BUSN 6021: Corporate Finance 1 TRU Open Learning Case Study 1: Financial Statement Analysis Introduction: Gemini Electronics Sarah McIvor, CA, a junior partner with Price Waterhouse Coopers, has been selected to conduct a financial rev
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BUSN 6021: Corporate Finance
1
TRU Open Learning
Case Study 1: Financial Statement Analysis
Introduction: Gemini Electronics
Sarah
McIvor,
CA,
a
junior
partner
with
Price
Waterhouse
Coopers,
has
been
selected
to
conduct
a
financial
review
of
Gemini
Electronics
Ltd.
Gemini
is
an
“up
‐
start”
American
electronics
company
who
recently
went
public
and
now
wants
to
expand
its
business
to
rival
the
major
Korean
and
Japanese
producers.
Before
the
company
finalizes
any
expansion
plans,
Dr.
Wang,
the
founder,
feels
it
is
prudent
to
conduct
an
independent
evaluation
of
Gemini’s
financial
condition.
The
two
‐
page
evaluation
memo
should
be
divided
into
sections
entitled
liquidity,
asset
management,
long
‐
term
debt
paying
ability,
profitability,
and
recommendations.
It
should
be
single
‐
spaced,
11
‐
point
Arial
font
with
0.7
inch
margins.
All
headings
should
be
in
12
‐
point
bold
font.
In
addition
to
the
two
‐
page
memo,
the
following
financial
exhibits
for
2005
through
2009
should
be
included:
ratio
table
vertical
analysis
of
income
statements
and
balance
sheets
horizontal
analysis
(index
numbers)
of
income
statements
and
balance
sheets
cash
flow
statements
(2006
through
2009)
five
‐
part
analysis
of
ROE
All
ratios
should
be
calculated
based
on
year
‐
end
totals
only—no
averages
should
be
used.
The
specific
ratios
to
be
used
include
the
following:
2005
2006
2007
2008
2009
Industry
Average
Liquidity
Current
ratio
Cash
ratio
Asset
Management
Parts
inventory
turnover
in
days
2
Case Study 1: Financial Statement Analysis
TRU Open Learning
2005
2006
2007
2008
2009
Industry
Average
Work
‐
in
‐
progress
turnover
in
days
Finished
goods
turnover
in
days
A/R
turnover
in
days
A/P
turnover
in
days
Cash
conversion
cycle
Fixed
assets
turnover
Total
asset
turnover
Long
‐
term
debt
paying
ability
Debt
Ratio
Long
‐
term
debt
to
total
capitalization
Times
Interest
Earned
Cash
flow
coverage
Profitability
Gross
margin
Operating
profit
margin
Net
profit
margin
ROA
ROE
BUSN 6021: Corporate Finance
3
TRU Open Learning
Analysis of ROE
EBIT/Sales EBT/EBIT NI/EBT
Total Asset
Turnover
Debt
Ratio
ROE
2005
2006
2007
2008
2009
Evaluation Rubric
The
following
are
the
grading
criteria
for
Case
Study
1.
Total:
______
/
100
Letter
Grade:
_________
Accuracy of Financial Data (25% of grade)
Ratio
table
/10
Vertical/horizontal
analysis
/5
Cash
flow
statements
/5
5
‐
part
analysis
of
ROE
/5
Note
:
One
mark
is
deducted
for
each
calculation
error.
4
Case Study 1: Financial Statement Analysis
TRU Open Learning
Thoroughness of Analysis (50% of grade)
Liquidity
/8
Asset
management
/12
Long
‐
term
debt
paying
ability
/6
Profitability
/10
Recommendations
/14
Memo Format and Writing Qu
ality (25% of grade)
Memo
layout
/5
Grammatical
and
spelling
errors
/10
Writing
style
/10
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