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:
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2005
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2006
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2007
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2008
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2009
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Industry Average
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Liquidity
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Current ratio
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Cash ratio
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Asset Management
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Parts inventory turnover in days
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Work-in-progress turnover in days
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Finished goods turnover in days
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A/R turnover in days
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A/P turnover in days
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Cash conversion cycle
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Fixed assets turnover
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Total asset turnover
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Long-term debt paying ability
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Debt Ratio
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Long-term debt to total capitalization
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Times Interest Earned
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Cash flow coverage
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Profitability
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Gross margin
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Operating profit margin
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Net profit margin
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ROA
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ROE
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| Analysis of ROE |
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EBIT/Sales
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EBT/EBIT
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NI/EBT
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Total Asset Turnover
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Debt Ratio
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ROE
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2005
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2006
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2007
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2008
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2009
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Attachment:- Case-Gemini-Electronics.pdf