Part A
Free cash Flow Statement |
||
Operating Activities |
|
|
|
Amount in $ |
Amount in $ |
Net income |
|
6268975 |
Adjustments to reconcile net income to net cash |
|
|
Accounts Receivable decrease |
2555500 |
|
Accounts Payable increase |
190000 |
|
Depreciation |
800000 |
3545500 |
Net cash flow from Operating activities |
|
9814475 |
Investing activities |
|
|
Debt |
|
-3046000 |
Net cash flow from investing activities |
|
-3046000 |
Financing activities |
|
10228819 |
Net increase in cash equivalents |
|
4136819 |
Cash equivalent at the beginning of period |
|
871319 |
Net cash flow at the end of period |
|
5008138 |
The table above denotes the cash flow statement of Jaeden Industries, which determines free cash flow of the company. It is noticed that net cash flow at the end of the period is quite satisfied for the year 2010. The company has been incurring a satisfied cash flow, which they can utilize in extension of the company.
Ratios |
Jaedens’s Liquidity Ratio |
Industry Liquidity ratio |
Current Ratio |
2.65 |
3.26 |
Quick Ratio |
1.84 |
2.19 |
Accounts receivable turnover ratio |
10.13 |
|
Average collection period |
36.02 |
36.17 |
Inventory turnover |
7.22 |
6.59 |
Days sales in inventory |
50.54 |
|
Inventory to net working capital |
0.63 |
|
The above table denotes liquidity position of the company. The following are deducted from the figures obtained after calculation:
1) The current ratio of Jaeden Industries is lower than that of the industry ratio. The current ratio identifies the ability of the company to pay back its short-term liabilities by short-term assets (Hoofman, 2009). Though current ratio of the company is lower than the industry, yet it has the capability to pay off liabilities in the short run with the help of short-term assets. It is also evident that the company can work upon its current liability, so that the current ratio can come in close proximity to that of the industry.
2) The quick ratio identifies ability of the company to pay back its short-term liabilities from liquid assets that they possess. With higher quick ratio, liquidity position of the company gets better. The quick ratio of Jaeden indicates that the company has the ability to pay back short-term liabilities from its liquid assets, since value of the ratio is greater than 1. However, the company should concentrate on increasing current asset, so that they are capable enough to match with the industry ratio (Jennings, 2006).
3) The average collection period of the company and the industry are in the same line, which denotes that the company gives the same amount of time to debtors to pay back the debt, as the industry (Albrecht, 2011).
4) Inventory turnover ratio of a company shows the number of times that the company’s inventory are sold and then replaced by new products, so as to fill up the same. It is observed from the inventory turnover ratio of the company and the industry that the former is selling their products 7 times faster than other companies in the industry. Thus, it can be inferred that the company is performing well, as far as sales is concerned and the company’s products have huge demand (Warren , 2009).
c) Leverage or debt ratio
Ratios |
Jaedens’s Solvency Ratio |
Industry Solvency ratio |
Debt Ratio |
0.41 |
0.39 |
Times interest earned- income |
26.33 |
|
Times interest earned - cash flow (interest coverage) |
27.86 |
16.81 |
Total asset to equity |
1.49 |
16.3 |
Total liabilities to total assets |
0.41 |
|
Total liabilities to equity |
0.83 |
|
The above table denotes profitability ratio of the company and the industry, which indicates the following:
1) The debt ratio denotes the degree of leverage of the company. A higher debt ratio denotes that the company is prone to financial risk. This ratio varies widely across industries. The debt ratio of the company suggests that it is prone to financial risk, as compared to other companies in the industry. This can be so inferred, since debt ratio of the company is greater than that of the industry.
2) Times interest earned - cash flow denotes the ability of the firm to pay back the interest on outstanding debt of the company. The above figures of the company and industry indicate that the former has higher ability to pay off interest on outstanding debts.
3) The total asset to equity of Jaeden and the industry denote that the company has lower total asset as compared to other companies in the industry.
Profitability Ratio
Ratios |
Jaedens’s Profitability Ratio |
Industry Profitability ratio |
Return on assets |
38.8% |
|
Return on equity |
200% |
|
Gross margin |
30.0% |
23.74% |
Operating margin |
25.6% |
20.89% |
Profit margin |
16.3% |
17.97% |
Total asset turnover |
2.39 |
|
Fixed assets turnover |
2.89 |
|
Current asset turnover |
3.01 |
|
The above table denotes profitability ratio of the company and the industry. The following can be deduced, after drawing a comparison between the two:
1) The gross margin of the company is higher than the industry, which denotes that the former is performing with respect to other companies in the industry. Sales of the company are higher than other competing companies in the industry.
2) The profit margin of the company is lower than that of the industry, which suggests that other companies in the industry are earning more operating revenue than the company.
Market Ratio
The market ratios are calculated in order to get the value of the company and to understand how investors evaluate the company’s financial status. The investors are concerned about investing in the right stock as that enables them to earn a profitable amount. The market ratios actually evaluate market price of the share of the stock that is provided by the company.
