Title: Financial Statements, Cash Flow, Ratio Analysis, and Projection
1Financial Statements, Cash Flow, Ratio Analysis,
and Projection
2The Annual Report
- Balance sheet provides a snapshot of a firms
financial position at one point in time. - Income statement summarizes a firms revenues
and expenses over a given period of time. - Statement of retained earnings shows how much
of the firms earnings were retained, rather than
paid out as dividends. - Statement of cash flows reports the impact of a
firms activities on cash flows over a given
period of time.
3Balance Sheet Assets
-
- Cash
- A/R
- Inventories
- Total CA
- Gross FA
- Less Dep.
- Net FA
- Total Assets
4Balance sheet Liabilities and Equity
-
- Accts payable
- Notes payable
- Accruals
- Total Current Liabilities
- Long-term debt
- Total Liabilities
- Common stock
- Retained earnings
- Total Equity
- Total Liabilities Equity
5Income statement
- Sales
- COGS
- Other expenses
- EBITDA
- Depr. Amort.
- EBIT
- Interest Exp.
- EBT
- Taxes (40)
- Net income
- Common Dividends
2005 1500.0 (1,230.0) (90.0) 180.0
(50.0) 130.0 (40.0) 90.0 (36.0)
54.0 (29.0)
2004 1435.0 (1,176.7) (85.5) 173.3
(40.0) 133.3 (35.0) 98.3 (39.3)
59.0 (27.0)
6Other data
- Shares outstanding
- EPS
- DPS
- Stock price
7Statement of Retained Earnings (2005)
260 54 (29) 285
- Balance of retained
- earnings, 12/31/04
- Add Net income, 2005
- Less Dividends paid
- Balance of retained
- earnings, 12/31/05
8How to make cash-flow statement
- There are 3 parts in the statement.
- Cash flow from operating activities
- Cash flow from financing activities
- Cash flow from investment activities
9Guidelines for cash flow from operating activities
- Start with the net income after interest and
taxes before distribution of dividends. - Add back depreciation.
- Among the items of current assets compare between
the figures of last year and the current year. if
there is an increase, then deduct the amount as
it refers to the use of cash. If there is a
decrease, then add the amount as it is a source
of cash. - Among the items of current liabilities, if there
is an increase, then add as it refers to a source
of cash. If there is a decrease, then deduct as
it is a use of cash. - Ignore (a) cash amount of current assets and (b)
notes payable of current liabilities.
10More tips for cash-flow statement
- For investment activities, use the gross amount
rather than net amount. Increase is assets is a
use of cash, so deduct the amount. Decrease in
assets is a source of cash, so add the amount. - For financing activities, increase in debt or
stock means procurement in cash, so add the
amount. Decrease in debt or stock means
repayment, so deduct the amount. Distribution of
dividends is a a use, so deduct the amount.
Notes payable should be included and treated like
any other long term debt.
11Statement of Cash Flows (2005)
- OPERATING ACTIVITIES
- Net income
- Add back depreciation
- Subtract (Uses of cash)
- Increase in A/R
- Increase in inventories
- Add (Sources of cash)
- Increase in A/P
- Increase in accruals
- Net cash provided by operations.
- 54.0
- 50.0
- (20.0)
- (70.0)
- 15.0
- 5.0
- 34.0
12Statement of Cash Flows (2005) (Contd.)
34.0 (80.0) 5.0 45.0 (29.0) 21.0 (25
.0) 40.0 15.0
- a. Net cash provided by operation
- b. Cash Flow from Investment
- c. FINANCING ACTIVITIES
- Increase in notes payable
- Increase in long-term debt
- Payment of cash dividend
- Net cash from financing
- NET CHANGE IN CASH
- Plus Cash at beginning of year
- Cash at end of year
13Comment about the financial condition from the CF
statement
- The net change in cash flow is negative. This
indicates that during the year the firm has more
cash outflow than inflow. The cash position of
the firm has deteriorated compared to the last
year. - Huge inventories piled up that consumed cash as
well as the accounting profit - Increase in fixed assets consumed cash as well
- Long term debt issued to pay cash dividends
14Methods of Ratio analysis
- Bench mark analysis
- Time series analysis
- Cross section analysis
15What are the five major categories of ratios, and
what questions do they answer?
- Liquidity Can we make required payments?
- Asset management right amount of assets vs.
sales? - Debt management Right mix of debt and equity?
- Profitability Do sales prices exceed unit costs,
and are sales high enough as reflected in PM,
ROE, and ROA? - Market value Do investors like what they see as
reflected in P/E and M/B ratios?
16Liquidity Ratioa. Current Ratio for 2005.
- Current ratio Current assets / Current
liabilities - 465 / 130
- 3.6
- Industry average 4.1
- Comment poorer than the industry
17Comments on current ratio
2005 2004 Ind.
Current ratio 3.6 3.8 4.1
- The firm has a liquidity which is more than the
benchmark of 2. However, compared to the industry
average it is not enough. More importantly it is
getting worse from the previous year.
181. Liquidity Ratiob. Quick ratio for 2005.
- Current assets - inventories Quick
ratio2005 - Current liabilities
- 195 / 130 1.5x
- Quick ratio20041.9
- Industry average2.1
- Comment Although the ratio is better than the
norm of 1 but it is much lower than the industry
standard. The firm needs to improve that.
191. Overall comments on liquidity
- Liquidity performances are poor. The firm needs
to increase its cash balance which has
drastically gone down in the current year.
Another reason for low liquidity is that the
sales has increased only around 4 in the current
year which must be responsible for poor cash
balance and poor accounts receivables. The cash
flow finding of too much inventory piled up must
have reduced cash balance as well as contributed
to the poor liquidity.
202. Asset Management Ratioa. Inventory turnover
Inv. turnover Sales / Inventories 1230
/ 270 4.6x
2005 2004 Ind.
Inventory Turnover 4.6x 5.9x 7.4x
21Comments on Inventory Turnover
- Unilates inventory is sold out and restocked, or
turned over, 4.6 times per year, which is
considerably lower than the industry average of
7.4 times. It might be holding excessive stock of
inventory which indeed is unproductive. It might
have old inventory piled up that suggests poor
inventory management.
222. Asset Management Ratiob. Days Sales
Outstanding DSO is the average number of days
required for collection of sales
- DSO Receivables / Average sales per day
- Receivables / (Sales/365)
- 180 / (1,500/360) 43.2 days
2005 2004 Ind.
DSO 43.2 40.7 32.0
Unilete collects sales too slowly compared to
the industry, and the collection performance is
getting worse day-by-day. it has a poor credit
policy.
232. Asset Management Ratio c. Fixed asset
turnover ratiod. Total asset turnover ratios
- FA turnover Sales / Net fixed assets
- 1,500 / 380 3.9x
- Industry average 4.0x
- TA turnover Sales / Total assets
- 1,500 / 845 1.8x
- Industry average 2.1x
2005 2004 Ind.
FA TO 3.9x 4.1x 4.0x
TA TO 1.8x 1.9x 2.0x
24Comment on Fixed Assets turnover and total asset
turnover ratio
- Compared to the industry, the fixed assets
turnover ratio is alright but the total asset
turnover ratio is weak. The reason might be the
poor inventory management of the firm.
252. Overall comments on asset management
- Poor performances in all the asset management
ratios are due to poor sales promotion.
Considering the DSO, the firm can not relax the
credit terms, so to reduce the sales price and/or
aggressive market campaign may be a good option
to promote sales. To improve the DSO, the firm
should be more punctual in its collection of
credit sales. Cash discount can be increased. The
reason for poor asset management ratio is the
inefficient inventory management. Abnormal
increase in inventory in the current year 35
does not match with sales promotion 4.
263. Debt Management Ratio
a. Debt RatioTotal Debt/Total Assets b. Times
interest earnedEBIT/Interest charges
2005 2004 Ind.
Debt Ratio 50.9 48 45
Times interest earned 3.3 x 3.8x 6.5x
27Debt Management Ratio
- The debt ratio is significantly higher than the
industry. Compared to the previous year it is
increasing as well. This is alarming as interest
charges are compulsory obligation. In future this
may result in a constraint to raise debt. It
might be rationalized by an increased EPS by
means of high debt financing.
28Debt Management Ratio
- Times interest earned ratio is worse than the
industry, as well as, that of last year. Unilete
is covering its interest charges by a low margin
of safety. This affects the potentiality of
raising further debt in future.
293. Overall comments on Debt management
- Poor debt ratio and TIE ratio indicate that the
firm is highly a levered one. This may affect the
cost of debt in future. The firm has raised debt
capital to pay dividend, which is not a good
sign. Whether the firm was capable of utilizing
the advantage of debt financing depends on
profitability.
304. Profitability Ratios (DuPont Method)
- a. Profit Margin on Sales Net income/sales
- x
- b. Total Asset TurnoverSales /Total Asset
-
- c. Return on Assets (ROA) Net Income/Total
Assets - x
- d. Financial LeverageTotal Assets/Common Equity
-
- e. Return on Equity (ROE) Net income (available
to common stockholders)/Common Equity
31Profitability Ratios
2005 2004 Ind.
Profit Margin (54/1500) 3.6 (59/1435) 4.1 4.7
Asset Turnover (1500/845) 1.77x (1435/750) 1.9x 2
ROA (54/845) 6.4 (59/750) 7.87 9.5
Financial Leverage (845/415) 2.04 (750/390) 1.92 1.8
ROE (54/415) 13.0 15.1 17.2
32Overall comments on Profit performances
- Comment on Profitability Ratios All the
profitability ratios are poorer than those of
industry. Deterioration is also noticeable
compared to those of previous year. Both Asset
Turnover and Return on Assets ratios are
significantly lower for the firm in 2005 than the
previous year, as well as, than the industry
averages. On the other hand, Financial Leverage
is higher than the industry. This confirms the
earlier observation of excess of fixed assets and
inventories, and debt. The firm should devote to
inventory and asset management. The apparent
benefit of leverage in terms of tax exemption is
not evidential in profit promotion. Operating
activities of the firm suffered from poor
liquidity position, poor asset management, and
above average debt.
33DuPont analysis
- A major set back is that ROA has gone down from
7.9 of the last year to 6.4 of the current
year, when industry average is as high as 9.5.
The inefficiency is attributed to the decline in
both profit margin and asset turnover ratios. - While enquiring into the reason behind the
decline in profit margin we have seen the growth
rate of the cost composition and sales (see the
following slide). It can be seen that abnormal
increase took place in depreciation and interest
charges. Increase in depreciation is related to
increase in fixed assets. Is the firm holding too
much fixed assets? Fixed asset turnover increases
from 3.9 to 4.1. This is partially responsible.
Increase in interest charges may be due to
off-balance sheet financing or higher debt. The
growth rate of debt is 16.5 which rules out the
role of off-balance sheet financing. - Asset turnover rate declined because of poor
growth in sales (4.5) and higher growth in
assets (12.7). The asset composition shows that
the proportion of current assets to total assets
has increased from 53 to 55. This merits
attention to the composition of current assets.
The growth of current assets is 16 which by
itself is high. Growth of cash is negative 63
and that of accounts receivable is 13. What is
noticeable is the growth of inventories which is
as remarkable as 35. This must have contributed
to the inefficiency of asset management.
34DuPont analysis (Contd.)
- Increase in financial leverage suggests that
growth of total debt is higher than that of
equity. Total debt grew by 19.4 and equity grew
by 6.4. Increased financial leverage is also
reflected in higher interest payments (from 35m
to 40m). This should have contributed to a
promotion of return on equity. However, the firm
could not take advantage of non-taxable interest
charges as because EBIT could not be promoted. In
fact, EBIT has rather gone down from 133m to
130 million. As a result, although tax payment
has gone down from 39.3m to 36m but return on
equity has also gone down. - An enquiry into the debt composition shows that
the proportion of long term debt into total debt
was consistent around 70. The growth rate short
term liability (23) is higher than that of long
term liability (17.6). Highest growth rate was
that of accounts payable which doubled from that
of the previous year. It has been noticed earlier
that inventory grew by 35. Now, we see that
accounts payable has been doubled. This indicates
that the firm is making use of facility of credit
purchase and piling up inventory.
35Enquiry into the growth of sales and cost
composition
2005 2004 Growth
Sales 1500 1435 0.045
COGS 1230 1176 0.046
Selling Admin Cost 90 85.5 0.053
Depreciation 50 40 0.250
interest expenses 40 35 0.143
Taxes 36 39.3 -0.084
36Enquiry into the growth of current assets
composition
2005 2004 growth
Cash 15.00 40.00 (0.63)
A/R 180 160 0.13
Inventories 270 200 0.35
Total CA 465.00 400 0.16
37Enquiry into the growth of debt composition
2005 2004 Growth
Accts payable 30.00 15 1
Accruals 60 55 0.09
Total Current Liabilities 130.00 105.00 0.24
Long-term debt 300 255 0.176
Total Liabilities 430.00 360.00 0.19
38Enquiry into the growth and composition of debt
2005 2004 Proportion 2005 Proportion 2004 Growth
Accts payable 30 15 0.07 0.04 1
Notes payable 40 35 0.09 0.1 0.14
Accruals 60 55 0.14 0.15 0.09
Total Current Liabilities 130 105 0.30 0.29 0.24
Long-term debt 300 255 0.70 0.71 0.176
Total Liabilities 430 360 1.00 1.00 0.19
395. Market value ratio
- a. Price/ Earnings Ratio Market price per
share/EPS - EPSNet income available to common
stockholders/No. of common shares outstanding.
So, EPS54/252.16
2005 2004 Industry
25/2.1611.6x 23/2.369.7x 13.0x
405. Market value ratio (Contd.)
- Comment P/E is one of the most popular ratios
among investors. P/E ratio is higher for firms
with high growth potentials. The ratio of the
firm has increased from 9.7 to 11.6 in the
current year. The increase is noticeable. Of
course, compared to the industry the firm is
still lagging behind.
415. Market value ratio (Contd.)
- b. Market/Book value ratio
- Book valueCommon equity/No. of shares
outstanding 415/2516.60 - M/B value ratioMarket price per share/Book value
per share25/16.6 1.5x - Previous year BV390/2515.6
- Previous year M/B23/15.61.7x
- Industry average2.0x
2005 2004 Industry
1.5 x 1.7x 2.0
425. Market value ratio (Contd.)
- Comment The market value per share is 1.5 times
the book value per share of the firm in the
current year. This is considerably lower than the
industry average of 2 times. In the previous year
the same ratio was 1.7 times for the firm. It
demonstrates that not only the firm performs
poorer than the industry but also the trust of
investors in the firm goes down.
435. Overall comments on market performances
- One of the most important ratios to evaluate the
performances of the firm is the price-earnings
ratio. The ratio is still less than the industry
although it has increased in the current year
compared to the previous year. The improvement
may indicate that the firm is gaining more trust
of investors. Our analysis fails to identify the
good news the firm is having. Apparent
deterioration is noticeable in both cash-flow and
ratio analysis, still the share price of the firm
is increased from 23 of the previous year to 25
in the current year.
44Good news?
- The firm is apparently successful in wealth
maximization as share price increased from 23 to
25 (statistically significant?). Observations of
ratio analysis might be reviewed as - Liquidity Weak ratios make more fund available
for investment. - Poor inventory, fixed and total asset turnover
might indicate that the firm slows down the sales
process to avail higher sales prices in the next
year. Weak DSO might indicate the strategy of
promotion of new lines of product where the
purpose is to introduce some new products to the
market - Increase debt ratio can be explained as financing
inventories in anticipation of increased prices
in the next year. - Lack of profit can be explained by inadequate
sales promotion in the current year and some
hidden profits.
45The Sustainable Growth Rate in Sales
T Ratio of total assets to sales p Net profit
margin on sales d dividend payout ratio
46Forecasting with different g
Current Year 1 Year 2 Year 1 Year 1 Year 1
growth of sales N.A. 0.064 0.064 10 20 25
Sales 1500 1596.2 1698.5 1650 1800 1875
Net Income 54 57.5 61.1 59.4 64.8 67.5
Dividend (Current 29/54) 29 30.9 32.8 31.9 34.8 36.25
Addition to retained earnings 25 26.6 28.3 27.5 30 31
Total assets 845 899.2 956.8 929.5 1014 1056
Total Debt 430 457.6 486.9 473 516 537.5
Common stock 130 130.0 130.0 130 130 130
Retained earnings 285 311.6 339.9 312.5 315 316.
Total Financing 845 899.2 956.8 915.5 961 983.8
Funds needed 0 0.0 0.0 14 53 72.5
Debt Equity ratio 1.04 1.04 1.04 1.10 1.28 1.37
Sustainable Growth Rate 0.06 0.06 0.06 0.07 0.07 0.08
47Notes
- With a single growth rate of sales, as well as,
of all the cost and current liability and long
term liability there remains following
constraints - Higher growth of sales is not sustainable
- Floatation of new shares is not a variable
- Addition to retained earnings depends on net
income as well as payout ratio - To finance the asset needed to support the sales,
External Funds Needed should be identified that
often raises further debt and increases the
DebtEquity ratio. So leverage can not be
constant. - If leverage is constant then dividend policy can
not be fixed
48Increasing the Sustainable Growth Rate
- A firm can do several things to increase its
sustainable growth rate - Sell new shares of stock
- Increase its reliance on debt
- Reduce its dividend-payout ratio
- Increase profit margins
- Decrease its asset-requirement ratio
49Contextual Forecasting Since the firm piled up
inventories and fixed assets, we suppose, the
firm is already prepared to finance higher sales
in the next year. So, we keep these away from
growth. Assume gs6.4. Does this explain
increase in share price?
Sales 1596
COGS (only 50 of direct cost follows growth) 1461
Taxable income 135
Net Income 81
Dividends 43
Addition to Retained earnings 38
Current assets 495
Fixed assets (Only half of Fixed assets has increased) 392
Total assets 887
Total debt 458
Equity (Common stock Retained Earnings) 453
Total financing 910
Funds needed (This is negative debt or lending) -23
DebtEquity 0.96
Growth 0.09
50Prediction of Distress and Turnaround
- Models for distress prediction
- Several models to predict distress have been
developed over the years. One of the more popular
and robust models is the Altmans Z-score model - Bankruptcy prediction when Z is less than 1.2,
- Z within the range between 1.2 and 2.9 is gray
area. - Z above 3 is safe.
Z.717(X1).847(X2)3.11(X3).42(X4).998(X5)
51Calculation of Z score
2005 2005 2004 2004
X1 Net working capital/Total assets (465-130)/ 845 .75 400-105)/750 0.39
X2 Cumulative retained earnings/Total assets 285/845 .337 260/750 0.3367
X3 EBIT/Total Assets 130/845 .154 133/750 .177
X4 Market value of equity/ Total liabilities (2525)/ (845-415) 1.45 (2523)/ (750-390 1.6
X5 Sales/Total Assets 1500/845 1.78 1435/750 1.91
Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69 Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69 Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69 Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69 Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69 Z2005(.7170.75)(.8470.337)(3.130.154)(0.421.45)(.9981.78)3.69
Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697 Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697 Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697 Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697 Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697 Z2004(.7170.39)(.8470.3367)(3.130.177)(0.421.6)(.9981.91)3.697
Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress. Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress. Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress. Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress. Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress. Comment on Financial Distress The firm is safe in the current year although the Z-score slightly has gone down. All the odds of ratio and cash flow analysis are not significant enough to result in financial distress.
52Capital Investment Decision (SEC)
- Solar Electronics Corporation (SEC) has recently
developed the technology for solar powered jet
engines. Cost of capital is 15.The investment
will cost 1500 million. Production will occur
over the next 5 years. Annual sales would be 30
of the market of 10,000. Sales price is 2
million per unit and variable costs are 1
million per unit. Fixed costs estimated are
1,791 million. The following table represents
other possibilities as well. Find out the NPVs
under different situation. - The current market price per share is 645.
Number of shares outstanding are 150 million. The
firm holds a growth rate of 3 annually. What
would be the your prediction of share price of
the next year assuming the project is accepted
and expected scenario prevails?
53Problem 3 Scenario Analysis
Pessimistic Expected Optimistic
Market size 5,000 10,000 20,000
Market share 20 30 50
Price (in million dollar) 1.9 2 2.2
Variable cost in m (per plane) 1.2 1 0.8
Fixed cost (per year) m 1891 1791 1741
Investment m 1900 1500 1000
Ke 12 15 17
NPV
Market size -1802 1517 8,154
Market share -695 1517 5942
Price (in million dollar) 853 1517 2844
Variable cost in m(per plane) 189 1517 2844
Fixed cost (per year) m 1,295 1517 1627
Investment m 1208 1517 1903
Ke 1744 1517 1379
54Worksheet Problem 3
Y0 Y1-5
Investment -1500
Sales (No) 3000
Revenue 6000
TVC -3000
FC -1791
Depreciation -300
Pretax Profit 909
Tax (.34) 309.06
Net profit 599.94
Annual Cash Inflow 899.94
PVIFA (i.15,n5) 3.352155
PV (Cash Inflow) 3017
NPV 1517
55Prediction of share price
Current market capitalization in million dollar 645150 96,750
Market capitalization of the next year assuming 3 growth 967501.03 99,653
Market capitalization including the project 99652.51517 101,170
Share price of the next year in dollar 101169.5/150 674.46
56Problem 4 Off-balance sheet financing
Income Statements Figures in million taka Figures in million taka
2009 2008
Sales 1870 1500
COGS -970 -900
Gross Profit 900 600
Fixed operating exp. -350 -300
Depreciation -120 -80
EBIT 430 220
Interest -100 -30
EBT 330 190
Tax (30) -99 -57
Net income 231 133
57Other information
Net income for common stockholders (Tk in million) 231 133
Common dividends (Tk in million) 100 80
Addition to retained earnings (Tk in million) 131 53
Book value per share (Tk) 1,368 1,106
EPS (Tk) 462 266
DPS (Tk) 200 160
Market price per share (Tk) 990 1,020
Question Share price has gone down, although
sales increased, net income (EPS) increased, DPS
increased, retention and equity increased. Why?
58Balance Sheet Assets
Assets 2009 2008 Revised (2009)
Cash 65 45 65
Accounts receivable 170 100 170
Inventory 150 70 150
Total current assets 385 215 385
Gross plant and equipment 1000 705 1450
Accumulated depreciation -240 -120 -240
Net Plant Equipment 760 585 1180
Total assets 1145 800 1595
Increased gross plant and equipment is just equal to the amount of off-balance sheet financing (see next slide). Depreciation assumed same for simplification of calculation. Increased gross plant and equipment is just equal to the amount of off-balance sheet financing (see next slide). Depreciation assumed same for simplification of calculation. Increased gross plant and equipment is just equal to the amount of off-balance sheet financing (see next slide). Depreciation assumed same for simplification of calculation. Increased gross plant and equipment is just equal to the amount of off-balance sheet financing (see next slide). Depreciation assumed same for simplification of calculation.
59Balance Sheet Liabilities Equity
Liabilities 2009 2008 Revised (09)
Accounts payable 155 90 155
Accruals 43 27 43
Notes payable 33 30 33
Total current liability 231 147 231
Long term bond 230 100 650
Total liabilities 461 247 881
Common stock (500,000) 500 500 500
Retained earnings 184 53 184
Owners' equity 684 553 684
Total liability equity 1145 800 1565
Revised long term debt i12. Interest increased by 70 refers to new debt of 583. Out of that, B/S increase of debt is 133, i.e., (33230)-(30100). Rest of the increase in debt might be the off-balance sheet financing like 450 (583-133). Revised long term debt i12. Interest increased by 70 refers to new debt of 583. Out of that, B/S increase of debt is 133, i.e., (33230)-(30100). Rest of the increase in debt might be the off-balance sheet financing like 450 (583-133). Revised long term debt i12. Interest increased by 70 refers to new debt of 583. Out of that, B/S increase of debt is 133, i.e., (33230)-(30100). Rest of the increase in debt might be the off-balance sheet financing like 450 (583-133). Revised long term debt i12. Interest increased by 70 refers to new debt of 583. Out of that, B/S increase of debt is 133, i.e., (33230)-(30100). Rest of the increase in debt might be the off-balance sheet financing like 450 (583-133).
60Calculation of Z- Score
2009 2008 Revised 2009
X1 Net working capital/Total assets 0.13 0.09 0.10
X2 Cumulative retained earnings/Total assets 0.16 0.07 0.12
X3 EBIT/Total Assets 0.38 0.28 0.27
X4 Market value of equity/ Total liabilities 1.07 2.07 0.54
X5 Sales/Total Assets 1.63 1.88 1.17
Z Score Z Score 3.489 3.71 2.40
Comment on Financial Distress The firm is in financial distress as Z-score is below 3 if off-balance sheet financing is converted in to debt financing. Investors can not be fooled by that. Hence, price has gone down as the firm goes through distress although sales, income, EPS, DPS, equity increased. Comment on Financial Distress The firm is in financial distress as Z-score is below 3 if off-balance sheet financing is converted in to debt financing. Investors can not be fooled by that. Hence, price has gone down as the firm goes through distress although sales, income, EPS, DPS, equity increased. Comment on Financial Distress The firm is in financial distress as Z-score is below 3 if off-balance sheet financing is converted in to debt financing. Investors can not be fooled by that. Hence, price has gone down as the firm goes through distress although sales, income, EPS, DPS, equity increased. Comment on Financial Distress The firm is in financial distress as Z-score is below 3 if off-balance sheet financing is converted in to debt financing. Investors can not be fooled by that. Hence, price has gone down as the firm goes through distress although sales, income, EPS, DPS, equity increased. Comment on Financial Distress The firm is in financial distress as Z-score is below 3 if off-balance sheet financing is converted in to debt financing. Investors can not be fooled by that. Hence, price has gone down as the firm goes through distress although sales, income, EPS, DPS, equity increased.