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The ABC Company is a large manufacturer and distributor of electronic components

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The ABC Company is a large manufacturer and distributor of electronic components.  Because of some successful new products marketed to manufacturers of personal computers, the firm has recently undergone a period of explosive growth, more than doubling its revenues over the last two years.  However, the growth has been accompanied by a marked decline in profitability and a precipitous drop in the company's stock price.

              You are a financial consultant who has been retained to analyze the company's performance and find out what's going wrong.  Your investigative plan involves conducting a series of in-depth interviews with management and doing some independent research on the industry.  However, before starting, you want to focus your thinking to make sure you can ask the right questions.  You'll begin by analyzing the firm's financial statements over the last three years.

 

 

WRITE YOUR NAME HERE

 

1. Looking at the gross sales write 5 questions that you would possibly want to ask explaining the trend.

 

2. Looking at the Cost of Goods write 3 questions that you would possibly want to ask explaining the trend.

 

3. Define Gross Margin / Discuss the Concern

 

4. Discuss the Marketing trend (hint compare it to Sales)

 

5. Discuss the trend in Research and Development (focus on the actual dollars and not the percent of sales)

 

6. Discuss the trend in Admin expenses (hint focus on the third year)

 

7. Write one sentence in reference to the concern of the growth of total expenses when compared to total sales.

 

8. Discuss EBIT trend

 

1. Discuss Interest trend / Is this trend what we would expect when we look at the long term debt on balance sheet?

 

10. Is this concern major or minor (one-word answer)?

 

11. Compare taxes to Sales / Does the trends make sense?

 

50. Discuss the trend in EAT (net income) / fill in info below assuming there are 100 million shares of stock)?

 

           2001 EPS is                                                                      2001 P/E ratio is

           2002 EPS is                                                                      2002 P/E ratio is

           2003 EPS is                                                                      2003 P/E ratio is

 

                                                                                                                             

 

1000. Explain what the Current Ratio is Measuring?

 

14. Why is the Quick Ratio considered more conservative than the Current Ratio?

 

• Explain why there is a concern with the Average Collection Period?  List two possible reasons why we are seeing a huge change in the trend?

 

16. Discuss the trend in Inventory Turnover

 

17. Discuss the Difference in Fixed Asset Turnover and Total Asset Turnover (in general not related to company)

 

18. Why is the Debt Ratio changing?  Why is this a concern?

 

19. Discuss trend in the TIE ratio / How would this impact the company from issuing more debt?

 

20. Discuss the trend in Return on Sales

 

21. Discuss the trend in Return on Assets

 

5. Discuss the trend in Return on Equity / Consider how this would affect people who hold the stock (think in terms of risk reward relationship)

 

23. Discuss the trend in the Equity Multiplier (discuss leverage)

 

10. What are the 3 ratios that make up the Extended Du Pont Equation?

 

25. Looking at the ratios:

1.  List the top 3 strengths of the company
2.  List the top 3 concerns of the company

   

   

26. Would you recommend ABC stock as an investment at this time?  Why?