Computron Industries - Jamison Analysis
Running head: MINI CASE - CHAPTER 3
Mini Case - Chapter 3
Computron Industries – Jamison Analysis
Mini Case - Chapter 3 Computron Industries, a manufacturer of electronic calculators, has been going through some growth over the course of the 2007 and 2008 years. Some components of this growth include new sales offices, additional plant capacity and a costly advertising campaign. However, execution of this growth is subpar, and has led to suppliers and lenders being paid late, bank complaints, and threats to cut off credit from lenders. To add insult to injury, Computron Industry’s stockholders are unhappy because of these complaints, and an overall unhealthy balance sheet. As such, the intent of this document is to indentify the financial impact of this expansion to Computron, and determine if expansion has provided any Market Value Added, (MVA), for Computron shareholders.
The expansion of Computron industries, according to the Balance Sheet found in appendix A, yielded a negative net income for 2008 of ($95,136). This is a change from 2007’s positive net income of $87,960 or a net income difference between 2007 and 2008 of ($183,096). However, sales between years 2007 and 2008 increased by over $2.4 million, (see Sales under Income Statements on the Balance sheet found in appendix A). Similarly, according the Computron’s Balance Sheet, (appendix A), fixed assets increased by over $1.4 million between 2007 and 2008. It is important to note that cash and short-term investments fell. It is likely that this decrease is because Computron choose to fund part of its expansion with cash from the sale of these assets. It is also important to note that the Balance Sheet shows that between 2007 and 2008 current liabilities increased by $847,360. This increase, coupled with an increase in long-term debt from 2007 to 2008 by $676,568, is indicative of debt financed as part of the expansion.
To add a bit more clarity of how Computron funded its expansion,
Mini Case - Chapter 3
Computron Industries – Jamison Analysis
Mini Case - Chapter 3 Computron Industries, a manufacturer of electronic calculators, has been going through some growth over the course of the 2007 and 2008 years. Some components of this growth include new sales offices, additional plant capacity and a costly advertising campaign. However, execution of this growth is subpar, and has led to suppliers and lenders being paid late, bank complaints, and threats to cut off credit from lenders. To add insult to injury, Computron Industry’s stockholders are unhappy because of these complaints, and an overall unhealthy balance sheet. As such, the intent of this document is to indentify the financial impact of this expansion to Computron, and determine if expansion has provided any Market Value Added, (MVA), for Computron shareholders.
The expansion of Computron industries, according to the Balance Sheet found in appendix A, yielded a negative net income for 2008 of ($95,136). This is a change from 2007’s positive net income of $87,960 or a net income difference between 2007 and 2008 of ($183,096). However, sales between years 2007 and 2008 increased by over $2.4 million, (see Sales under Income Statements on the Balance sheet found in appendix A). Similarly, according the Computron’s Balance Sheet, (appendix A), fixed assets increased by over $1.4 million between 2007 and 2008. It is important to note that cash and short-term investments fell. It is likely that this decrease is because Computron choose to fund part of its expansion with cash from the sale of these assets. It is also important to note that the Balance Sheet shows that between 2007 and 2008 current liabilities increased by $847,360. This increase, coupled with an increase in long-term debt from 2007 to 2008 by $676,568, is indicative of debt financed as part of the expansion.
To add a bit more clarity of how Computron funded its expansion,
References: Ehrhardt, M. C., & Brigham, E. F. (2009). Chapter 3: An Overview of Corporate Finance and the Financial Environment. Financial Statements, Cash Flow, and Taxes (3rd ed., pp. 79-115). Mason: South-Western, a part of Cengage Learning. Investopedia, (2009). Tax Liability. Retrieved November 4, 2009 from http://www.investopedia.com/terms/t/taxliability.asp. Appendix A