Notice that the unit of the earnings is million. So, you need to time your computed result by 1,000,000. Change the unit of the Price-earnings ratio accordingly.
Under the Common-size Analysis tab:
You did not standardize the Income Statement (below the Balance Sheet).
Under the Cash Flow Analysis tab:
|
Sale of common stock |
3 |
4 |
|
Payment of cash dividends |
34 |
88 |
|
Purchase of treasury stock |
80 |
15 |
Instructions
| version | 0 | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Project 1, Step | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| View the balance sheet and income statement for the client company, Largo Global Inc. (LGI), using this Excel workbook, which includes the following tabs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. Bal. Sheet & Inc. Statement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. Ratio Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. Cash Flow Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| You may submit this workbook as a milestone in Step 4, so you can receive feedback on the accuracy of your calculations before submitting your final project in Step | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 1. You see the balance sheet and income statement for LGI for | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Use this information to complete the calculations in tabs 2–4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Perform your calculations using the formula bar in the Excel workbook. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 2. You see six groups of financial ratios as well as an industry benchmark you can use for comparison with LGI’s 20 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Calculate the ratios for each year. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 3. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a common-size analysis. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a cash flow analysis. |
1. Bal. Sheet & Inc. Statement
| Largo Gobal Balance Sheet as of December 31 (millions) | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| Assets: | Liabilities and Stockholders’ Equity: | ||||||||||||||
| Cash and marketable securities | 228 | 366 | 169 | Accounts payable and accruals | 3 | 61 | 324 | 3 | 12 | ||||||
| Accounts receivable | 1 | 88 | 181 | 15 | Notes payable | 140 | 103 | ||||||||
| Inventory | 404 | 3 | 98 | 34 | Accrued taxes | 56 | 109 | ||||||||
| Other current assets | Total current liabilities | 557 | 515 | 482 | |||||||||||
| Total current assets | 838 | 955 | 68 | ||||||||||||
| Property, plant, and equipment | 4000 | 3358 | 2976 | Long-term debt | 457 | 37 | 283 | ||||||||
| Less: Accumulated depreciation | 2000 | 1826 | 1608 | Total liabilities | 1014 | 894 | 7 | 65 | |||||||
| Net property, plant, and equipment | 1532 | 1368 | Common Stock (98,051,400 shares) | 490 | 487 | 483 | |||||||||
| Goodwill and other assets | 12 | 80 | Additional Paid-in capital | 2439 | 2222 | 1982 | |||||||||
| Retained earnings | 270 | 179 | |||||||||||||
| Total assets | 4118 | 3767 | 3328 | Treasury stock | -95 | -15 | |||||||||
| Total stockholders’ equity | 3 | 104 | 2873 | 2563 | |||||||||||
| Total liabilities and equity | |||||||||||||||
| # of shares | 9805 | 1400 | 97302600 | 96 | |||||||||||
| estimate competitor | |||||||||||||||
| Sales (net sales) | $2,013 | $2,450 | $2,733 | 7546 | |||||||||||
| Cost of goods sold | 168 | 1765 | 3838 | ||||||||||||
| Gross profit | 613 | 761 | 968 | 3708 | |||||||||||
| Selling, general, and administrative expenses | 125 | 91 | |||||||||||||
| Earnings before Interest, taxes, depreciation, and amortization (EBITDA) | 488 | 663 | 877 | 3604 | |||||||||||
| Depreciation and amortization | 174 | 218 | 2 | 59 | 734 | ||||||||||
| Earning before interest and taxes (EBIT) Operating income (loss) | 314 | 445 | 618 | 2870 | |||||||||||
| Interest expense | 141 | 137 | 209 | ||||||||||||
| Earnings before taxes (EBT) | 173 | 308 | 493 | 2661 | |||||||||||
| Taxes | 105 | 905 | |||||||||||||
| Net earnings (loss)/Net Income | 114 | 203 | 325 | 1756 |
2. Ratio Analysis
| Industry Benchmark | |||||||||||
| Liquidity Ratios | |||||||||||
| Current ratio | 1.50 | 1.85 | 1.41 | 1.93 | |||||||
| Quick ratio | 0. | 78 | 1.08 | 0.69 | 1.26 | ||||||
| Cash ratio | 0.41 | 0. | 71 | 0.35 | 0.87 | ||||||
| Efficiency Ratios | |||||||||||
| Inventory turnover ratio | 3.47 | 4.24 | 5.06 | 5.38 | |||||||
| Days’ sales in inventory | 105.33 | 86.01 | 72.17 | 50.7 | |||||||
| Accounts receivable turnover | 10.71 | 13.54 | 17.41 | 18.13 | |||||||
| Days’ sales outstanding | 34.09 | 26.97 | 20.97 | 21.6 | |||||||
| Total asset turnover ( | TAT | 0.49 | 0.65 | 0.82 | 0.95 | ||||||
| Fixed assets turnover | 0.61 | 1.03 | 2.76 | ||||||||
| Leverage Ratios | |||||||||||
| Total debt ratio | 0.25 | 0.24 | 0.23 | 0.22 | |||||||
| Debt to equity ratio | 0.33 | 0.31 | 0.30 | 0.28 | |||||||
| Equity multiplier ( | EM | 1.33 | 1.31 | 1.30 | 1.24 | ||||||
| Times interest earned | 2.23 | 3.25 | 4.94 | 5.55 | |||||||
| Cash coverage | 3.46 | 4.84 | 7.02 | 9.4 | |||||||
| Profitability Ratios | |||||||||||
| Profit Margin ( | PM | 0.06 | 0.08 | 0.12 | 0.15 | ||||||
| Gross profit margin | |||||||||||
| Operating profit margin | 0.16 | 0.18 | |||||||||
| EBIT return on assets (E | ROA | 0.19 | 0.21 | ||||||||
| 0.03 | 0.05 | 0.10 | |||||||||
| ROE | 0.04 | 0.07 | 0.13 | ||||||||
| Market Value ratios (*) | |||||||||||
| Earning per share (EPS) | 0.00000116266 | 0.00000208628 | 0.00000336714 | n.a. | |||||||
| Price-earnings ratio | 55,906,284 | 32,593,974 | 21,086,170 | ||||||||
| DuPont Equation | |||||||||||
| 0.0367268041 | 0.0706578489 | 0.1268045259 | |||||||||
| (*) Price per share |
3. Common-size Analysis
| % of Assets | change | ||||||||||
| 5.54% | -4.18% | 9.72% | 4.64% | 5.08% | 8.77% | 0.17% | 8.60% | -0.77% | 9.38% | ||
| 4.57% | – | 0.24% | 4.80% | 0.09% | 4.72% | 3.40% | 0.67% | 2.73% | 0.90% | 1.83% | |
| 9.81% | – | 0.75% | 10.57% | 0.08% | 10.49% | 1.36% | -0.98% | 2.34% | -0.94% | 3.28% | |
| Other current assts | 0.44% | 0.27% | 0.12% | 0.15% | 13.53% | -0.15% | 13.67% | -0.81% | 14.48% | ||
| 20.35% | -5 | 25.35% | 4.92% | 20.43% | 0.00% | ||||||
| 97.13% | 7.99% | 89.14% | -0.28% | 89. | 42 | 11.10% | 1.04% | 10.06% | 1.56% | 8.50% | |
| 48.57% | 48.47% | 0.16% | 48.32% | 24.62% | 0.89% | 23.73% | 22.99% | ||||
| 7.90% | 40.67% | -0.44% | 41.11% | 11.90% | -1.03% | 12.93% | -1.59% | 14.51% | |||
| 31.08% | -2.90% | 33.98% | -4.48% | 38.46% | 59.23% | 58.99% | -0.57% | 59.56% | |||
| 6.56% | 1.80% | 4.75% | 1.81% | 2.94% | |||||||
| 100.00% | -2.31% | -1.91% | -0.40% | ||||||||
| 75.38% | -0.89% | 76.27% | -0.75% | 77.01% | |||||||
| % of Sales | |||||||||||
| Net sales | |||||||||||
4. Cash Flow Analysis
| Operating Activities | ||||
| Net income | ||||
| Additions (sources of cash) | ||||
| Depreciation | ||||
| Increase in accounts payable | ||||
| Subtractions (uses of cash) | ||||
| Increase in accounts receivable | -7 | -24 | ||
| Decrease in accrued income taxes | -32 | -21 | ||
| Increase in other current assets | -8 | |||
| Increase in inventories | -6 | -49 | ||
| Net cash provided by operating activities | 272 | 334 | ||
| Long-Term Investing Activities | ||||
| Increase in property equipment | -642 | -382 | ||
| Decrease in goodwill and other assets | ||||
| Net cash used in investing activities | ||||
| Financing Activities | ||||
| Increase in notes payable | ||||
| Increase in long-term debt | ||||
| Sale of common stock | ||||
| Payment of cash dividends | ||||
| Purchase of treasury stock | ||||
| Net cash provided by financing activities | 232 | 245 | ||
| (sum of 3 CFs) | -138 | 197 | ||
| Net increase in cash and marketable securities | ||||
| Cash and marketable securities at beginning of year | ||||
| Cash and marketable securities at end of year | ||||
| all grey cells need to be filled |
Based on your workbook submission, I would like to provide you with a further explanation and some examples regarding the calculations on the Cash Flow Analysis tab.
Net cash generated by operating activities/Net cash used in investing activities/Net cash provided by financing activities” (highlighted with yellow color) should equal the sum of all the numbers under the area of “Operating Activities/Long-Term Investing Activities/Financing Activities,” respectively. So, the sign (either positive or negative for each number) matters. The positive (plus) sign stands for the source of cash and the negative (minus) sign stands for the use of cash.
Sources of cash meaning:
· Cash inflow – occurs when we “sell” something and “receive” cash
· Decrease in asset account such as Accounts receivable, inventory, and net fixed assets between two years
· Increase in liability or equity account such as Accounts payable, other current liabilities, and common stock between two years
Uses of cash meaning:
· Cash outflow – occurs when we “use” cash to “buy” something
· Increase in asset account such as Cash and other current assets
· Decrease in liability or equity account such as Notes payable and long-term debt
Example 1: Changes on ‘Sale of common stock’ account in year 2020
Sale of common stock (in 2020) = (Common stock in 2020 + Additional paid-in capital in 2020) – (Common stock in 2019 +Additional paid-in capital in 2019) = (490+2439) – (487+2222) = 220.
The result indicates that the value of common stock in year 2020 is increased by 220 relatives to the year 2019. LGI received (cash inflow) of 220 by selling more stocks.
Example 2: Changes on ‘Payment of cash dividends’ in year 2020
Payment of cash dividends (in 2020) = Net Income in 2020 – Addition to Retained earnings in 2020 = Net Income in 2020 – (Retained earnings in 2020 – Retained earnings in 2019) = 114 – (270 – 179) = 114 – 91 = 23, which is cash outflow (-23) on the cash flow statement.
Thanks for your efforts in this class.
Hello I just wanted to make saw you saw these comments from my professor:
My Professor comments for project1 word doc: Arguments/conclusions are incorrect/inaccurate. “LGI seems to be more efficient in terms of sales.” “Asset’s efficiency can be assessed in terms of the liquidity ratio as well as Return on Assets (ROA). ” Notice that liquidity ratios are not used to assess the assets’ efficiency. Leverage ratios (not liquidity ratio) should be used in discussing the financial leverage
My question 1 & 4 is slightly different from the ones you uploaded. Please make sure your answer matches the below questions for question 1 & 4
I also believe you have to reference the xcel workbook to answer the word questions
1. What is your overall assessment of Largo Global Inc. (LGI)? Provide a broad view of the main trends that emerge from your analyses of the information in tabs 2, 3, and 4. Your key findings should be synthesized and highlight a clear diagnostic of LGI’s financial strength and/or weakness.
4. How is LGI doing in terms of financial leverage? How would you assess it compared to its main competitor and the industry index? What are the principal areas that need to be addressed to strengthen the right-hand side of its balance sheet? Your answers must be supported by all arguments developed in questions 2, 3, and 4. In addition, make sure you use data not already used in previous questions.
Instructions
| version | 0 | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Project 1, Step 4: Instructions for This Excel Workbook | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| View the balance sheet and income statement for the client company, Largo Global Inc. (LGI), using this Excel workbook, which includes the following tabs: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. Bal. Sheet & Inc. Statement | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. Ratio Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. Common-size Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. Cash Flow Analysis | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| You may submit this workbook as a milestone in Step 4, so you can receive feedback on the accuracy of your calculations before submitting your final project in Step | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 1. You see the balance sheet and income statement for LGI for | 2019 | 21 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Use this information to complete the calculations in tabs 2–4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Perform your calculations using the formula bar in the Excel workbook. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 2. You see six groups of financial ratios as well as an industry benchmark you can use for comparison with LGI’s 20 | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Calculate the ratios for each year. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 3. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a common-size analysis. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Open tab 4. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| · Complete a cash flow analysis. |
1. Bal. Sheet & Inc. Statement
| Largo Gobal Balance Sheet as of December 31 (millions) | |||||||||||||||
| 2021 | 2020 | ||||||||||||||
| Assets: | Liabilities and Stockholders’ Equity: | ||||||||||||||
| Cash and marketable securities | 228 | 366 | 169 | Accounts payable and accruals | 3 | 61 | 324 | 3 | 12 | ||||||
| Accounts receivable | 1 | 88 | 181 | 157 | Notes payable | 140 | 103 | ||||||||
| Inventory | 404 | 3 | 98 | 349 | Accrued taxes | 56 | 109 | ||||||||
| Other current assets | Total current liabilities | 557 | 515 | 482 | |||||||||||
| Total current assets | 838 | 955 | 68 | ||||||||||||
| Property, plant, and equipment | 4000 | 33 | 2976 | Long-term debt | 457 | 37 | 283 | ||||||||
| Less: Accumulated depreciation | 2000 | 1826 | 1608 | Total liabilities | 1014 | 894 | 7 | 65 | |||||||
| Net property, plant, and equipment | 1532 | 1368 | Common Stock (98,051,400 shares) | 490 | 487 | 483 | |||||||||
| Goodwill and other assets | 1280 | Additional Paid-in capital | 2439 | 2222 | 1982 | ||||||||||
| Retained earnings | 270 | 179 | |||||||||||||
| Total assets | 4118 | 3767 | 3328 | Treasury stock | -95 | -15 | |||||||||
| Total stockholders’ equity | 3 | 104 | 2873 | 2563 | |||||||||||
| Total liabilities and equity | |||||||||||||||
| # of shares | 9805 | 1400 | 97302600 | 96 | |||||||||||
| estimate competitor | |||||||||||||||
| Sales (net sales) | $2,013 | $2,450 | $2,733 | 7546 | |||||||||||
| Cost of goods sold | 168 | 1765 | 3838 | ||||||||||||
| Gross profit | 613 | 761 | 968 | 3708 | |||||||||||
| Selling, general, and administrative expenses | 125 | 91 | |||||||||||||
| Earnings before Interest, taxes, depreciation, and amortization (EBITDA) | 488 | 663 | 877 | 3604 | |||||||||||
| Depreciation and amortization | 174 | 218 | 2 | 59 | 734 | ||||||||||
| Earning before interest and taxes (EBIT) Operating income (loss) | 314 | 445 | 618 | 2870 | |||||||||||
| Interest expense | 141 | 137 | 209 | ||||||||||||
| Earnings before taxes (EBT) | 173 | 308 | 493 | 2661 | |||||||||||
| Taxes | 4% | 105 | 905 | ||||||||||||
| Net earnings (loss)/Net Income | 114 | 203 | 325 | 1756 |
2. Ratio Analysis
| Industry Benchmark | |||||||||||
| Liquidity Ratios | |||||||||||
| Current ratio | 1.50 | 1.85 | 1.41 | 1.93 | |||||||
| Quick ratio | 0. | 78 | 1.08 | 0.69 | 1.26 | ||||||
| Cash ratio | 0.41 | 0. | 71 | 0.35 | 0.87 | ||||||
| Efficiency Ratios | |||||||||||
| Inventory turnover ratio | 3.47 | 4.24 | 5.06 | 5.38 | |||||||
| Days’ sales in inventory | 105.33 | 86.01 | 72.17 | 50.7 | |||||||
| Accounts receivable turnover | 10.71 | 13.54 | 17.41 | 18.13 | |||||||
| Days’ sales outstanding | 34.09 | 26.97 | 20.97 | 21.6 | |||||||
| Total asset turnover ( | TAT | 0.49 | 0.65 | 0.82 | 0.95 | ||||||
| Fixed assets turnover | 0.61 | 1.03 | 2.76 | ||||||||
| Leverage Ratios | |||||||||||
| Total debt ratio | 0.25 | 0.24 | 0.23 | 0.22 | |||||||
| Debt to equity ratio | 0.33 | 0.31 | 0.30 | 0.28 | |||||||
| Equity multiplier ( | EM | 1.33 | 1.31 | 1.30 | 1.24 | ||||||
| Times interest earned | 2.23 | 3.25 | 4.94 | 5.55 | |||||||
| Cash coverage | 3.46 | 4.84 | 7.02 | 9.4 | |||||||
| Profitability Ratios | |||||||||||
| Profit Margin ( | PM | 0.06 | 0.08 | 0.12 | 0.15 | ||||||
| Gross profit margin | |||||||||||
| Operating profit margin | 0.16 | 0.18 | |||||||||
| EBIT return on assets (E | ROA | 0.19 | 0.21 | ||||||||
| 0.03 | 0.05 | 0.10 | |||||||||
| ROE | 0.04 | 0.07 | 0.13 | ||||||||
| Market Value ratios (*) | |||||||||||
| Earning per share (EPS) | 1.163 | 2.086 | 3.367 | n.a. | |||||||
| Price-earnings ratio | |||||||||||
| DuPont Equation | |||||||||||
| 0.0367268041 | 0.0706578489 | 0.1268045259 | |||||||||
| (*) Price per share |
3. Common-size Analysis
| % of Assets | change | ||||||||||||||||||
| 5.54% | -4. | 1 | 8% | 9.7 | 2% | 4.64% | 5.08% | 8.7 | 7% | 0.17% | 8.6 | 0% | -0.77% | 9.38% | |||||
| 4.57% | – | 0. | 24% | 4.80% | 0.0 | 9% | 4.72% | 3.40% | 0.67% | 2.7 | 3% | 0.90% | 1.83% | ||||||
| 9.8 | 1% | – | 0.7 | 5% | 10.57% | 0.08% | 10.49% | 1.3 | 6% | -0.98% | 2.34% | -0.94% | 3.28% | ||||||
| Other current assts | 0.44% | 0. | 27% | 0. | 12% | 0.15% | 13.53% | -0.15% | 13.67% | -0.81% | 14.48% | ||||||||
| 20. | 35% | -5 | 25.35% | 4.92% | 20.43% | 0.00% | |||||||||||||
| 97. | 13% | 7.99% | 89.14% | -0.28% | 89. | 42 | 11.10% | 1.04% | 10.06% | 1.56% | 8.50% | ||||||||
| 48.57% | 48.47% | 0. | 16% | 48. | 32% | 24.62% | 0.89% | 23.73% | 22.99% | ||||||||||
| 7.90% | 40.67% | -0.44% | 41.11% | 11.90% | -1.03% | 12.93% | -1.59% | 14.51% | |||||||||||
| 31.08% | -2.90% | 33.98% | -4.48% | 38.46% | 59. | 23% | 58.99% | -0.57% | 59.56% | ||||||||||
| 6.56% | 1.80% | 4.75% | 1.81% | 2.94% | |||||||||||||||
| 100.00% | -2. | 31% | -1.91% | -0.40% | |||||||||||||||
| 75.38% | -0.89% | 76.27% | -0.75% | 77.01% | |||||||||||||||
| % of Sales | |||||||||||||||||||
| Net sales | 100% | ||||||||||||||||||
| 70% | 69% | 65% | |||||||||||||||||
| 30% | -1% | -4% | |||||||||||||||||
| -3% | -5% | ||||||||||||||||||
| -2% | |||||||||||||||||||
4. Cash Flow Analysis
| Operating Activities | ||||
| Net income | ||||
| Additions (sources of cash) | ||||
| Depreciation | ||||
| Increase in accounts payable | ||||
| Subtractions (uses of cash) | ||||
| Increase in accounts receivable | -7 | -24 | ||
| Decrease in accrued income taxes | -32 | -21 | ||
| Increase in other current assets | -8 | |||
| Increase in inventories | -6 | -49 | ||
| Net cash provided by operating activities | 272 | 334 | ||
| Long-Term Investing Activities | ||||
| Increase in property equipment | -642 | -382 | ||
| Decrease in goodwill and other assets | ||||
| Net cash used in investing activities | ||||
| Financing Activities | ||||
| Increase in notes payable | ||||
| Increase in long-term debt | ||||
| Sale of common stock | 220 | 244 | ||
| Payment of cash dividends | -23 | -122 | ||
| Purchase of treasury stock | -80 | |||
| Net cash provided by financing activities | 232 | 245 | ||
| (sum of 3 CFs) | -138 | 197 | ||
| Net increase in cash and marketable securities | ||||
| Cash and marketable securities at beginning of year | ||||
| Cash and marketable securities at end of year | ||||
| all grey cells need to be filled |
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