1.Is Bob’s Baloney a healthy business? Is the management team doing a good job running the company?
2. Analysis. What evidence of underperformance do you see in your analysis of the ratios for Bob’s ? How does this implicate the current management team?
3. Recommendation. Based on your analysis above, write a recommendation to the management team.
4. Identify three limitations of financial ratios that may have undermined your analysis.Bob's Baloney
Spangler's Financial Analysis of Bob's Baloney
2015
2016
2017
2018
2019
Growth and Returns
Revenue Growth
Return on Assets
Return on Net Assets
Return on Equity
[percentage change in revenue]
[net profit / total assets]
[NOPAT / net assets]
[net profit / shareholders' equity]
Margins
Gross Margin
SG&A Percentage
Operating Margin
Net Profit Margin
Asset Efficiency
Asset Turnover
PPE Turnover
NWC Turnover
AR Days (DSO)
Inv Days (DIO)
AP Days (DPO)
[gross profit / revenue]
[SG&A expenditures / revenue]
[operating profit / revenue]
[net profit / revenue]
[revenue / total assets]
[revenue / net PP&E]
[revenue / net working capital]
[accounts receivable / revenue imes 365 ]
[inventory / COGS imes 365 ]
[accounts payable / COGS imes 365 ]
[debt / (debt + shareholders' equity)]
Leverage
Debt / Total Capital
Summary Accounts (in millions of US dollars)
NOPAT(t=25%), [operating profit tax rate)]
26
16
Net Working Capital
[current assets - current liabilities]
Net Assets
[net working capital + net fixed assets]
137
132
Note: NOPAT is net operating profit after tax; SG&A is selling, general, and administrative expenses; PP&E is net property, plant, and equipment;
NWC is net working capital; AR is accounts receivable; Inv is inventory; COGS is cost of goods sold; AP is accounts payable; DSO is days sales
outstanding; DIO is days inventory outstanding; and DPO is day payables outstanding.
Exhibit 2
Bob's Baloney
Spangler's Financial Analysis of Bob's Baloney
2015
2016
2017
2018
2019
Growth and Returns Revenue Growth [percentage change in revenue] Return on Assets [net profit / total assets] Return on Net Assets [NOPAT / net assets] Return on Equity [net profit / shareholders' equity]
5.5% 15.4% 19.0% 24.2%
-2.6% 9.3% 11.9% 12.6%
13.0% 1.7% 3.5% 4.5%
18.4% 1.1% 2.6% 3.0%
9.5% 1.4% 2.8% 3.9%
Margins Gross Margin SG&A Percentage Operating Margin Net Profit Margin
[gross profit / revenue] [SG&A expenditures / revenue] [operating profit / revenue] [net profit / revenue]
28.1% 9.9% 18.3% 13.7%
26.8% 15.5% 11.3% 8.4%
25.3% 18.3% 7.0% 2.8%
23.8% 19.1% 4.6% 1.6%
22.0% 17.3% 4.7% 2.0%
Asset Efficiency Asset Turnover PPE Turnover NWC Turnover AR Days (DSO) Inv Days (DIO) AP Days (DPO)
[revenue / total assets] [revenue / net PP&E] [revenue / net working capital] [accounts receivable / revenue 365] [inventory / COGS x 365] [accounts payable / COGS x 365]
1.1 2.1 NA 19.2 17.9 32.5
1.1 2.1 NA 19.1 20.7 36.0
0.6 0.8 NA 17.6 19.6 35.8
0.7 0.9 34.0 20.3 21.0 27.8
0.7 0.9 35.8 20.1 20.7 21.2
Leverage Debt / Total Capital
[debt / (debt + shareholders' equity)]
22%
7%
59%
60%
60%
Summary Accounts (in millions of US dollars) NOPAT (t = 25%) [operating profit (1 - tax rate)] Net Working Capital [current assets -- current liabilities] Net Assets [net working capital + net fixed assets]
26 (2) 137
16 (5) 132
11 (1) 312
9 7 329
10 8 346
Note: NOPAT is net operating profit after tax; SG&A is selling, general, and administrative expenses; PP&E is net property, plant, and equipment; NWC is net working capital; AR is accounts receivable; Inv is inventory; COGS is cost of goods sold; AP is accounts payable; DSO is days sales outstanding; DIO is days inventory outstanding; and DPO is day payables outstanding.