4-6 Key Ratios NWC Indust Condition BEP 10.00% 20.00% Poor Profit Margin 2.52% 4.00% ROE 7.20% 15.60% DSO 43.20 days 32.00 days Inv turnover 8.33X 11.00x FA turnover 4.00x 5.00x TA turnover 200x 2.50x Debt/ assets 30.00% 36.00% Good TIE 6.25x 940X Poor Current ratio 2. 50x 3.00X Payout ratio 30.00% 30.00% O. K Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 6 Copyright © 2002 by Harcourt, Inc. All rights reserved. NWC Industry Condition BEP 10.00% 20.00% Poor Profit Margin 2.52% 4.00% “ ROE 7.20% 15.60% “ DSO 43.20 days 32.00 days “ Inv. turnover 8.33x 11.00x “ F.A. turnover 4.00x 5.00x “ T.A. turnover 2.00x 2.50x “ Debt/ assets 30.00% 36.00% Good TIE 6.25x 9.40x Poor Current ratio 2.50x 3.00x “ Payout ratio 30.00% 30.00% O.K. Key Ratios
4-7 Key Ratios (Continued) nWc nd. Cond Net oper. prof. margin after taxes 3.00% 5.00% Poor (NOPAT/Sales) Oper. capital requirement 4500%35.00%Poor (Net oper. capital/sales) Return on invested capital 667%14.00%Poor (NOPAT/Net oper. capital) Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 7 Copyright © 2002 by Harcourt, Inc. All rights reserved. Key Ratios (Continued) NWC Ind. Cond. Net oper. prof. margin after taxes 3.00% 5.00% Poor (NOPAT/Sales) Oper. capital requirement 45.00% 35.00% Poor (Net oper. capital/Sales) Return on invested capital 6.67% 14.00% Poor (NOPAT/Net oper. capital)
4-8 AFN (Additional Funds Needed) Key Assumptions Operating at full capacity in 2001 Each type of asset grows proportionally with sales Payables and accruals grow proportionally with sales 2001 profit margin(2.52%)and payout (30%)will be maintained Sales are expected to increase by $500 million.(%AS= 25%) Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 8 Copyright © 2002 by Harcourt, Inc. All rights reserved. AFN (Additional Funds Needed): Key Assumptions ◼Operating at full capacity in 2001. ◼ Each type of asset grows proportionally with sales. ◼ Payables and accruals grow proportionally with sales. ◼ 2001 profit margin (2.52%) and payout (30%) will be maintained. ◼ Sales are expected to increase by $500 million. (%S = 25%)
4-9 Assets Assets=0.5 sales 1.250 △ Assets= 1,000 (A*s0)△saes 05($500) $250. Sales 0 2,0002,500 A*/S=$1,000/$2,000=0.5=$1,250/$2,500 Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 9 Copyright © 2002 by Harcourt, Inc. All rights reserved. Assets Sales 0 1,000 2,000 1,250 2,500 A*/S0 = $1,000/$2,000 = 0.5 = $1,250/$2,500. Assets = (A*/S0 )Sales = 0.5($500) = $250. Assets = 0.5 sales
4-10 Assets must increase by $250 million. What is the afn based on the afn equation? AFN=(A*SOAS-(L/SOAS-M(S1)(1-d ($1,000/$2000)($500) -($100/$2000)($500) 00252($2500(1-03) $180.9 million Copy right C 2002 by Harcourt, Inc. All rights reserved
4 - 10 Copyright © 2002 by Harcourt, Inc. All rights reserved. Assets must increase by $250 million. What is the AFN, based on the AFN equation? AFN = (A*/S0 )S - (L*/S0 )S - M(S1 )(1 - d) = ($1,000/$2,000)($500) - ($100/$2,000)($500) - 0.0252($2,500)(1 - 0.3) = $180.9 million