BUSN 6021: Corporate Finance 1 TRU Open Learning Case Study 1: Financial Statement Analysis Introduction: Gemini Electronics Sarah McIvor, CA, a junior partner with Price Waterhouse Coopers, has been selected to conduct a financial rev

BUSN 6021: Corporate Finance

1

TRU Open Learning

Case Study 1: Financial Statement Analysis

Introduction: Gemini Electronics

Sarah

McIvor,

CA,

a

junior

partner

with

Price

Waterhouse

Coopers,

has

been

selected

to

conduct

a

financial

review

of

Gemini

Electronics

Ltd.

Gemini

is

an

“up

start”

American

electronics

company

who

recently

went

public

and

now

wants

to

expand

its

business

to

rival

the

major

Korean

and

Japanese

producers.

Before

the

company

finalizes

any

expansion

plans,

Dr.

Wang,

the

founder,

feels

it

is

prudent

to

conduct

an

independent

evaluation

of

Gemini’s

financial

condition.

The

two

page

evaluation

memo

should

be

divided

into

sections

entitled

liquidity,

asset

management,

long

term

debt

paying

ability,

profitability,

and

recommendations.

It

should

be

single

spaced,

11

point

Arial

font

with

0.7

inch

margins.

All

headings

should

be

in

12

point

bold

font.

In

addition

to

the

two

page

memo,

the

following

financial

exhibits

for

2005

through

2009

should

be

included:

ratio

table

vertical

analysis

of

income

statements

and

balance

sheets

horizontal

analysis

(index

numbers)

of

income

statements

and

balance

sheets

cash

flow

statements

(2006

through

2009)

five

part

analysis

of

ROE

All

ratios

should

be

calculated

based

on

year

end

totals

only—no

averages

should

be

used.

The

specific

ratios

to

be

used

include

the

following:

2005

2006

2007

2008

2009

Industry

Average

Liquidity

Current

ratio

Cash

ratio

Asset

Management

Parts

inventory

turnover

in

days

2

Case Study 1: Financial Statement Analysis

TRU Open Learning

2005

2006

2007

2008

2009

Industry

Average

Work

in

progress

turnover

in

days

Finished

goods

turnover

in

days

A/R

turnover

in

days

A/P

turnover

in

days

Cash

conversion

cycle

Fixed

assets

turnover

Total

asset

turnover

Long

term

debt

paying

ability

Debt

Ratio

Long

term

debt

to

total

capitalization

Times

Interest

Earned

Cash

flow

coverage

Profitability

Gross

margin

Operating

profit

margin

Net

profit

margin

ROA

ROE

BUSN 6021: Corporate Finance

3

TRU Open Learning

Analysis of ROE

EBIT/Sales EBT/EBIT NI/EBT

Total Asset

Turnover

Debt

Ratio

ROE

2005

2006

2007

2008

2009

Evaluation Rubric

The

following

are

the

grading

criteria

for

Case

Study

1.

Total:

______

/

100

Letter

Grade:

_________

Accuracy of Financial Data (25% of grade)

Ratio

table

/10

Vertical/horizontal

analysis

/5

Cash

flow

statements

/5

5

part

analysis

of

ROE

/5

Note

:

One

mark

is

deducted

for

each

calculation

error.

4

Case Study 1: Financial Statement Analysis

TRU Open Learning

Thoroughness of Analysis (50% of grade)

Liquidity

/8

Asset

management

/12

Long

term

debt

paying

ability

/6

Profitability

/10

Recommendations

/14

Memo Format and Writing Qu

ality (25% of grade)

Memo

layout

/5

Grammatical

and

spelling

errors

/10

Writing

style

/10

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