Case
1.How does Quickfix’s average compound growth rate in sales compare with itsearnings growth rate over the past five years?
Quickfix’s sales have increased by an average compound rate of 14% per year over the period, 1997-2001. In comparison, its net income has declined from over $16,600 millionto a loss of $102 in 2001.
2.Which statements should Juan refer to and which one’s should he construct so as todevelop a fair assessment of the firm’s financial condition? Explain why?
Juan should refer to the income statement and the balance sheet over the past 3-5 year period. In addition, he should prepare a cash flow statement, common size incomestatement and common size balance sheet. The accounting statements provide the rawdata from which the other statements can be prepared. The cash flow statement helpsdetermine where the cash came from and where it was spent during a year. The commonsize statements provide useful information regarding the relative trends of the variousassets, liabilities, revenue sources, and expense items. They also help the analyst makemeaningful comparisons between firms of varying sizes.
3.What calculations should Juan do in order to get a good grasp of what is going onwith Quickfix’s performance?
Juan should calculate the various liquidity, leverage, profitability, activity, and coverageratios for at least a three-year period. In addition, a Du Pont analysis of the return onequity will help determine what has affected the profitability of the company.
4.Juan knows that he should compare Quickfix’s condition with an appropriatebenchmark. How should he go about obtaining the necessary comparison data?
Based on Quickfix’s industry classification code, Juan should collect industry averages of the key financial ratios. Some useful sources for industry ratios include: Value Line,Moody’s, Standard & Poor, And Dun & Bradstreet. In addition to the industry average,the industry leader’s (within the size category) ratios could also be
Quickfix’s sales have increased by an average compound rate of 14% per year over the period, 1997-2001. In comparison, its net income has declined from over $16,600 millionto a loss of $102 in 2001.
2.Which statements should Juan refer to and which one’s should he construct so as todevelop a fair assessment of the firm’s financial condition? Explain why?
Juan should refer to the income statement and the balance sheet over the past 3-5 year period. In addition, he should prepare a cash flow statement, common size incomestatement and common size balance sheet. The accounting statements provide the rawdata from which the other statements can be prepared. The cash flow statement helpsdetermine where the cash came from and where it was spent during a year. The commonsize statements provide useful information regarding the relative trends of the variousassets, liabilities, revenue sources, and expense items. They also help the analyst makemeaningful comparisons between firms of varying sizes.
3.What calculations should Juan do in order to get a good grasp of what is going onwith Quickfix’s performance?
Juan should calculate the various liquidity, leverage, profitability, activity, and coverageratios for at least a three-year period. In addition, a Du Pont analysis of the return onequity will help determine what has affected the profitability of the company.
4.Juan knows that he should compare Quickfix’s condition with an appropriatebenchmark. How should he go about obtaining the necessary comparison data?
Based on Quickfix’s industry classification code, Juan should collect industry averages of the key financial ratios. Some useful sources for industry ratios include: Value Line,Moody’s, Standard & Poor, And Dun & Bradstreet. In addition to the industry average,the industry leader’s (within the size category) ratios could also be