Quickfix Auto Parts
1. How does Quickfix’s average compound growth rate in sales compare with its earnings growth rate over the past five years?
Quickfix’s sales have increased by an average compound rate of 14% per year over the past five years. In comparison, its net income has declined from over $16,600 in 2000, to a loss of $102 in 2004.
2. Which statements should Juan refer to and which should he construct so as to develop a fair assessment of the firm’s financial condition? Explain why?
Juan should refer to the income statement and the balance sheet over the past 3-5 year period. In addition, he should prepare a cash flow statement, common size income statement and common size balance sheet. The accounting statements provide the raw data from which the other statements can be prepared. The cash flow statement helps determine where the cash came from and where it was spent during a year. The common size statements provide useful information regarding the relative trends of the various assets, liabilities, revenue sources, and expense items. They also help the analyst make meaningful comparisons between firms of varying sizes.
3. What calculations should Juan do in order to get a good grasp of what is going on with Quickfix’s performance?
Juan should calculate the various liquidity, leverage, profitability, activity, and coverage ratios for at least a three-year period. In addition, a Du Pont analysis of the return on equity will help determine what has affected the profitability of the company.
4. Juan knows that he should compare Quickfix’s condition with an appropriate benchmark. How should he go about obtaining the necessary comparison data?
Based on Quickfix’s industry classification code, Juan should collect industry averages of the key financial ratios. Some useful sources for industry ratios include: Value Line, Moody’s, Standard & Poor, and Dun & Bradstreet. In addition to the industry average, the industry leaders (within the size category)
Quickfix’s sales have increased by an average compound rate of 14% per year over the past five years. In comparison, its net income has declined from over $16,600 in 2000, to a loss of $102 in 2004.
2. Which statements should Juan refer to and which should he construct so as to develop a fair assessment of the firm’s financial condition? Explain why?
Juan should refer to the income statement and the balance sheet over the past 3-5 year period. In addition, he should prepare a cash flow statement, common size income statement and common size balance sheet. The accounting statements provide the raw data from which the other statements can be prepared. The cash flow statement helps determine where the cash came from and where it was spent during a year. The common size statements provide useful information regarding the relative trends of the various assets, liabilities, revenue sources, and expense items. They also help the analyst make meaningful comparisons between firms of varying sizes.
3. What calculations should Juan do in order to get a good grasp of what is going on with Quickfix’s performance?
Juan should calculate the various liquidity, leverage, profitability, activity, and coverage ratios for at least a three-year period. In addition, a Du Pont analysis of the return on equity will help determine what has affected the profitability of the company.
4. Juan knows that he should compare Quickfix’s condition with an appropriate benchmark. How should he go about obtaining the necessary comparison data?
Based on Quickfix’s industry classification code, Juan should collect industry averages of the key financial ratios. Some useful sources for industry ratios include: Value Line, Moody’s, Standard & Poor, and Dun & Bradstreet. In addition to the industry average, the industry leaders (within the size category)