1. Case 1:Work this problem following, parts B through J (listed below). Then apply those same requirements to do an analysis of Brinker International, which is a real company. Do the analysis on the basis of the figures for the most recent year. For part g, use the 2 most recent years. Download 10K financial statements for the most recent
year for Brinker. A good source is the company’s home page. Also compare the Brinker ratios to the industry averages. You’ll note that some of the company’s ratios you calculate won’t agree with those found on the web page. Ratios are calculated in different ways; however, you should use the formulas in the text. Also, you won’t find all of the industry averages, but you will find most of them. You’ll need the company’s stock
price for several of the ratios; use the fiscal year end price. The company’s stock symbol is EAT. On the Brinker assignment, answer parts b through j for Brinker on the basis of the figures for the most recent year. Disregard references to 2011E. For part g, use thetwo most recent years for analysis, 2013 and 2014.
Download financial statements (income statement and balance sheet) from the Internet (www.brinker.com) Refer to the mini case at the end of
Chapter 3 and do Parts
b, c, d, e, f, g, h, I for Brinker for the most recent year. Ignore 2011e. Only use 2013 and
(Visit Brinker web site)
(Access industry averages)
B)Calculate the 2014 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2012, 2013, and as projected for 2014? We often think of ratios as being usefull. 1) to managers to help run the business, 2) to bankers for credit analysis and 3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios?
C) Calculate the 2014 inventory turnover, days sales outstanding (DSO) fixed assets turnover, and total assets turnover. How does the company utilization of assets stack up against that of other firms in its industry?
D) Calculate the 2014 debt ratio, liabilities to assets ratio, times –interest-earned and EBITDA coverage ratios. How does the company compare with the industry with respect to financial leverage? What can you conclude from these ratios?
E) Calculate the 2014 profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?
F) Calculate the 2014 price/earnings ratio, price/cash flow ratio, and market/book ratio. Does these ratios indicate that investors are expected to have a high or low opinion of the company?
G) Perform a common size analysis and percentage change analysis. What does these analyses tell you about the company?
H) Use the extended DuPont equation to provide a summary and overview of the company’s financial condition as projected for 2014. What are the firm’s major strengths and weaknesses?
I) What are some potential problems and limitations of financial ratio analysis?
J) What are some qualitive factors that analysts should consider when evaluating a company’s likely future financial performance?
Problem questions (not part of questions above)
1) Use both the TVM equations and a financial calculator to find the following values.
a. An initial $500 compounded for 10years at 6%
b. An initial $500 compounded for 10 years at 12%
c. The present value of $500 due in 10 years at 6% discount rate.
d. The present value of $500 due in 10 years at a 12% discount rate.
2) To the closest year, how long will it take $200 to double if it is deposited and earns the following rates? (the problem cannot be solved exactly with some financial calculators. For examples, if you enter PV=-200, pmt part a. The correct answer is 10.2448 years, which rounds to 10, but the calculator rounds up. However, the HP10BII vies the exact answer.