Question

J&H Corp. Recently Hired Jeffery. His Immediate Mandate Was To Analyze The Company. He

Consider the following case: J&H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate its potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. • Last year, J&H Corp. reported a book value of $550,000 in current assets, of which 25% is cash, 27% is short-term investments, and the rest is accounts receivable and inventory. The company reported $467,500 of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable outstanding, and there were no changes in the company's accounts payable during the year. • The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $880,000 for its long-term assets last year.

Answer 1

Answer:

Statement 1: J&H Corp.'s NOPAT is $14,40,000, which is $360,000 lower than the industry average of $1,800,000. (NOPAT - Operating income - Tax rate)

Statement 2: The Company is using $82,500 in net operating working capital. NOWC - is the excess of operating current assets over operating current liabilities . Usually calculated as cash + account receivables + inventory - accounts payable - accruals. ((NOWC - current assets - $550000 - 467500 (current liabilities)).

Statement 3: J&H Corp. is generating $ 1,896,000 in cash flow from its operations and an accounting profit of $1,296,000. (Cash flow from operation = Net income + non cash expenses = $1,296,000 + $600,000)

Statement 4: The firm uses. $82,500of total net operating capital to run the business. This value is computed as the current assets minus current liabilities of J&H Corp.'s net operating working capital and its $ 82500