Case A  For 2020, Solvent Corp. reported net sales of $

Case A 

For 2020, Solvent Corp. reported net sales of $ 415 million, 6% up from the previous year.  Its operating profit (EBIT) amounted to $ 40 million in the same period.  Due to substantial investments in net working capital, the company’s net book value grew from $ 215 million to $ 230 million, while net fixed assets remained stable at $ 130 million. The firm managed to maintain its capital structure with a debt to equity ratio of 0.75 and a 40% Equity Ratio.

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 Assuming a corporate income tax rate of 25% and interest rate of 5.0%, please determine the following:

o    Net Profit Margin (5 points)

o     Working Capital Requirement (WCR) and working capital ratio over sales for 2020 (5 points)

o    Post-tax Return On Invested Capital (ROIC) for 2020 (10 points)

o    Free Cash Flow (FCF) for 2020 (10 points)     

Case B 

In 2019, Manufactor Inc. had $ 16,5 million in operating income (EBIT).  The company had a net depreciation expense of $ 3,3 million and an interest expense of $ 2,2 million; its corporate income tax was 40%.  The company has $ 44 million in operating current assets and $ 15,4 million in operating current liabilities; it has $ 49,5 million in net fixed assets.  It estimates that it has a post-tax cost of capital of 10%. 

Assuming that Manufactor’s only non-cash item was depreciation, please answer the ensuing questions:

  1. What was the company’s net income after taxes (NEAT) for the year? (5 points)
  2. What was the company’s Net Operating Profit After Taxes (NOPAT)? (5 points)
  3. What was the company’s net operating working capital (WC) and total net operating capital for the current year? (10 points)
  4. If the Working Capital Ratio (WCR/sales) read 25% in 2019, what was the company’s sales revenue? (10 points)
  5. If total net operating capital was $ 75 million for the previous period (2018), what was the company’s Free Cash Flow (FCF) in 2019? (10 points)

Case C

The following data applies to BigCo. Inc. (in millions of US $): 

·         Cash & marketable securities                     $165

·         Fixed assets                                               $286

·         Net sales                                                    $1320

·         Earnings Before Interests and Taxes (EBIT) $143

·         Net Earnings After Taxes (NEAT ) $ 66

·         Quick Ratio ((CA-Inventory)/CL)                  2.1 to 1

·         Current Ratio (CA/CL)                                 3.4 to 1

·         Average Collection Period (ACP)               45.60 days

·         Return on Equity (ROE, NEAT/Net Common Equity) 13%

·         Tax rate                                                      25%

On the Liabilities & Equity side, BigCo has only common equity, debt and current operating liabilities.

a.     Find BigCo’s (1) Accounts Receivables, (2) Current Operating Liabilities, (3) Current Assets, (4) Total Assets, (5) Net Common Equity, and (6) Debt. (10 points)

b.    If BigCo managed to reduce its ACP by 15.60 days (i.e., totaling 30 days) while holding other things constant, how much cash could it generate? (10 points).

c.     What is BigCo’s ROIC (post-tax) ? (10 points)


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