(b) Analyze the current financial position for the company from a time series and cross section viewpoint. (c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios. Historical and Industry Average Ratios HTS Software , Inc. Ratio 2010 2011 Industry 2011 Current Ratio 2.6 2.08 2.7 Quick Ratio 1.8 1.32 1.75 Inventory Turnover 4.5 6 4.7 Average Collection Period 40days 9.125 42 days Total Asset Turnover 1.2 1.69 1 Debt Ratio 20% 28.2% 21% Times Interest Earned 9 5.9% 8.9 Gross Profit Margin 43% 42.8% 44% Operating Profit Margin 30% 25.5% 32% Net Profit Margin 20% 17% 21% Return on total assets 12% 4.11% 13% Return on Equity Price/Earnings Ratio 15% 7.3 19% 4.4 16% 8
You are provided with the Income Statement and the Balance Sheet of HTS software, Inc. for 2011.
Required:
(b) Analyze the current financial position for the company from a time series and cross section viewpoint.
(c) Break your analysis into an evaluation of the firm’s liquidity, activity, debt, profitability and market ratios.
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Historical and Industry Average Ratios HTS Software , Inc. |
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Industry |
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Current Ratio |
2.6 |
2.08 |
2.7 |
|
Quick Ratio |
1.8 |
1.32 |
1.75 |
|
Inventory Turnover |
4.5 |
6 |
4.7 |
|
Average Collection Period |
40days |
9.125 |
42 days |
|
Total Asset Turnover |
1.2 |
1.69 |
1 |
|
Debt Ratio |
20% |
28.2% |
21% |
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Times Interest Earned |
9 |
5.9% |
8.9 |
|
Gross Profit Margin |
43% |
42.8% |
44% |
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Operating Profit Margin |
30% |
25.5% |
32% |
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Net Profit Margin |
20% |
17% |
21% |
|
|
12% |
4.11% |
13% |
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Price/Earnings Ratio |
15% 7.3 |
19% 4.4 |
16% 8 |
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Balance Sheet |
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Assets |
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Cash |
EGP 740,000 |
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Accounts receivable |
580,000 |
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Inventories |
760,000 |
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Total current assets |
2,080,000 |
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Gross fixed assets |
4,080,000 |
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Less: Accumulated depreciation |
(1,200,000) |
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Net fixed assets |
2,880,000 |
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Total assets |
4,960,000 |
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Liabilities and |
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Current liabilities |
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Accounts payable |
EGP 400,000 |
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Notes payable |
600,000 |
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Total current liabilities |
1,000,000 |
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Long-term debt |
400,000 |
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Total liabilities |
1,400,000 |
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Stockholders’ equity: |
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Common stock (60,000 shares) Paid-in capital in excess of par-CS Total stockholders’ equity Total liabilities & stockholders’ equity |
610,000 1,550,000 1,400,000 3,560,000 4,960,000 |
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Income Statement |
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Sales Revenue |
EGP 3,990,000 |
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Less: Cost of Goods Sold |
2,280,000 |
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Gross Profits |
1,710,000 |
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Less: Operating Expenses |
690,000 |
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Operating Profits |
1,020,000 |
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Less: Interest Expense |
171,000 |
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Net Profits Before Taxes |
849,000 |
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Less: Taxes |
169,800 |
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Net Profits After Taxes |
679,200 |
* Current market prices per share EGP 50.
** There are 365 days in a year.
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