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1、LESSON 10 AssignmentQuestion 1 (60 marks)Computer questionIn early 2007, Jane Lender, an officer of the Commerce Bank, was evaluating the account of Johnson Lumber Co., which uses a line of credit to manage its seasonal requirements. This year the company needed more than its usual credit limit and,
2、 unlike previous years, the account was not paid off. Jane has been asked by her manager to study the account and prepare a report.Jane studied the file and found that the company was managed by professional managers with backgrounds in marketing and production. She also identified that the firms pr
3、ofits had been growing steadily, though not spectacularly considering the inflation rate. Jane is aware that her manager will require financial analysis to back up her report. Also, considering the executive attention span, she decided to keep her report brief. The Income Statement and Balance Sheet
4、 of Johnson Lumber Co. is given below.JOHNSON LUMBER COIncome Statementfor years ended October 31, 20042006(thousands of dollars)200420052006Net sales9,00010,50013,500Cost of goods soldMaterial and labour7,7259,00011,625Overhead180255285Earnings before interest and tax1,0951,2451,590Interest expense
5、s454590Earnings after taxes1,0501,2001,500Taxes at 50%525600750Earnings after tax525600750Dividends390450450Retained earnings135150300The net sales is arrived after a quantity discount of 90, 105, and 160 respectively in 2004, 2005, and 2006. Overhead includes the following depreciation.Plant1201351
6、65Equipment526075JOHNSON LUMBER COBalance Sheetas at October 31, 2004-2006200420052006ASSETSCash271241121Marketable securities315150Accounts receivable1,4101,5151,785Inventories1,5151,7251,965Total current assets3,5113,4963,871Loans to dealers150150225Plant (net of depreciation)1,6501,8002,700Equipm
7、ent (net of depreciation)1,3501,4251,515Total fixed assets3,1503,3754,440Total assets6,6616,8718,311LIABILITIES AND EQUITYAccounts payable1,3051,5151,680Notes payables15000Bank loan00975Total current liabilities1,4551,5152,655Ordinary shares1,2061,2061,206Retained earnings4,0004,1504,450Total Liabil
8、ities and equity6,6616,8718,311There are two sections to this question: Section 1 pertains to the financial analysis as specified in the text; Section 2 is an additional analysis specified in this assignment.RequiredSection 1 (10 marks)Prepare an analysis of the financial performance of the three ye
9、ars (2004-2006), and comment on Johnsons current financial situation. Your analysis should be based on the cash flow statement (CFS) for the period from October 31, 2004, to October 31, 2006 and basic ratios for the three years of data, as supplied below. This section requires your skills with finan
10、cial ratios and working capital management.JOHNSON LUMBERCash Flow Statementtwo years ended October 31, 2006(000s)Net income from operations 1,350OPERATING ACTIVITIESAdjustments to convert to cash basisAccounts receivable increase(375)Marketable securities decrease315Inventories increase(450)Account
11、s payable increase375(135)Depreciation435300 1,650FINANCING ACTIVITIESNotes payable decrease(150)Bank loan increase975Dividends(900)(75)INVESTING ACTIVITIESLoans to dealers increase(75)Plant increase(1,350)Equipment increase(300)(1,725)Decrease in cash(150)Cash and cash equivalents at October 31, 20
12、04271Cash and cash equivalents at October 31, 2006121RATIO ANALYSIS200420052006Liquidity ratios:Current2.412.311.46Quick1.371.170.72Inventory turnover5.105.225.92Accounts receivable turnover6.386.937.56Profitability ratios:Times-interest-earned24.3327.6717.67Asset turnover1.351.531.62Net operating m
13、argin0.120.120.12Earnings power ratio0.160.180.19Note:No worksheet has been provided for analyzing Section 1. You may wish to construct your own, or answer the question manually.Section 2 (50 marks total)Use a worksheet to develop pro forma financial statements for the next five years (2007-2011) fo
14、r Johnson. Then perform what-if analyses with the pro forma financial statements. Modify the LXQ1 worksheet in the file FN1LXQ1 to complete this section.Base plan (14 marks)The following additional information is required to complete this section, using the worksheet LXQ1. (All dollar amounts are expressed in 000s.)1.Corporate tax rate is 50%.2.Depreciation (capital cost allowance) is calculated by applying the depreciation (CCA) rate on non-current assets. The average depreciation rate is 5%. In the year of acquisition, depreciat
