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Financial Analysis

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by

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on 12 June 2013

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Transcript of Financial Analysis

Financial Analysis
Overall Performance
What has been company's financial strategy?
- Average Annual Sales Growth: ~25%




- How much would Butler need over the next few years if same trend for sales?




- Projected Statements 2011-2013
Pro forma balance sheet
By:
Amir Amiri
Neetha Pai

Pro forma Income Statement for 2011-2013 with 25% annual Sales growth (thousands of dollars)
How well is Butler Lumber doing?
Suburban National Bank
Northrop National Bank
Recommendations
Thank You

Questions?
Return On Assets (ROA) = Net Income
----------------
Total Assets
Return On Invested Capital (ROIC) = Net Income - Dividends
------------------------------------------------------
Long-term Liabilities + Shareholders' Equity
Return On Equity - ROE = Net Income
---------------------------
Shareholders' Equity
7.05%
6.87%
7.65%
2008
2009
2010
12.54%
2008
14.01%
2009
17.94%
2010
11.48%
2008
11.18%
2009
12.64%
2010
Profitability Measures
Profit Margin = Net Income
------------------------
Net Sales Revenues
Gross Margin Percentage = Gross Margin
------------------------
Net Sales Revenues
1.83%
2008
1.69%
2009
1.63%
2010
27.99%
2008
28.61%
2009
27.62%
2010
Investment Utilization
Investment Utilization
Growth Measures
Financial Condition

–Performance

–Profitability

–Investment Utilization

–Financial Condition

–Growth
Asset Turnover = Sales Revenues
--------------------
Total Assets
Invested Capital Turnover = Sales Revenues
--------------------------------------------------------
Long-term Liabilities + Shareholders' Equity
Working Capital Turnover = Sales Revenues
--------------------
Working Capital
Days' Cash = Cash
-------------------------
Cash Expenses / 365
Days' Receivables = Accounts Receivables
---------------------------
Sales / 365
Current Ratio = Current Assets
-----------------------
Current Liabilities
Acid-test (quick) Ratio = Monetary Current Assets
--------------------------------
Current Liabilities
Debt-to-Equity = Long-term Liabilities
----------------------------
Shareholders' Equity
Debt-to-Equity = Total Liabilities
----------------------------
Shareholders' Equity
Debt-to-Capitalization = Long-term Liabilities
-------------------------------------------------------
Long-term Liabilities + Shareholders' Equity
Annual Growth (Sales) = ([Sales of current year /Sales of previous year] - 1) * 100
Annual Growth (Net Income) = ([Net income of current year /Net income of previous year] - 1) * 100
- Anticipated Sales growth of 3.6M

- 34% flat tax rate

- Long term Loan payment

- Up to 465K of line of credit available

- Larger trade notes payable amount
Why does Butler Lumber need a loan?
Ratio Analysis
5.08
2008
2.86
8.16
2008
2008
2.74
2009
2.89
2010
5.58
2009
6.77
2010
2001
Originally Founded as a partnership

- Mark Butler and Henry Stark
- Butler buys out Stark's interest for $105K

- Incorporates the business

- Stark takes a note of $105K to be paid off in 2009

- Funds raised by loan of $70K, secured by land/buildings (interest rate of 11%, repayable in quarterly installments over next 10 years)
- Rapid growth in business

- Substantial increase in sales in spring 2011

- Despite good profits, experiences shortage of cash!!
- Increase borrowing to
$247K

- Stay under $250K limit by relying on trade credit

- Bank wants loan to be secured by real property
Suburban National Bank
Northrop National Bank
What's next ?
9.11
2009
11.18
2010
48.33
2008
36.78
2008
1.80
2008
0.88
2008
23.70%
2008
120.00%
2008
19.16%
2008
18.62%
2008 - 09
32.75
2009
21.66
2010
58.93
2009
56.63
2010
1.59
2009
1.45
2010
0.72
2009
0.67
2010
18.75%
2009
14.37%
2010
142.11%
2009
168.10%
2010
15.79%
2009
12.56%
2010
33.83%
2009 - 10
9.68%
2008 - 09
29.41%
2009 - 10
Recent Years
2008
Why does Butler Lumber need a loan?
- Offer of up to $465K line of credit

- Secured 90-day note not to exceed $465K
< 250K?
< 465K?
- Cash Shortage
. Increasing cash receivable period
. Decreasing day's cash
. Loan + interest repayment
. High end of year inventory



- Lower profit margin (high COGS)
. Loss of discount purchase



- Recent Increasing sales forecast
. Lower leverage
How much Loan Butler really needs?
Pro forma Income Statement and Balance Sheet for 2011 (thousands of dollars)
How much Loan Butler really needs?
Future Debt Projection
Future debt Projection
Pro forma Balance Sheet for 2011-2013 with 25% annual Sales growth (thousands of dollars)
- Sources of Cash shortage
. High COGS (loss of purchase discount).
. High Year end Inventory (~21% of COGS)
. Loan repayment.
. Increasing AR period




465K Loan?
- Increasing bank loan beyond $465K
- No purchase discount
- Additional restrictions by Bank
- Decreasing annual working capital
- Reduced Projected CR
. CR: Before: ~1.6 After:
~1.25
. QR:

Before: ~0.76 After:
~0.55

- Will not be able to sustain the business with the loan






Suggestions:
- Better AR management
- Maintain lower year end inventory
Full transcript