Hollyard Industries 2012 Financial Reports Internal Analysis

Holyard Industries 2012 Financial Reports Internal Analysis and Ratios

Holyard Industries gathered the following financial information from its 2012 financial reports: Selected Ratios, Competitors, Industry, and various financial metrics including current ratio, quick ratio, inventory, stock price, expenses, gross margin, fixed asset turnover, tax rate, collection period, book value per share, market to book ratio, and others. Using this data, the task involves completing the financial statement templates by filling in the shaded areas and calculating the per share ratios. The specific requirements include preparing a balance sheet and income statement with the given data, calculating missing values like total assets, liabilities, equity, revenue, COGS, and other financial metrics necessary to analyze the company's financial health.

Paper For Above instruction

In analyzing Holyard Industries' financial health for 2012, it is essential to understand the company's financial structure through detailed statement preparation and ratio analysis. The data provided offers insights into the company's liquidity, efficiency, profitability, and market valuation, which can be contrasted with industry averages and competitors to evaluate performance and identify areas for improvement.

Financial Statement Construction and Ratio Analysis

The first step involves reconstructing the company's balance sheet and income statement using available data. The balance sheet begins with current assets, including cash, accounts receivable, and inventory, and then moves toward long-term assets, liabilities, and equity. The income statement factors in revenue, COGS, gross margin, expenses, and net income, providing a comprehensive view of profitability.

Given the inventory turnover ratio of 12, and the total inventory value of $300,000, we can infer that the company's cost of goods sold (COGS) is approximately $3,600,000 (since Inventory = COGS / Inventory Turnover, thus COGS = Inventory × Inventory Turnover). The gross margin of 40% indicates that revenue is approximately $6,000,000, since Gross Margin = (Revenue - COGS) / Revenue, leading to Revenue = COGS / (1 - Gross Margin). Plugging in the numbers: Revenue = $3,600,000 / 0.6 = $6,000,000.

Further, expenses excluding COGS are listed as $1,120,000. Earnings Before Interest and Tax (EBIT) can be calculated as Revenue minus COGS and expenses: EBIT = $6,000,000 - $3,600,000 - $1,120,000 = $1,280,000. The interest expense, based on an 8% interest rate, can be derived from total debt; however, detailed liabilities are needed to compute this precisely. Assuming interest is on total long-term liabilities or debt, an approximation can be made once liability data is complete.

The net earnings after taxes (EAT) follow from applying the 34% tax rate to EBT. If the EBT is approximately $1,280,000 (assuming no interest expense for simplicity), then Taxes = 0.34 × $1,280,000 = $435,200, and EAT = $844,800. This net income feeds into retained earnings and equity calculations.

Equity and Market Valuation

The market-to-book ratio of 3.12 indicates that the market value of equity exceeds its book value, reflecting investor optimism or growth prospects. The book value per share, reported as $7.75, and the stock price of $18.37 suggest the market perceives significant value addition beyond the book value.

The total equity can be computed as Stock Price × Shares Outstanding: $18.37 × 290,000 ≈ $5,329,300. The total book value of equity is Shareholders' Equity from the balance sheet, which can be corroborated through the calculated retained earnings and paid-in capital. The total assets are the sum of current and fixed assets, which must be consistent with the liabilities and equity total, ensuring balanced accounting equations.

Financial Ratios and Industry Comparison

The current ratio of 1.6 and quick ratio of 0.75 suggest a moderate liquidity position, with the company capable of meeting short-term obligations but with less clear liquid assets. The inventory turnover ratio of 12, compared to an industry average of 13, indicates a slightly slower inventory turnover which might point to inventory management inefficiencies.

Additional ratios such as fixed asset turnover of 1.65 and total asset turnover of approximately 1.5 suggest efficient use of assets in generating sales, though these ratios are slightly below industry norms. The times interest earned ratio (TIE) of 7.5–8.25 indicates robust coverage of interest expenses, implying low default risk from an interest perspective.

Conclusion

Overall, the financial analysis reveals that Holyard Industries in 2012 was a company with solid profitability, moderate liquidity, and efficient use of assets, but with some areas for operational improvement, especially inventory management. Comparing these ratios with industry benchmarks helps identify strengths and vulnerabilities, guiding strategic decisions aimed at enhancing financial stability, profitability, and shareholder value.

References

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