Assume that the firms 2013 ratios will remain the same in 2014.

stock price had been lagging its industry averages so its board of dire Show more Hatfield Medical Suppliess stock price had been lagging its industry averages so its board of directors brought in a new CEO Jaiden Lee. Lee had brought in Ashley Novak a finance MBA who had been working for a consulting company to replace the old CFO and Lee asked Ashley to develop the financial planning section of the strategic plan. In her previous job Novaks primary task had been to help clients develop financial forecasts and that was one reason Lee hired her. Novak began as she always did by comparing Hatfields financial ratios to the industry averages. If any ratio was substandard she discussed it with the responsible manager to see what could be done to improve the situation. The following data shows Hatfields latest financial statements plus some ratios and other data that Novak plans to use in her analysis. Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Hatfield Medical Supplies: Balance Sheet (Millions of Dollars) 12/31/2013 Cash $20 Accts. rec. $280 Inventories Inventories $400 Total CA $700 Net fixed assets Net fixed assets $500 Total assets Total assets $1200 Accts. pay. & accruals Accts. pay. & accruals $80 Line of credit Line of credit $0 Total CL $80 Long-term debt Long-term debt $500 Total liabilities Total liabilities $580 Common stock Common stock $420 Retained earnings Retained earnings $200 Total common equ. Total common equ. $620 Total liab. & equity Total liab. & equity $1200 Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) Hatfield Medical Supplies: Income Statement (Millions of Dollars Except per Share) 2013 Sales $2000.00 Op. costs (excl. depr.) Op. costs (excl. depr.) $1800.00 Depreciation Depreciation $50.00 EBIT $150.00 Interest $40.00 Pretax earnings Pretax earnings $110.00 Taxes (40%) Taxes (40%) $44.00 Net income Net income $66.00 Dividends Dividends $20.00 Add. to RE Add. to RE $46.00 Common shares Common shares 10 EPS $6.60 DPS $2.00 Ending stock price Ending stock price $52.80 Selected Ratios and Other Data 2013 Selected Ratios and Other Data 2013 Selected Ratios and Other Data 2013 Selected Ratios and Other Data 2013 Hatfield Industry Hatfield Op. costs/Sales Op. costs/Sales 90% 88% Total liability/Total assets Total liability/Total assets 48.30% Depr./FA 10% 12% Times interest earned Times interest earned 3.8 Cash/Sales Cash/Sales 1% 1% Return on assets (ROA) Return on assets (ROA) 5.50% Receivables/Sales Receivables/Sales 14% 11% Profit margin (M) Profit margin (M) 3.30% Inventories/Sales Inventories/Sales 20% 15% Sales/Assets Sales/Assets 1.67 Fixed assets/Sales Fixed assets/Sales 25% 22% Assets/Equity Assets/Equity 1.94 Acc. pay. & accr. / Sales Acc. pay. & accr. / Sales 4% 4% Return on equity (ROE) Return on equity (ROE) 10.60% Tax rate 40% 40% P/E ratio P/E ratio 8 ROIC 8.00% 12.50% NOPAT/Sales NOPAT/Sales 4.50% 5.60% Total op. capital/Sales Total op. capital/Sales 56.00% 45.00% Additional Data 2014 Exp. Saled growth rate 10% Interest rate on LT debt 8% Target WACC 9% Using Hatfields data and its industry averages how well run would you say Hatfield appears to be in comparison with other firms in its industry? What are its primary strengths and weaknesses? Be specific in your answer and point to various ratios that support your position. Also use the Du Pont equation (see Chapter 3) as one part of your analysis. Use the AFN equation to estimate Hatfields required new external capital for 2014 if the sale growth rate is 10%. Assume that the firms 2013 ratios will remain the same in 2014. (Hint: Hatfield was operating at full capacity in 2013.) Show less

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