1FIN 610 Team ProjectTitle:Financial Analysis Tasks Responding to the Controller Introduction
1FIN 610 Team ProjectTitle:Financial Analysis Tasks Responding to the ControllerIntroduction:•You are a financial analyst at the Stirm Windows Company. After the Monday morning staff meeting withthe Controller, Sue Sims, she pulls you aside and asks you apply your analytical abilities to several highpriority tasks with a team you assemble. When your team completes the 9 individual tasks given, eachindividual will need to assemble all the specific tasks together for a presentation to senior managementwhich explains their contributions and individual recommendations.Review the steps below and proceed to complete each step. Review background materials that are included to helpyou perform each task – they are all connected and lead you to the final assignment outcome.Task 1 Weekly Management meeting in Accounting:Sue Sims (controller): I really need you to analyze Winco Construction Company and see if we should extend themcredit for this project we are deciding upon. I want you to analyze their financial statements and review theirfinancial ratios (liquidity, solvency, efficiency, profitability and market ratios). We really need to insure that thiscustomer is worthy of credit and can pay for our services.Scenario Steps to Completion1.You are to analyze various aspects of a customer firm and our firm; Stirm Windows Inc. and to perform variousfinancial analysis tasks associated with the customer firm Winco Const. to ensure their financial strength issufficient to justify several large orders received from the firm and an investment in the firm itself.Some basic statistics are needed to assess the firm’s financial health, given the amount of business the twofirms transact.Calculate the appropriate ratios which should include the Dupont ratio among others.Place the numbers into the following context of questions that Sue wants answered:Are these ratios sufficient enough for you to evaluate our customer?What do you conclude about the firm’s financial health and any change from 2013 to 2014?Is this a firm we would feel comfortable extending significant credit to in the future?We are also looking to take a minority ownership position in Winco Const. and need a profitability analysis.Use the decomposed Dupont model to analyze the drivers (return on assets, profit margin, debt/leverage) ofWinco’s return on equity (ROE) for 2014 and 2014. What can you conclude about the drivers of Winco’sROE?Concept Check:Ratios are simply the relationship between two variables. Keep in mind where the numbers arecoming from in the financial statements and think about how these variables relate to one another and what the resultshows in general before we look at the specific company.Helpful Hint:When calculating financial ratios you need to place them in context of either; a competitor, previousyear’s results or to industry benchmarks. A single ratio merely shows a relationship between two variables.The financial statements are provided below:
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Page 2Winco Construction Inc.2014 Income Statement($ in millions)Net sales$8,450Less: Cost of goods sold7,240Less: Depreciation400Earnings before interest and taxes810Less: Interest paid70Taxable Income$740Less: Taxes259Net income$481Winco Construction Inc..2013 and 2014 Balance Sheets($ in millions)2013201420132014Cash$120$140Accounts payable$1,110$1,120Accounts rec.930780Long-term debt8401,210Inventory1,4801,520Common stock3,2003,000Total$2,530$2,440 Retained earnings530710Net fixedAssets3,1503,600Total assets$5,680$6,040Total liabilities & equ$5,680$6,040Average Industry RatiosLower QuartileMedianUpper QuartileDay’s sales in receivables604030Cash Coverage ratio2.010.018.0Debt ratio1.00.900.80Return on Equity1314.015.0Sue Sims, in your weekly meeting, explains a new strategy she has thought of to help offset the risk of a slump inbusiness. She believes that having a cash buffer to working capital is very important in case of a downturn inbusiness because it can lead to a competitive advantage when work picks up. Her presentation to you was asfollows:Scenario Steps to Completion2.Since the construction industry is notorious for having slumps in the course of business where operational cashflow is constrained, Ms. Sims has decided to put aside $15,000 a month from profits for the next five years as asafety net for recessionary periods. The money will be set aside in a separate account which pays 3.25% annualinterest compounded monthly. The first $15,000 is placed in the account today.Activity: Compute how much this account will contain after 5 years.You know that the board of directors will have questions for Sue to answer and to place this in context of Sue’srecommendations and potential impact to the company you should prepare answers for her based on yourresearch and conversations with Sue. Here are some of the questions the board may ask:Isn’t this money an opportunity cost to the company?
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