see the attached document with the needed data Answer the questions show all work for your answers; be complete; but, concise with your analysis. If you wish to elaborate on your calculations for the ratios, please do so
Hatfield Medical Supplies’ stock price had been lagging its industry averages, so its board of directors brought in a new CEO, Jaiden Lee. Lee had brought in Ashley Novak, a finance MBA who had been working for a consulting company,
to replace the old CFO, and Lee asked Ashley to develop the financial planning section of the strategic plan. In her previous job, Novak’s primary task had been to help clients develop financial forecasts, and that was one reason Lee hired her.
Novak began as she always did, by comparing Hatfield’s financial ratios to the industry averages. If any ratio was substandard, she discussed it with the responsible manager to see what could be done to improve the situation. The following data shows Hatfield’s latest financial statements plus some ratios and other data that Novak plans to use in her analysis.
1: Using Hatfield’s data and its industry averages, how well run would you say Hatfield appears to be in comparison with other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer, and point to various ratios that support your position. Also, use the Du Pont equation as one part of your analysis.
Du Pont equation = (Profit margin) (total assets turnover) (equity multiplier) = Net income/ Sales x Sales /total sales x Total Assets/ common equity
2: Use the AFN equation to estimate Hatfield’s required new external capital for 2014 if the sale growth rate is 10%. Assume that the firm’s 2013 ratios will remain the same in 2014. (Hint: Hatfield was operating at full capacity in 2013.)
3: Define the term self-supporting growth rate. What is Hatfield’s self-supporting growth rate? Would the self-supporting growth rate be affected by a change in the capital intensity ratio or the other factors mentioned in the previous question? Other things held constant, would the calculated capital intensity ratio change over time if the company were growing and were also subject to economies of scale and/or lumpy assets?
Hatfield Medical supplies (millions of dollars except per share data)
Balance sheet 12/31/13 Cask $20 Accts. Rec. 280 Inventories 400 Total CA $700 Net fixed assets 500 total assets $1200 Acct payable & accruals $80 Line of credit $0 total CL $80 long term debt 500 total liabilities $580 common stock 420 retained earnings 200 total common equ. $620 total liab. & equity $1200
Income statement year ending 2013 Sales $2000 Op. cost (excl.depr) $1,800 Depreciation 50 EBIT $150 Interest 40 Pre-tax earnings $110 Taxes (40%) 44 Net Income $66
Dividends $20.00 Add to RE $46.0 Common shares 10.0 EPS $6.60 DPS $2.00 Ending stock price $52.80
Additional data for 2013 Hatfield industry OP. costs/sales 90.0% 88.0% Depr./FA 10.0% 12.0% Cash/sales 1.0% 1.0% Receivables/sales 14.0% 11.0% Inventories/sales 20.0% 15.0% Fixed assets/sales 25.0% 22.0% Acc. pay.& accr. /sales 4.0% 4.0% Tax rate 40.0% 40.0% ROIC 8.0% 12.5% NOPAT/sales 4.5% 5.6% Total op. capital sales 56.0% 45.0% Total liabilities/total assets 48.3% 36.7% Times interest earned 3.8 8.9 Return on assets (ROA) 5.5% 10.2% Profit margin (M) 3.30% 4.99% Sales/assets 1.67 2.04 Assets/equity 1.94 1.58 Return on equity (ROE) 10.6% 16.1% P/E ratio 8.0 16.0
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