SDI: Case Study

By: JNMorton
TABLE I: Historical Balance Sheet
Swan-Davis Incorporated
Historical Comparative Balance Sheet
For years ended 1994-1996
1994

1995

1996

Assets
Cash & Securities
Accounts receivable
Inventories
Other current assets
Total current assets

$89.4
$72.8
$80.1
$1.0
$243.3

$87.6
$82.6
$88.2
$1.0
$259.4

$22.5
$112.4
$100.6
$1.0
$236.5

3.93%
19.65%
17.59%
0.17%
41.35%

Gross plant and equipment

Accumulated depreciation
Net plant and equip
Other assets
Total assets

$242.2
$78.7
$163.5
$1.0
$407.8

$343.2
$104.4
$238.8
$1.0
$499.2

$460.8
$131.2
$329.6
$1.0
$567.1

80.56%
22.94%
57.62%
0.17%
99.14%

Liabilities and Equity

Accounts payable
Notes payable
Accruals
Other current liabs.
Total current liab

$58.8
$9.0
$17.4
$1.0
$86.2

$68.5
$38.5
$34.8
$1.0
$142.8

$78.3
$44.7
$23.7
$1.0
$147.6

13.70%
7.81%
4.13%
0.17%
25.81%

LT debt
Min int. & other liab.
Def tax & other cred.
Total liabilities

$120.6
$1.0
$1.0
$208.8

$135.5
$1.0
$1.0
$280.2

$137.1
$1.0
$1.0
$286.8

23.98%
0.17%
0.17%
50.14%

34.4

34.4

86.3

15.09%

Preferred stock
Common stock
Retained earnings
Total common equity
Total liabs & equity

$ 11.9
$ 152.6
$ 164.5
$407.8

$ 11.7
$ 172.8
$ 184.5
$499.2

$ 13.6
$ 180.4
$ 194.0
$567.1

2.38%
31.53%
33.91%
99.14%

20

SDI: Case Study

By: JNMorton
TABLE II: Income Statement
Swan-Davis Incorporated
Historical Comparative Income Statements
For years ending 1994-1996
1994
$650.00

1995
$589.00

1996
$572.00

$540.80
$22.90
$9.75
$3.25
$576.70

$490.05
$25.70
$8.84
$2.95
$527.53

$485.00
$26.80
$8.58
$2.86
$523.24

$73.30
$10.26

$61.47
$13.84

$48.76
$14.51

$63.04
$25.22

$47.63
$19.05

$34.25
$13.70

NI before pref div

Dividends to pref

$37.82
$2.75

$28.58
$2.75

$20.55
$5.90

NI avail to common

$35.07

$25.83

$14.65

Dividends to common
Additions to ret earn

$4.77
$30.30

$5.64
$20.19

$7.09
$7.56

Stock price, year-end

Millions of shares
Earnings per share
Dividends per share
Price/Earnings
Dividend Yield

$35.00
$11.92
$2.94
$0.40
$11.90
1.14%

$22.00
$11.74
$2.20
$0.48
$10.00
2.18%

$15.00
$13.64
$1.07
$0.52
$13.96
3.47%

Sales
Costs and expenses:
COGS Excl. Depr.
Depreciation
Selling/admin
Other
Total costs
Net oper. inc. (EBIT)
Interest
EBT
Taxes

40%

Common Size 1996

84.8%
4.7%
1.5%
0.5%
91.5%
8.5%
2.5%
6.0%
2.4%
0.0%
3.6%
1.0%
0.0%
2.6%
0.0%
1.2%
1.3%

21

SDI: Case Study

By: JNMorton
TABLE III: Financial Ratios
Industry
Average

1994

1995

1996

2.8
1.9
1.8

1.8
1.2
1.8

1.6
0.9
1.8

2.6
1.4

8.1
40.3
4.0
1.6

6.7
50.5
2.5
1.2

5.7
70.7
1.7
1.0

9.3
36.2
2.1
1.4

Debt Management:
Debt + Pref. ratio
Equity multiplier
Times int earned

59.6%
2.5
7.1

63.0%
2.7
4.4

65.8%
2.9
3.4

42.4%
1.7
6.1

Profitability:
Profit margin
Basic earning power
Return on assets
Return on equity

5.4%
18.0%
8.6%
21.3%

4.4%
12.3%
5.2%
14.0%

2.6%
8.6%
2.6%
7.6%

6.4%
20.3%
9.0%
15.6%

11.9
2.5

10.0
1.4

14.0
1.1

15.0
2.6

5.4%
1.6
2.5
21.3%

4.4%
1.2
2.7
14.0%

2.6%
1.0
2.9
7.6%

6.4%
1.4
1.7

Liquidity:
Current
Quick
CA/CL req. by cov.
Asset Management:
Inv t'novr (S/I)
Days sales out
Fixed asset turn
Total asset turn

Market Value:
Price/Earnings
Market/Book
Du Pont Analysis:
Profit margin
Total asset turn
Equity multiplier

----0.2

Return on equity
----Check ROE
Payout ratio
g(EPS)
Altman's Z-score equation:

13.6%

4.47

21.8%

2.98

48.4%

0.2
0.4
0.1

2.53

22

SDI: Case Study

By: JNMorton
TABLE VI: Financial Ratios
Liquidity:
Current
Quick
Asset Management:
Inv t'novr (S/I)
Inv as a % of sales
Days sales out
Receivables as % of sales
Fixed asset turn
NFA as % of sales
Total asset turn
Cash as % of sales
Other assets as % of sales
Other current assets as % of sales
Debt Management:
Debt + Pref. ratio
Equity multiplier
Times int earned
A/P as % of sales
Accruals as % of sales
Other current liabilities as % of sales
Minority interest as % of sales
Deferred taxes as % of sales
Profitability:
Profit margin
Basic earning power
Return on assets
Return on equity
COGS as % of sales
Depreciation as % of sales
Selling/administrative expenses as % of sales
Other costs as % of sales
Market Value:
Price/Earnings
Market/Book
Du Pont Analysis:
Profit margin
Total asset turn
Equity multiplier
Return on equity
Payout ratio

1994

1995

1996

2.6
1.7

2.8
1.5

2.6
1.4

8.2
12.20%
35.8
9.94%
2.3
43.48%
1.7
1.0%
1.0%
1.0%

8.9
11.24%
32.1
8.92%
2.5
40.00%
1.5
1.0%
1.0%
1.0%

9.3
10.75%
36.2
10.06%
2.1
47.62%
1.4
1.0%
1.0%
1.0%

39.2%
1.60
7.90
3.00%
2.71%
0.1%
0.1%
0.1%

41.2%
1.70
6.50
3.00%
2.71%
0.1%
0.1%
0.1%

42.4%
1.70
6.10
3.00%
2.71%
0.1%
0.1%
0.1%

5.10%
15.90
9.10
14.20
78.00%
5.69%
1.50%
0.29%

4.90%
14.60
8.70
12.60
78.00%
5.69%
1.50%
0.29%

6.40%
20.30
9.00
15.60
78.00%
5.69%
1.50%
0.29%

12.90
2.10

13.80
2.60

15.00
2.60

5.10%
1.7
1.6
14.20%
35.0

4.90%
1.5
1.7
12.60%
35.0

6.40%
1.4
1.7
15.60%
35.0
23

SDI: A Case Study

By: JNMorton
TABLE V: Historical Balance Sheet
Swan-Davis Incorporated
Historical Comparative Balance Sheet
For years ended 1994-1996
1997

1998

1999

Common Size 1997

Assets
Cash & Securities
Accounts receivable
Inventories
Other current assets
Total current assets

$6
$63
$68
$1
$138

$7
$70
$74
$1
$152

$8
$77
$82
$1
$167

1%
15%
16%
0%
32%

Gross plant and equipment

Accumulated depreciation
Net plant and equip
Other assets
Total assets

$461
$167
$294
$1
$433

$536
$206
$330
$1
$483

$612
$250
$363
$1
$531

106%
39%
68%
0%
100%

Liabilities and Equity

Accounts payable
Notes payable
Accruals
Other current liabs.
Total current liab

$19
$2
$17
$1
$39

$21
$3
$19
$1
$44

$23
$2
$21
$1
$47

4%
0%
4%
0%
9%

LT debt
Min int. & other liab.
Def tax & other cred.
Total liabilities

$74
$1
$1
$115

$75
$1
$1
$121

$74
$1
$1
$123

17%
0%
0%
27%

86

86

86

20%

14
308
322

3%
50%
53%

$531

100%

Preferred stock
Common stock
Retained earnings
Total common equity
Total liabs & equity

$
14
$
218
$ 231.5
$432.99

$
14
$ 262.0
$ 275.6
$483.09

$
$

24

SDI: A Case Study

By: JNMorton
TABLE IV: Income Statement
Swan-Davis Incorporated
Forecasted Comparative Income Statements
For years ending 1997-1999
1997
1998
1999
Common Size 1996
629.20
692
761
100%

Sales
Costs and expenses:
COGS Excl. Depr.
Depreciation
Selling/admin
Other
Total costs

503
36
6
3
548.60

554
39
7
3
603

609
43
8
4
664

Net oper. inc. (EBIT)

Interest

81
8

89
9

98
8

EBT
Taxes

72
29

80
32

89
36

NI before pref div

Dividends to pref

43
6

48
6

54
6

NI avail to common

37

42

48

Dividends to common
Additions to ret earn

0
37

0
42

0
48

38.46
13.64
2.75
0.00
14.00
0.00

43.18
13.69
3.08
0.00
14.00
0.00

48.86
13.64
3.49
0.00
14.00
0.00

Stock price, year-end

Millions of shares
Earnings per share
Dividends per share
Price/Earnings
Dividend Yield

40%

80%
6%
1%
1%
87%
0%
13%
1%
0%
11%
5%
0%
7%
1%
0%
6%
0%
0%
6%

24

SDI: A Case Study

By: JNMorton
TABLE IIV: Financial Ratios
1996
Industry
Average
Liquidity:
Current
Quick
CA/CL req. by cov.
Asset Management:
Inv t'novr (S/I)
Days sales out
Fixed asset turn
Total asset turn

------1997

--Projected------1998

1999

2.6
1.4

3.5
1.8

3.5
1.8

3.5
1.8

9.3
36.2
2.1
1.4

9.3
36.2
2.1
1.5

9.3
36.2
2.1
1.4

9.3
36.2
2.1
1.4

Debt Management:
Debt + Pref. ratio
Equity multiplier
Times int earned

42.4%
1.7
6.1

46.5%
1.9
9.7

42.9%
1.8
10.5

39.5%
1.7
11.7

Profitability:
Profit margin
Basic earning power
Return on assets
Return on equity

6.4%
20.3%
9.0%
15.6%

6.0%
18.6%
8.7%
16.2%

6.1%
18.4%
8.7%
15.3%

6.3%
18.4%
9.0%
14.8%

Market Value:
Price/Earnings
Market/Book

15.0
2.6

14.0
2.3

14.0
2.1

14.0
2.1

Du Pont Analysis:
Profit margin
Total asset turn
Equity multiplier

6.4%
1.4
1.7

6.0%
1.5
1.9

6.1%
1.4
1.8

6.3%
1.4
1.7

-----

----16%

Return on equity
----Check ROE
Payout ratio
g(EPS)
Z score:

CORRECT=>

----16%

----16%
0.4
0.1

----15%

-----

15%
-----

16%
0.0
0.2

15%
0.0
0.2

15%
0.0
0.1

6.218033

6.431623

6.774212

Z=.012(NWC/TA)+.014(RE/TA)+.033(EBIT/TA)+.006(MVC+PF)/BVD+.999(S/TA)

25

SDI A Case Study

By: JNMorton

TABLE IIIV AND XI

HISTORICAL EVA/MVA CALCULATIONS, COMPANY
DATA
kd
Tax rate
kp
kM
kRF
Beta
ks
WACC
EVA
MVA

------- --Historical------1994
1995
1996
0.11
0.11
0.11
0.4
0.4
0.4
0.105
0.105
0.105
0.12
0.12
0.12
0.06
0.06
0.06
1.3
1.3
1.3
0.138
0.138
0.138
0.10727
$9.70
$252.7

0.10728 0.10752
($1.13) ($15.63)
$73.7
$10.6

-----FORECASTED EVA/MVA CALCULATIONS------1997

1998
1999
0.11
0.11
0.11
0.4
0.4
0.4
0.105
0.105
0.105
0.11
0.11
0.11
0.06
0.06
0.06
1.1
1.1
1.1
0.115
0.115
0.115
WACC
EVA
MVA

0.10354
$7.59
$293.1

0.10461
$7.17
$315.5

0.10569
$7.37
$344.8

26

SDI A Case Study

By: JNMorton
DATA TABLE X: Look at Sensitivity of EPS When Sales Growth Changes
This is a DATA TABLE 1: We look at how a change in one input variable
affects one or more outputs.

Sales g
-0.05
-0.025
0
0.025
0.05
0.075
0.1
0.125
0.15

1997
EPS

1998
EPS
2.75
2.274
2.353
2.431
2.510
2.589
2.668
2.747
2.826
2.905

1999
EPS
3.08
2.549
2.633
2.719
2.807
2.897
2.990
3.084
3.180
3.279

3.49
2.639
2.769
2.904
3.043
3.187
3.336
3.490
3.650
3.814

27

SDI A Case Study

By: JNMorton
DATA TABLE IX: Look at Sensitivity of 1997 EPS When Sales Growth
and Cost of Goods Sold Percentage Changes
This is a DATA TABLE 2: We look at how changes in two input variables
affect one output.
1997 EPS
Sales g
Cost of Goods Sold Percentage---2.74687561
0.74
0.76
0.78
0.8
-0.05
3.799
3.291
2.782
2.274
-0.025
3.918
3.396
2.874
2.353
0
4.037
3.502
2.967
2.431
0.025
4.156
3.608
3.059
2.510
0.05
4.275
3.713
3.151
2.589
0.075
4.394
3.819
3.243
2.668
0.1
4.514
3.925
3.336
2.747
0.125
4.633
4.030
3.428
2.826
0.15
4.752
4.136
3.520
2.905

0.82
1.765
1.831
1.896
1.962
2.027
2.093
2.158
2.223
2.289

0.84
1.256
1.309
1.361
1.413
1.465
1.517
1.569
1.621
1.673

0.86
0.748
0.787
0.825
0.864
0.903
0.942
0.980
1.019
1.058

28

SDI A Case Study

By: JNMorton
DATA TABLE IIX: Look at Sensitivity of 1997 Current Ratio When Sales
Growth and Cost of Goods Sold Percentage Changes
This is a DATA TABLE 2: Here we look at how changes in two input
variables affect one output.
1997 Current Ratio
Sales g
Cost of Goods Sold Percentage---3.5069542
0.74
0.76
0.78
0.8
-0.05
4.752
4.280
3.893
3.570
-0.025
4.731
4.262
3.878
3.558
0
4.711
4.246
3.865
3.547
0.025
4.692
4.231
3.852
3.536
0.05
4.674
4.216
3.840
3.526
0.075
4.657
4.203
3.829
3.516
0.1
4.641
4.190
3.818
3.507
0.125
4.626
4.177
3.808
3.498
0.15
4.612
4.165
3.798
3.490

0.82
3.297
3.286
3.277
3.267
3.259
3.251
3.243
3.235
3.228

0.84
3.062
3.053
3.045
3.037
3.029
3.022
3.016
3.009
3.003

0.86
2.859
2.851
2.844
2.837
2.830
2.824
2.818
2.813
2.807

29

SDI A Case Study

By: JNMorton
DATA TABLE IIIX: Look at Sensitivity of 1997 TIE Ratio When Sales
Growth and Cost of Goods Sold Percentage Changes
This is a DATA TABLE 2: We look at how changes in two input variables
affect one output.
1997 TIE Ratio
Sales g
Cost of Goods Sold Percentage---9.6857606
0.74
0.76
0.78
0.8
-0.05
17.013
13.630
10.882
8.605
-0.025
17.508
13.984
11.138
8.790
0
18.005
14.338
11.392
8.972
0.025
18.504
14.692
11.645
9.153
0.05
19.007
15.045
11.896
9.332
0.075
19.512
15.398
12.146
9.510
0.1
20.020
15.751
12.394
9.686
0.125
20.530
16.103
12.642
9.860
0.15
21.044
16.456
12.887
10.033

0.82
6.688
6.820
6.950
7.078
7.205
7.330
7.454
7.576
7.697

0.84
5.052
5.144
5.235
5.324
5.412
5.498
5.583
5.667
5.750

0.86
3.639
3.700
3.761
3.821
3.879
3.936
3.993
4.048
4.103

30