Jaeden Industries Account Balances for the year ending 31-Dec-10 Sales $42,000,00 Cost of goods sold 63% Portion of COGS that represents purchases 75% Selling, General, and administrative expenses $1,621,000 Depreciations $800,000 Interest rate on short- and long term debt 10% Cash Balance $3,689,000 Accounts receivable $5,423,000 Marketable securities $1,836,000 Inventory $4,118,000 Fixed Assets $14,811,000 Accumulated depreciations $5,160,000 Accounts payable $3,136,000 Notes payable $706,000 Accruals $500,000 Long term bonds outstanding $3,046,000 Preferred stock (at par) $100,000 Retained earnings $1,628,819 Common stock (at par) $4,000,000 Paid-in capital in excess of par $4,500,000 Tax rate 34% Dividend payout ratio (common stock) 25% Dividends on preferred stock 8% of par Number of shares of common stock outstanding 1 million Terms of trade on accounts receivable 35 days terms of trade on accounts payable 45 days (to aid calculations, the financial statements from 2009 are given below) Jaeden Industries Income Statements for the year ending 31-Dec-09 Sales $38,578,155 Less: cost of Goods Sold $27,004,709 Gross profit $11,573,447 Less: Operating Expenses: Selling, General, and administrative Expenses $1,000,000 Depreciation $700,000 Earnings before interest and taxes $9,873,447 Less: Interest Expenses $375,000 Earnings before taxes $9,498,447 Less: Taxes $3,229,472 Net income $6,268,975 Less: Dividends paid $1,575,244 To retained earnings $4,693,731 Jaedan Industries Balance Sheet Dec. 31, 2009 Assets Cash $831,319 Marketable Securities $3,587,000 Accounts Receivable $2,867,500 Inventories $3,210,000 Total current Assets $10,535,819 Fixed Assets $11,879,000 Less: Accumulated $5,160,000 depreciations Net fixed assets $6,719,000 total assets $17,254,819 Liabilities and Equity Account Payable $2,946,000 Notes payable $684,000 Accruals $350,000 Total current liabilities $3,980,000 Long-term debt $3,046,000 Preferred Stock $100,000 Common Stock (at par) $4,000,000 Paid -in capital in excess of par $4,500,000 Retained earning $1,628,819 Total liabilities and equity $17,254,819 Industry Ratios 2009 2010 Liquidity ratio current ratio 2.89 3.26 quick ratio 1.42 2.19 Activity ratio inventory turnover 6.71 6.59 Average collection period 35.12 36.17 average payment period 50.73 49.63 fixed asset turnorver 4.32 4.76 total asset turnover 2.14 2.33 Debt ratio debt ratio 41.93% 39.36% asset to equity ratio 165.82% 163.13% debt to equity ratio 31.26% 30.23% times interest earned $16 16.81 Profitability ratio gross profit margin 22.19% 23.74% operating profit margin 19.32% 20.89% net profit margin 15.11% 17.97% earnings per share $4.36 $4.58 return on total assets 32.34% 41.87% return on common equity 53.63% 68.30% Market ratio price/earnings ratio 5.41 5.97 market book ratio 4.19 4.32 You are to write a six to ten (6-10) page report that responds to the following: Part A: Use the financial statements above to determine the following for Jaeden Industries. 1. Calculate Jaedan’s free cash flow. 2. Calculate Jaedan’s liquidity. 3. Calculate Jaedan’s debt and profitability ratios. 4. Calculate Jaedan’s market ratios. Part B: Based on your analysis: 5. Highlight at least three financial strengths and three weaknesses Jaeden Industries may have. 6. Provide recommendations along with rationale on how Jaeden’s management may improve upon these weaknesses.