Question

1. Use this information for New Tech Company to answer the following question. You may (or may not) need to fill in missing information.

            NEW TECH COMPANY

Income Statement	2010	2011	2012
Sales	100	110	120
Cost of goods sold	50	51	52
Depreciation	20	20	20
General, sales & admin expenses	70	65	60
Taxes	10	10	10
Net Income
Balance Sheet	2010	2011	2012
Current Assets	40	45	40
Property, plant & equipment	60	55	60
Total Assets
Current Liabilities	40	40	35
Long-Term Liabilities	10	10	15
Equity	50	50	50
Total Liabilities & Equity

INDUSTRY AVERAGE RATIOS

	2010	2011	2012
CR (Current Ratio)	1.5	1.5	1
DR (Debt Ratio)=TL/TA	60%	60%	60%
TAT (Total Asset Turnover)	2	2.2	2.5
PM (Profit Margin)	4%	5%	6%
Sales Growth	3%	2.50%	3%
Profit Growth	5%	25%	20%

Which of the following items characterize New Tech Company? (It may be more than one option).

EXPLAIN (and report your calculations) (10 points)

1. Low debt & unprofitable

2. High debt & unprofitable

3. Decreasing profit margin

4. Increasing sales with a decreasing sales growth rate

5. All the above characterize New Tech Company

Answer 1

First and fourth option is correct.

Income Statement
	2010	2011	2012
Sales	100	110	120
Cost of goods sold	50	51	52
Depreciation	20	20	20
General, sales & admin expenses	70	65	60
Taxes	10	10	10
Net Income	-50	-36	-22
Sales growth rate (Current year sales-previous year sales)/ previous year sales		10%	9%
Profit Margin ratio (profit /Sales)	-50%	-33%	-18%
Net income is negative. It means it is unprofitable business. Profit margin % is increasing. Sales is increasing but sales growth is declining.
Balance Sheet
	2010	2011	2012
Current Assets	40	45	40
Property, plant & equipment	60	55	60
Total Assets	100	100	100
Current Liabilities	40	40	35
Long-Term Liabilities	10	10	15
Equity	50	50	50
Total Liabilities & Equity	100	100	100
Debt ratio=Total liabilities/ Total assets	50%	50%	50%
Debt ratio is lower than industry (60%)
The following options are correct as explained above.
Low debt & unprofitable
Increasing sales with a decreasing sales growth rate