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Computron Industries Financial Crisis Analysis

Jenny Cochran was hired as assistant to the chairman of Computron Industries, a manufacturer of computer components that had recently expanded production capacity, opened new sales offices, and launched an advertising campaign. However, the expansion was not successful - suppliers were unpaid, the bank was threatening to cut off credit, and the president was at risk of being fired. Cochran was tasked with helping the retired chairman and largest shareholder, Gary Meissner, analyze the company's financial statements to understand the effects of the expansion on sales, income, and the balance sheet so they could stabilize the business.

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886 views3 pages

Computron Industries Financial Crisis Analysis

Jenny Cochran was hired as assistant to the chairman of Computron Industries, a manufacturer of computer components that had recently expanded production capacity, opened new sales offices, and launched an advertising campaign. However, the expansion was not successful - suppliers were unpaid, the bank was threatening to cut off credit, and the president was at risk of being fired. Cochran was tasked with helping the retired chairman and largest shareholder, Gary Meissner, analyze the company's financial statements to understand the effects of the expansion on sales, income, and the balance sheet so they could stabilize the business.

Uploaded by

Patrick Romero
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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FinM 8 Case Study #4

Jenny Cochran, a graduate of the University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components. 'The company doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Computrons results were not satisfactory, to put it mildly. Its board of directors, which consisted of its president and vice-president plus its major stockholders (who were all local businessman) was most upset when directors learned how the expansion was going. Suppliers were being paid late and were unhappy, and the bank was complaining about the deteriorating situation and threatening to cut off credit. As a result, Robert Edwards, Computrons president, was informed that changes would have to be madeand quicklyor he would be fired. At the boards insistence, Jenny Cochran was given the job of assistant to Gary Meissner, a retired banker who was Computrons chairman and largest stockholder. Meissner agreed to give up a few of his golfing days and to help nurse the company back to health, with Cochrans assistance. Cochrane began by gathering financial statements and other data. She had to know the effects of expansion to sales, net income and asset side of the balance sheet.
Computron's Income Statement 2011 INCOME STATEMENT Net sales Cost of Goods Sold Other Expenses Depreciation and amortization Total Operating Costs Earnings before interest and taxes (EBIT) Less interest Earnings before taxes (EBT) Taxes (40%) Net Income $3,432,000 $2,864,000 $340,000 $18,900 $3,222,900 $209,100 $62,500 $146,600 $58,640 $87,960 2012 $5,834,400 $4,980,000 $720,000 $116,960 $5,816,960 $17,440 $176,000 -$158,560 -$63,424 -$95,136

Dividends Tax rate

$22,000 40%

$11,000 40%

Computron's Balance Sheets 2011 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Gross fixed assets Less: Accumulated depreciation Net plant and equipment Total assets Liabilities and equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Common Stock Retained Earnings Total Equity Total Liabilites and Equity $9,000 $48,600 $351,200 $715,200 $1,124,000 $491,000 $146,200 $344,800 $1,468,800 2012 $7,282 $20,000 $632,160 $1,287,360 $1,946,802 $1,202,950 $263,160 $939,790 $2,886,592

$145,600 $200,000 $136,000 $481,600 $323,432 $460,000 $203,768 $663,768 $1,468,800

$324,000 $720,000 $284,960 $1,328,960 $1,000,000 $460,000 $97,632 $557,632 $2,886,592

Computron has a 10% cost of capital (WACC). Do you think Computrons growth added value?

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