Computron_Case

“Computron Industries” Mini Case Donna Partridge, MBA 10 Managerial Finance #515 Professor Thomas White a. Sales increased almost double, but Net income went into the negative. That’s not a good sign. The effects of the expansion on the asset side of the balance sheet were: Cash decreased, short-term investments decreased some were paid off. Account Receivable increased they have granted more credit and/or maybe clients aren’t paying as agreed. Inventories near doubled, they have invested in new raw materials, work in progress and finished goods available for sale, and we don’t know what kind of inventory valuation they use. Gross Fixed Assets increased due to expansion. The effects of the expansion on the liabilities and equity: Accounts payable, Notes payable, and accruals all increased. I believe that due to expansion credit granted has been extended and therefore debt has increased for Computron. Long-term debt has also increased, these are claims held by someone other than stockholders. Common stock was not issued or sold. And some of the retained earnings were probably paid in dividends and some put back into the company. b. From the statement of cash flows I conclude that, 2008 began in negative Net income and Operating activities were increased due to increase in inventories, accts receivable, acct payable and accruals – expansion activities no doubt. Fixed assets went up and short-term debt was paid. Financing activities increased due to new notes being taken out on expansion Decrease in Cash at end of the year. Much of their cash is tied up in inventories and investments. c. Free cash flow is the cash flow actually available for distribution to investors after the company has made all the investments in fixed assets and working capital necessary to sustain ongoing operations. It’s important because of flexibility and liquidity. This allows the company to maneuver as necessary. Five uses of FCF are: 1. Pay interest to debt holders, keeping in mind that the net cost to the company is the after-tax-interest expense. 2. Repay debt holders, that is, pay off some of the debt. 3. Pay dividends to shareholders. 4. Repurchase stock from shareholders. 5. Buy short-term investments or other nonoperating assets. d. Operating current assets are cash, short-term investments, accounts receivable and Inventories. Current liabilities are accounts payable, notes payable, and accruals. NOWC = (9000 + 351200 + 715200) – (145600 + 136000) = 793,800. Total net operating capital - e. NOPAT = EBIT (1-Tax rate) 209.1 (1 – 0.4) / 209.1 (0.6) = 125.5 MIL NOPAT – Net Investment in operating capital FCF = 125.5 – 72 = -72Mil f. , f.