Intermediate Finance

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COMM 370 – Elena Simintzi

Practice for Lecture 1: Basic Financial Analysis
Question 1. Consider the following financial statements for SubMart Corp contained in the company’s most recent annual report filed with the OSC. SubMart Corp Balance Sheet, December 31, 2012 Assets Cash Accounts receivable Inventories Property, plant & equipment Less accumulated depreciation Total assets Liabilities & Equity Accounts payable Accrued expenses payable Long-term debt Common stock Retained earnings Total liabilities and equity 2010 2011 2012 20,000 35,000 52,000 70,000 85,000 114,260 65,000 90,000 130,000 160,000 180,000 195,000 40,000 56,250 74,250 275,000 333,750 417,010 2010 2011 2012 40,000 45,350 50,000 10,000 8,450 5,000 25,000 30,000 37,000 25,000 25,000 25,000 175,000 224,950 300,010 275,000 333,750 417,010

SubMart Corporation Income Statement, December 31, 2010-2012 2010 Net sales COGS (75% of sales) Depreciation EBIT Interest @ 10% Taxable income Taxes @ 40% Net income Dividends (40% of NI) Addition to retained earnings -

2011 630,000 472,500 16,250 141,250 2,500 138,750 55,500 83,250 33,300 49,950

2012 918,000 688,500 18,000 211,500 3,000 208,500 83,400 125,100 50,040 75,060

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COMM 370 – Elena Simintzi

a) Use this information to assess SubMart’s financial condition. As part of your answer, calculate the relevant leverage, liquidity, profitability, and efficiency ratios. Also calculate Altman’s Z-score (assume the market value of equity is 50,000) and use them to assess the likelihood of distress. Discuss and interpret the data you produce and state any recommendations you may have for the firm’s management. b) Construct a sources and uses of cash statement for 2011 and 2012, and derive the change in the firm's cash position. Then rewrite the sources and uses of cash as a statement of cash flows. Briefly interpret the results of your analysis.

Question 2. On Eastern Printing Machines Co.'s income statement of 2012, the cost of goods sold and the credit sales are $220 million and $260 million, respectively. Here is an extract from the balance sheet: Dec. 31, 2012 40 30 10 Dec. 31, 2011 60 50 30

Inventory Accounts receivable Accounts payable

a) How many days in EPM's operating cycle? b) How many days in EPM's cash cycle?

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COMM 370 – Elena Simintzi

Question 3. Consider the actual statement of cash flows reported by EnCana Corp for the fiscal year ending in December 2008 shown below. I downloaded this statement from Yahoo Finance sometime ago. EnCana, engages in the exploration, production, and marketing of natural gas, crude oil, and natural gas liquids. EnCana Corp: Statement of Cash Flows for the period ending 31-Dec-08 ($ thousands) Operating Activities, Cash Flows Provided By or Used In Net Income Depreciation Adjustments To Net Income Changes In Accounts Receivables Changes In Liabilities Changes In Inventories Changes In Other Operating Activities Total Cash Flow From Operating Activities Investing Activities, Cash Flows Provided By or Used In Capital Expenditures Investments Other Cash flows from Investing Activities Total Cash Flows From Investing Activities Financing Activities, Cash Flows Provided By or Used In Dividends Paid Sale Purchase of Stock Net Borrowings Other Cash Flows from Financing Activities Total Cash Flows From Financing Activities Effect Of Exchange Rate Changes Change In Cash and Cash Equivalents Recover the Sources and Uses of Funds from this statement of cash flows! Given the lack of some useful information in the table, use the following suggestions: 1) Treat the “Change in other operating activities” for -$259,000 as an increase in current assets. 2) Treat the “Other cash flows from investing activities” for $904,000 as an asset sale. 3) Treat the “Effect of exchange rate changes” for -$33,000 as a use of funds. 4,810,000 6,057,000 -1,509,000 452,000 -943,000 222,000 -259,000 8,830,000 -8,254,000 -178,000 904,000 -7,528,000 -1,199,000 -246,000 6,000...
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