CYBERDRAGON CORPORATION

Balance Sheet
(In thousands of dollars)

Assets: Liabilities & Owners' Equity

Cash $2,540 Accounts Payable 9,721
Marketable securities 1,800 Notes Payable 8,500
Accounts Receivable 18,320 Accrued taxes payable 3,200
Inventories 27,530 Other current liabilities 4,102
Total Current Assets 50,190 Total Current Liabilities 25,523
Plant and Equipment 43,100 Long-term debt (bonds) 22,000
less accumulated deprec. (11,400) Total Liabilities 47,523
Net Plant & Equipment 31,700 Common Stock ($10 par) 13,000
Total Assets 81,890 Paid in capital 10,000
Retained earnings 11,367
Total stockholders’ equity 34,367
Total liabilities & equity 81,890

Income Statement
(in thousands of dollars)

Sales (all credit) $112,760

Cost of Goods Sold (85,300)
Gross Profit 27,460
Operating Expenses:
Selling (6,540)
General & Administrative (9,400)
Total Operating Expenses (15,940)
Earnings before interest and taxes (EBIT) 11,520
Interest charges:
Interest on bank notes: (850)
Interest on bonds: (2,310)
Total Interest charges (3,160)
Earnings before taxes (EBT) 8,360
Taxes (40%) (3,344)
Net Income 5,016

OTHER INFORMATION
Dividends paid on common stock $2,800
Earnings retained in the firm 2,216
Shares outstanding (000) 1,300
Market price per share 60
Book value per share 26.44
Earnings per share 3.86
Dividends per share 2.15
Cost of capital 10%
I. Firm Liquidity
1. current ratio = current assets Do we have enough short-term liquid assets to cover our
current liabilities short-term debts?

2. acid test = cash + accounts receivable Do we have enough really liquid short-term assets to
ratio current liabilities cover our short-term debts?

3. days in = accounts receivable How many days on average does it take us to convert
receivables daily credit sales our accounts receivable into cash?

4. accounts
receivable = credit sales How many times per year do we convert our accounts
turnover accounts receivable receivable into cash?

5. days in = inventory On average, how many days is our inventory held before
inventory daily cost of goods sold being sold? More days means lower quality inventory.

6. inventory = cost of goods sold On average, how many times per year do we go through
turnover inventory our inventory? (Excess inventory is expensive!)

II. Operating Profitability

1. operating How much operating income do we generate per dollar
return on = operating income invested in assets. (Low OROA indicates problems with
assets total assets sales, pricing, or operating costs).

2. operating = operating income For every dollar of sales, how much becomes operating
profit margin sales income? (Same note as above in parentheses).

3. total asset = sales How many dollars of sales do we generate per dollar
turnover total assets invested in total assets?

4. fixed asset = sales How many dollars of sales do we generate per dollar
turnover net fixed assets invested in fixed assets (plant and equipment)?

Also: consider accounts receivable turnover and inventory turnover in this section. They affect efficiency as well as liquidity.

III. Financing Decisions

1. debt ratio = total debt What percentage of our assets is financed with either
total assets short- or long-term debt? (Debt financing increases risk
but “levers” up earnings to stockholders).
2. times = operating income
interest earned interest expense Are we generating enough operating income to cover our interest
payments?
IV. Return on Equity
1. return on = net income What is our rate of return for our stockholders?
equity total common equity

V. Creating Shareholder Value

1. price/earnings = market price per share What value does the market place on $1 of earnings?
ratio earnings per share

2. price/book = market price per share Is the firm’s market value greater than its historical cost?
ratio equity book value per share

3. EVA = (operating return - cost of) x total Are managers creating or destroying shareholder value?
on assets capital assets
Cyberdragon Corporation
I. Firm Liquidity CYBERDRAGON Industry average

1. current ratio = current assets 2.4

current liabilities

2. acid test = cash + accounts receivable .92

ratio current liabilities

3. days in = accounts receivable 47 days

receivables daily credit sales

4. accounts
receivable = credit sales 8.2
turnover accounts receivable

5. days in = inventory 92 days

inventory daily cost of goods sold

6. inventory = cost of goods sold 3.9

turnover inventory

II. Operating Profitability Industry average

1. operating
return on = operating income 15%
assets total assets

2. operating = operating income 12%

profit margin sales

3. total asset = sales 1.82

turnover total assets

4. fixed asset = sales 4.6

turnover net fixed assets

Also: consider accounts receivable turnover and inventory turnover in this section. They affect efficiency as well as liquidity.

III. Financing Decisions Industry average

1. debt ratio = total debt 47%

total assets

2. times = operating income 6.7

interest earned interest expense

IV. Return on Equity Industry average

1. return on = net income 17.5%

equity total common equity

V. Creating Shareholder Value

1. price/earnings = market price per share 18
ratio earnings per share

2. price/book = market price per share 5

ratio equity book value per share

3. EVA = (operating return - cost of) x total

on assets capital assets