See attached fileREAD THIS FIRST Case: APEX CARBON FIBERS Learning Objectives To successfully...

Question

See attached fileREAD THIS FIRST 	Case: APEX CARBON FIBERS 	Learning Objectives 	To successfully apply financial analysis and  	decision making techniques covered in the course 	to a comprehensive case study, and to make  	the relevant observations and recommendations. 		  	Guidelines 	1	Closely examine the questions you have to answer. 	2	Figure out what weekly Guideline Solutions and Cohen Finance Workbook sections you need to review. 	3	Proceed to answer the questions, one-at-a-time, as you refer to the needed explanatory material. 	4	Give yourself enough time to prepare comprehensive answers that show what you learned; edit your 		work before you submit it. Writing craft and grammar counts. 	  	Questions 	Flow Diagram and IS-BS Model are included for your convenience. 	Use answer boxes on the question tabs. Keep each answer inside of its answer box. 	Q1	Using historical financial ratios, judge Apex's performance. 		What information would you need to appraise its business risk and financial risk? Do so to the extent possible. 	Q2	Explain the meaning of Apex's financial statement forecast, i.e., what is the external financing required? 		Can Apex repay the loan, and is the loan within Apex's debt capacity? 	Q3	Calculate Apex's k-wacc. Explain. 	Q4	Calculate NPV, PI, IRR and PP for the proposed robotics project. Then, explain whether or not 	 	Apex should green-light or red-light the proposed investment project. 	Q5	Calculate and explain fully the equity value of the business and whether it could be an LBO target. 	Q6	Is equity financing a reasonable alternative to borrowing? Explain. 	Q7	UNRELATED TO APEX 		Explain to a group of people without a background in finance, using language they can understand and without jargon, 		your opinion about the importance and effectiveness of worldwide financial markets. 		THERE IS NO SINGLE CORRECT ANSWER. 		THE PURPOSE OF THE ASSIGNMENT IS TO DEMONSTRATE				WHAT YOU HAVE LEARNED TO DO IN THIS COURSE. 		USE TEMPLATE RESULTS , CASE FACTS, AND YOUR JUDGMENT. 		THINK LIKE A PROFESSIONAL… NOT LIKE A STUDENT. 		DISPLAY YOUR ABILITY TO THINK CRITICALLY/ANALYTICALLY. 		WRITE PROFESSIONALLY Flow Diagram 	INCOME STATEMENT		BALANCE SHEET				WORKING CAPITAL  	Revenue		ASSETS	LIABILITIES AND EQUITY			Changes spontaneously with revenue 	Cost of sales		Current assets	Current liabilities			What levels of ca, cl, s-t loans? 	Gross profit		Cash 	Trade payables			CAPITAL BUDGETING 	Other operating income		Investments	Other accruals			Which projects to accept? 	Other operating expenses		Trade receivables	Tax liabilities			FINANCING 	   Total cost and expenses		Inventories	Short-term loans, leases			How much debt capacity? 	Operating profit (EBIT)		Non-current assets	Non-current liabilities 	Interest, finance costs		Property, plant & equipment	Loans, debt, leases due after 1 year 	Profit before tax		Investment property	Retirement benefit obligation			COST OF DEBT 	Income tax		Goodwill	Deferred tax liabilities	  	Net profit after tax			   Total non-current liabilities 	Dividends		 	 			K-WACC 	Reinvested in the business			Stockholder's equity (Net worth) 				Preferred stock 	OPERATING LEVERAGE			Common stock	 		COST OF EQUITY 				Additional paid-in-capital			  	FINANCIAL LEVERAGE			Retained earnings			VALUATION 							CASH FLOW    							COST OF CAPITAL IS-BS Model 					FINANCING 	THUMBNAIL SKETCH:						DEBT	EQUITY 	BRIEF ANALYSIS		HISTORICAL RATIOS	I/S & B/S FORECAST		DEBT 	DUPONT RATIOS				EFN 	TIE 	NORMAL DEBT RATIO		WORKING CAPITAL			EQUITY 	STOCK PRICE		I/S, B/S, & RATIOS				EBIT CHART 	MKT CAP 	EXTENDED ANALYSIS 	FULL RATIOS 	   LIQUIDITY 	   LEVERAGE					Income	Risk	Control	Mktblty	Flex.	Timing 	   ASSET USE		CAPITAL BUDGETING 	   PROFITABILITY		OP & CAP NATCF, NPV, IRR, PAYBACK			  	   VALUATION 	   GROWTH 	ANALYSIS STEPS: 	1-HISTORICAL RATIOS 	2-K-WACC					K-WACC 	3-CAPITAL BUDGETING 	4-FORECAST & EFN		VALUATION 	5-EQUITY VALUATION		ENTERPRISE VALUE USING FREE CASH FLOW 	6-FINANCING 			MARKET MULTIPLES: P/E, MV/BV, REV, EBIT Ratio Interpretation 	SAMPLE TABLE 	RATIO / YEAR	2010	2011	% CHANGE	INTERPRETATION	NUMERATOR	DEMONINATOR	  	Liquidity Ratios 	Current ratio	1.6	1.3	-21%	negative, less liquidity	current assets	current liabilities 	Quick ratio	1.1	0.8	-21%	negative, less liquidity	curr assets-inventory	current liabilities 	Days sales in receivables	75.4	56.3	-25%	positive, quicker collections	receivables	revenue/365 days 	Days cost of sales in inventory	59.9	54.0	-10%	positive, faster turnover	inventory	cost of sales/365 days 	Days cost of sales in payables	47.6	65.0	37%	negative, paying more slowly	payables	cost of sales/365 days 	Leverage Ratios 	Long-term debt to total capital	57.9%	45.5%	-21%	positive, less financial risk	l-t leases+loans+debt	l-t leases+loans+debt+equity 	Long-term debt to equity	137.4%	83.5%	-39%	positive, less financial risk	l-t leases+loans+debt	equity 	Times interest earned	1.8	3.8	109%	positive, better coverage	operating profit (EBIT)	finance costs 	Full burden coverage	1.5	3.1	107%	positive, better coverage	oper profit + lease exp	finance costs + (lease exp/[1-tax rate]) 	Efficiency (Asset-Use) Ratios			  	Fixed asset turnover	1.2	1.4	19%	positive, faster turnover	revenue	total non-current assets 	Total asset turnover	0.8	1.0	21%	positive, faster turnover	revenue	total assets 	Profitability Ratios			  	Gross margin	23.9%	34.9%	46%	positive, big improvement	gross profit	revenue 	Operating profit margin	6.8%	11.3%	65%	positive, bigger improvement	operating profit (EBIT)	revenue 	Return on sales	2.7%	8.6%	216%	positive, still bigger improvement	net profit	revenue 	Return on total assets (ROA)	2.2%	8.5%	283%	positive, still bigger improvement	net profit	total assets 	Return on equity (ROE)	6.8%	21.2%	212%	positive, big improvement	net profit	equity 	Return on invested capital (ROIC)	4.7%	9.4%	100%	positive, big improvement	EBIT*I1-tax rate)	total assets 	DuPont Formula			  	DuPont Formula - ROE	6.8%	21.3%	212%		profitability x efficiency x leverage 	  Profitability	2.7%	8.6%	216%	positive, big improvement	net profit	revenue 	  Efficiency	0.8	1.0	21%	positive, better turnover	revenue	total assets 	  Leverage	3.1	2.5	-19%	positive, less financial risk	total assets	equity 	ROE Check	6.8%	21.2%	212%	calculation check to verify row 121	net profit	equity 	Compound Annual Growth Rates 	Revenues		40.8%		 	2010 - 2009	2009 	Gross profit		105.7%		 	2010 - 2009	2009 	Operating profit (EBIT)		131.9%		 	2010 - 2009	2009 	Total assets		16.0%		 	2010 - 2009	2009 About APEX Q1 Q2 FIN'L STATEMENTS&RATIOS 	APEX CARBON FIBERS								ANSWER QUESTIONS BEGINNING AT ROW 70 	Historical and Projected Financial Statements 	Years Ended December 31. Assume today is December 31, 2019 	(000)	2016	2017	2018	2019		2020	2021 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	Sales	71,924	80,115	92,613	106,042		110,284	114,695 	Operating expenses: 	 Production costs and expenses	33,703	38,393	46,492	53,445		55,142	57,348 	 Admin. and selling expenses	16,733	17,787	21,301	24,633		25,365	26,380 	 Depreciation	8,076	9,028	10,392	11,360		15,260	19,160 	    Total operating expenses	58,512	65,208	78,185	89,438		95,767	102,887 	    Operating profit	13,412	14,907	14,428	16,604		14,517	11,808 	 Interest expense	3,487	3,929	6,227	7,614		8,227	8,967 	Earnings before taxes	9,925	10,978	8,201	8,990		6,289	2,841 	Income taxes	2,432	2,690	2,009	2,203		1,541	696 	Net earnings	7,494	8,288	6,192	6,787		4,748	2,145 	Dividends to all common shares	2,000	2,000	2,000	2,000		2,000	2,000 	Retentions of earnings	5,494	6,288	4,192	4,787		2,748	145 	(000)	2016	2017	2018	2019		2020	2021 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	Assets 	Cash	4,816	5,670	5,090	5,795		5,795	5,795 	Accounts receivable	22,148	25,364	28,078	35,486 	Inventories	23,301	27,662	53,828	63,778 	  Total current assets	50,265	58,696	86,996	105,059		5,795	5,795 	Gross property plant & equipt.	64,611	80,153	97,899	115,153		115,153	115,153 	Accumulated depreciation	-4,559	-13,587	-23,979	-35,339		-46,699	-65,859 	Net property plant & equipt.	60,052	66,566	73,920	79,814		68,454	49,294 	Total assets	110,317	125,262	160,916	184,873	 	74,249	55,089 	Liabilities and stockholders' equity: 	Short-term borrowings (bank)	29,002	35,462	69,005	82,275	  	91,226	102,023 	Accounts payable	12,315	12,806	11,890	13,370 	Other accrued liabilities	24,609	26,315	25,150	21,370		21,318	21,318 	Total current liabilities	65,926	74,583	106,045	117,015		112,544	123,341 	Long-term debt	10,000	10,000	10,000	18,200		18,200	18,200 	Shareholders' equity	34,391	40,679	44,871	49,658		52,407	52,551	prev SE+RE 	Total liabilities & stockholders' equity	110,317	125,262	160,916	184,873		183,151	194,092 						EFN			Enter correct formula in G41 and H41 					 		 	 	to calculate EFN for 2020 and 2021 		2016	2017	2018	2019	% change 2016-2019	2020	2021 		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected) 	PROFITABILITY: 	Operating margin	18.6%	18.6%	15.6%	15.7%		13.2%	10.3% 	Tax rate	24.5%	24.5%	24.5%	24.5%		24.5%	24.5% 	Return on sales	10.4%	10.3%	6.7%	6.4%		4.3%	1.9% 	Return on equity	21.8%	20.4%	13.8%	13.7%		9.1%	4.1% 	Return on assets	6.8%	6.6%	3.8%	3.7%		6.4%	3.9% 		 	 	 	 	 	 	  	LEVERAGE:					  	Debt/equity ratio	113.4%	111.8%	176.1%	202.3%		208.8%	228.8% 	Debt/total capital	35.4%	36.3%	49.1%	54.3%		59.7%	61.9% 	EBIT/interest	3.8	3.8	2.3	2.2		1.8	1.3 						  	ASSET USE:					  	Sales/assets	65.2%	64.0%	57.6%	57.4%		148.5%	208.2% 	Sales growth rate	15.0%	11.4%	15.6%	14.5%		4.0%	4.0% 	Assets growth rate	8.0%	13.5%	28.5%	14.9%		-59.8%	-25.8% 	Days sales outstanding	112	116	111	122		120	120 	Days payable outstanding	133	122	93	91		90	90 	Days inventory outstanding	252	263	423	436		435	435 						 			  	LIQUIDITY:					   	Current ratio	0.8	0.8	0.8	0.9		0.1	0.0 	Quick ratio	0.4	0.4	0.3	0.4		0.1	0.0 	Q1a.								  	- Enter inputs in empty cells in the balance sheet (G25, G26, G35, H25, H26, H35). Hint: review Wk 6 guideline solutions.  	- Calculate the % change (yellow highlighted cells). 	- Using historical financial ratios, judge Apex's performance.  	Hint for getting started:  	See sample table in the Ratio Interpretation tab as a quick reference on how to interpret the % change to guide your analysis. 	Then add your comments below each header (Profitability, Leverage, etc.) 	Profitability 	Leverage 	Efficiency (Asset Use) 	Liquidity 	Conclusion 	Q1b. What information would you need to appraise its business risk and financial risk? Do so to the extent possible. 	Financial risk  	Business risk  	Q2.								  	- Calculate EFN in G41 and H41 	- Explain the meaning of Apex's financial statement forecast, i.e, what is the external financing needed (EFN)? 	- Can Apex repay the loan, and is the loan within Apex's debt capacity?  	Use the table in Q6 row 63-71 to calculate debt capacity to answer this question 	SCORING FOR THE EFN PART OF THE QUESTION IS BASED ON YOUR ABILITY TO SIZE-UP THE INFORMATION AND CRAFT AS 	REASONABLE ANSWER ABOUT EFN. PEER DATA 	DATA ON PEER COMPANIES (COMPARABLES) 								Number of 		Percent Sales	Price/				Market	Shares	Last Annual 		from Carbon Fiber	Earnings	 	Book	Book Value	Price	Outstanding	Dividend 	    Name	Production	Ratio	Beta	 Debt/Equity	per Share	per Share	(millions)	per Share 	Peer A	20%	9.0	1.10	0.23	1.24	1.37	9.3	1.82 	Peer B	95%	NMF	1.50	1.72	1.46	6.39	177.2	0.15 	Peer C	90%	18.2	1.70	1.33	7.06	27.48	8.9	none 	Peer D	30%	34.6	1.20	0.00	17.75	75.22	48.3	none 	Peer E	45%	NMF	1.50	0.42	6.95	22.19	371.2	1.57 	Note:  NMF means not a meaningful figure.  This arises when a company's earnings or projected earnings are negative. 												 	 	  												 	 	  												 	 	  												 		  												 		  												 		  												 		  												 		  												 		  												 		  Q3 K-WACC 	WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE COST OF CAPITAL				WEIGHTED AVERAGE

Preeta · Accepted Answer

READ THIS FIRST
	Case: APEX CARBON FIBERS
	Learning Objectives
	To successfully apply financial analysis and 
	decision making techniques covered in the course
	to a comprehensive case study, and to make 
	the relevant observations and recommendations.
		 
	Guidelines
	1	Closely examine the questions you have to answer.
	2	Figure out what weekly Guideline Solutions and Cohen Finance Workbook sections you need to review.
	3	Proceed to answer the questions, one-at-a-time, as you refer to the needed explanatory material.
	4	Give yourself enough time to prepare comprehensive answers that show what you learned; edit your
		work before you submit it. Writing craft and grammar counts.
	 
	Questions
	Flow Diagram and IS-BS Model are included for your convenience.
	Use answer boxes on the question tabs. Keep each answer inside of its answer box.
	Q1	Using historical financial ratios, judge Apex's performance.
		What information would you need to appraise its business risk and financial risk? Do so to the extent possible.
	Q2	Explain the meaning of Apex's financial statement forecast, i.e., what is the external financing required?
		Can Apex repay the loan, and is the loan within Apex's debt capacity?
	Q3	Calculate Apex's k-wacc. Explain.
	Q4	Calculate NPV, PI, IRR and PP for the proposed robotics project. Then, explain whether or not
	 	Apex should green-light or red-light the proposed investment project.
	Q5	Calculate and explain fully the equity value of the business and whether it could be an LBO target.
	Q6	Is equity financing a reasonable alternative to borrowing? Explain.
	Q7	UNRELATED TO APEX
		Explain to a group of people without a background in finance, using language they can understand and without jargon,
		your opinion about the importance and effectiveness of worldwide financial markets.
		THERE IS NO SINGLE CORRECT ANSWER.
		THE PURPOSE OF THE ASSIGNMENT IS TO DEMONSTRATE				WHAT YOU HAVE LEARNED TO DO IN THIS COURSE.
		USE TEMPLATE RESULTS , CASE FACTS, AND YOUR JUDGMENT.
		THINK LIKE A PROFESSIONAL… NOT LIKE A STUDENT.
		DISPLAY YOUR ABILITY TO THINK CRITICALLY/ANALYTICALLY.
		WRITE PROFESSIONALLY
Flow Diagram
	INCOME STATEMENT		BALANCE SHEET				WORKING CAPITAL 
	Revenue		ASSETS	LIABILITIES AND EQUITY			Changes spontaneously with revenue
	Cost of sales		Current assets	Current liabilities			What levels of ca, cl, s-t loans?
	Gross profit		Cash 	Trade payables			CAPITAL BUDGETING
	Other operating income		Investments	Other accruals			Which projects to accept?
	Other operating expenses		Trade receivables	Tax liabilities			FINANCING
	   Total cost and expenses		Inventories	Short-term loans, leases			How much debt capacity?
	Operating profit (EBIT)		Non-current assets	Non-current liabilities
	Interest, finance costs		Property, plant & equipment	Loans, debt, leases due after 1 year
	Profit before tax		Investment property	Retirement benefit obligation			COST OF DEBT
	Income tax		Goodwill	Deferred tax liabilities	 
	Net profit after tax			   Total non-current liabilities
	Dividends		 	 			K-WACC
	Reinvested in the business			Stockholder's equity (Net worth)
				Preferred stock
	OPERATING LEVERAGE			Common stock	 		COST OF EQUITY
				Additional paid-in-capital			 
	FINANCIAL LEVERAGE			Retained earnings			VALUATION
							CASH FLOW   
							COST OF CAPITAL
IS-BS Model
					FINANCING
	THUMBNAIL SKETCH:						DEBT	EQUITY
	BRIEF ANALYSIS		HISTORICAL RATIOS	I/S & B/S FORECAST		DEBT
	DUPONT RATIOS				EFN
	TIE
	NORMAL DEBT RATIO		WORKING CAPITAL			EQUITY
	STOCK PRICE		I/S, B/S, & RATIOS				EBIT CHART
	MKT CAP
	EXTENDED ANALYSIS
	FULL RATIOS
	   LIQUIDITY
	   LEVERAGE					Income	Risk	Control	Mktblty	Flex.	Timing
	   ASSET USE		CAPITAL BUDGETING
	   PROFITABILITY		OP & CAP NATCF, NPV, IRR, PAYBACK			 
	   VALUATION
	   GROWTH
	ANALYSIS STEPS:
	1-HISTORICAL RATIOS
	2-K-WACC					K-WACC
	3-CAPITAL BUDGETING
	4-FORECAST & EFN		VALUATION
	5-EQUITY VALUATION		ENTERPRISE VALUE USING FREE CASH FLOW
	6-FINANCING
			MARKET MULTIPLES: P/E, MV/BV, REV, EBIT
Ratio Interpretation
	SAMPLE TABLE
	RATIO / YEAR	2010	2011	% CHANGE	INTERPRETATION	NUMERATOR	DEMONINATOR	 
	Liquidity Ratios
	Current ratio	1.6	1.3	-21%	negative, less liquidity	current assets	current liabilities
	Quick ratio	1.1	0.8	-21%	negative, less liquidity	curr assets-inventory	current liabilities
	Days sales in receivables	75.4	56.3	-25%	positive, quicker collections	receivables	revenue/365 days
	Days cost of sales in inventory	59.9	54.0	-10%	positive, faster turnover	inventory	cost of sales/365 days
	Days cost of sales in payables	47.6	65.0	37%	negative, paying more slowly	payables	cost of sales/365 days
	Leverage Ratios
	Long-term debt to total capital	57.9%	45.5%	-21%	positive, less financial risk	l-t leases+loans+debt	l-t leases+loans+debt+equity
	Long-term debt to equity	137.4%	83.5%	-39%	positive, less financial risk	l-t leases+loans+debt	equity
	Times interest earned	1.8	3.8	109%	positive, better coverage	operating profit (EBIT)	finance costs
	Full burden coverage	1.5	3.1	107%	positive, better coverage	oper profit + lease exp	finance costs + (lease exp/[1-tax rate])
	Efficiency (Asset-Use) Ratios			 
	Fixed asset turnover	1.2	1.4	19%	positive, faster turnover	revenue	total non-current assets
	Total asset turnover	0.8	1.0	21%	positive, faster turnover	revenue	total assets
	Profitability Ratios			 
	Gross margin	23.9%	34.9%	46%	positive, big improvement	gross profit	revenue
	Operating profit margin	6.8%	11.3%	65%	positive, bigger improvement	operating profit (EBIT)	revenue
	Return on sales	2.7%	8.6%	216%	positive, still bigger improvement	net profit	revenue
	Return on total assets (ROA)	2.2%	8.5%	283%	positive, still bigger improvement	net profit	total assets
	Return on equity (ROE)	6.8%	21.2%	212%	positive, big improvement	net profit	equity
	Return on invested capital (ROIC)	4.7%	9.4%	100%	positive, big improvement	EBIT*I1-tax rate)	total assets
	DuPont Formula			 
	DuPont Formula - ROE	6.8%	21.3%	212%		profitability x efficiency x leverage
	  Profitability	2.7%	8.6%	216%	positive, big improvement	net profit	revenue
	  Efficiency	0.8	1.0	21%	positive, better turnover	revenue	total assets
	  Leverage	3.1	2.5	-19%	positive, less financial risk	total assets	equity
	ROE Check	6.8%	21.2%	212%	calculation check to verify row 121	net profit	equity
	Compound Annual Growth Rates
	Revenues		40.8%		 	2010 - 2009	2009
	Gross profit		105.7%		 	2010 - 2009	2009
	Operating profit (EBIT)		131.9%		 	2010 - 2009	2009
	Total assets		16.0%		 	2010 - 2009	2009
About APEX
Q1 Q2 FIN'L STATEMENTS&RATIOS
	APEX CARBON FIBERS								ANSWER QUESTIONS BEGINNING AT ROW 70
	Historical and Projected Financial Statements
	Years Ended December 31. Assume today is December 31, 2019
	(000)	2016	2017	2018	2019		2020	2021
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	Sales	71,924	80,115	92,613	106,042		110,284	114,695
	Operating expenses:
	 Production costs and expenses	33,703	38,393	46,492	53,445		55,142	57,348
	 Admin. and selling expenses	16,733	17,787	21,301	24,633		25,365	26,380
	 Depreciation	8,076	9,028	10,392	11,360		15,260	19,160
	    Total operating expenses	58,512	65,208	78,185	89,438		95,767	102,887
	    Operating profit	13,412	14,907	14,428	16,604		14,517	11,808
	 Interest expense	3,487	3,929	6,227	7,614		8,227	8,967
	Earnings before taxes	9,925	10,978	8,201	8,990		6,289	2,841
	Income taxes	2,432	2,690	2,009	2,203		1,541	696
	Net earnings	7,494	8,288	6,192	6,787		4,748	2,145
	Dividends to all common shares	2,000	2,000	2,000	2,000		2,000	2,000
	Retentions of earnings	5,494	6,288	4,192	4,787		2,748	145
	(000)	2016	2017	2018	2019		2020	2021
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	Assets
	Cash	4,816	5,670	5,090	5,795		5,795	5,795
	Accounts receivable	22,148	25,364	28,078	35,486		35,486	35,485
	Inventories	23,301	27,662	53,828	63,778		63,778	63,777
	  Total current assets	50,265	58,696	86,996	105,059		105,059	105,057
	Gross property plant & equipt.	64,611	80,153	97,899	115,153		115,153	115,153
	Accumulated depreciation	-4,559	-13,587	-23,979	-35,339		-46,699	-65,859
	Net property plant & equipt.	60,052	66,566	73,920	79,814		68,454	49,294
	Total assets	110,317	125,262	160,916	184,873	 	173,513	154,351
	Liabilities and stockholders' equity:
	Short-term borrowings (bank)	29,002	35,462	69,005	82,275	  	91,226	102,023
	Accounts payable	12,315	12,806	11,890	13,370		13,370	13,369
	Other accrued liabilities	24,609	26,315	25,150	21,370		21,318	21,318
	Total current liabilities	65,926	74,583	106,045	117,015		125,914	136,710
	Long-term debt	10,000	10,000	10,000	18,200		18,200	18,200
	Shareholders' equity	34,391	40,679	44,871	49,658		52,407	52,551	prev SE+RE
	Total liabilities & stockholders' equity	110,317	125,262	160,916	184,873		196,521	207,461
						EFN	-3	-4	Enter correct formula in G41 and H41
					 		 	 	to calculate EFN for 2020 and 2021
		2016	2017	2018	2019	% change 2016-2019	2020	2021
		(Actual)	(Actual)	(Actual)	(Actual)		(Projected)	(Projected)
	PROFITABILITY:
	Operating margin	18.6%	18.6%	15.6%	15.7%	-16.0%	13.2%	10.3%
	Tax rate	24.5%	24.5%	24.5%	24.5%	0.0%	24.5%	24.5%
	Return on sales	10.4%	10.3%	6.7%	6.4%	-38.6%	4.3%	1.9%
	Return on equity	21.8%	20.4%	13.8%	13.7%	-37.3%	9.1%	4.1%
	Return on assets	6.8%	6.6%	3.8%	3.7%	-46.0%	2.7%	1.4%
		 	 	 	 		 	 
	LEVERAGE:
	Debt/equity ratio	113.4%	111.8%	176.1%	202.3%	78.4%	208.8%	228.8%
	Debt/total capital	35.4%	36.3%	49.1%	54.3%	53.7%	55.7%	57.9%
	EBIT/interest	3.8	3.8	2.3	2.2	-43.3%	1.8	1.3
	ASSET USE:
	Sales/assets	65.2%	64.0%	57.6%	57.4%	-12.0%	63.6%	74.3%
	Sales growth rate	15.0%	11.4%	15.6%	14.5%	-3.3%	4.0%	4.0%
	Assets growth rate	8.0%	13.5%	28.5%	14.9%	86.1%	-6.1%	-11.0%
	Days sales outstanding	112	116	111	122	8.7%	120	120
	Days payable outstanding	133	122	93	91	-31.5%	90	90
	Days inventory outstanding	252	263	423	436	72.6%	435	435
									 
	LIQUIDITY:
	Current ratio	0.8	0.8	0.8	0.9	17.8%	0.8	0.8
	Quick ratio	0.4	0.4	0.3	0.4	-13.7%	0.3	0.3
	Q1a.								 
	- Enter inputs in empty cells in the balance sheet (G25, G26, G35, H25, H26, H35). Hint: review Wk 6 guideline solutions. 
	- Calculate the % change (yellow highlighted cells).
	- Using historical financial ratios, judge Apex's performance. 
	Hint for getting started: 
	See sample table in the Ratio Interpretation tab as a quick reference on how to interpret the % change to guide your analysis.
	Then add your comments below each header (Profitability, Leverage, etc.)
	Profitability
	The profitability position of the company is not good as the ratios hjave fallen between 2016 to 2019 and the company need to increase the profits in order to sustain in the long run. 
	Leverage
	The leverage position of the company is also not good since there has been constant increase in the debt and in the long run, the company will face difficulty in paying off the interests, which is also evident as EBIt is falling compared to interest over the year. The leverage position also need to be improved.
	Efficiency (Asset Use)
	Even though there is a growth in the asset value yet the growth in sales is not at par with that. In fact the value of sale showed a decreasing trend in comparison to asset. The payable ratio has fallen showing worsening of fiancial situation of the organization. The invntory ratio also increased considerably showing that the company mainatained much more inventory than required. The only positive ratio was debtors payable. But overall the company is not operating efficently. 
	Liquidity
	Both current ratio as well as quick ratio are far below the ideal level, which is 2 for current ratio and 1 for quick ratio. The company will gface difficulty in paying off its short term obligations and need to improve the liquidity position.
	Conclusion
	None of the ratios of the company is positive and so it is not at a good fiancial position and its performance is also not good. 
	Q1b. What information would you need to appraise its business risk and financial risk? Do so to the extent possible.
	Financial risk 
	The financial risk can be measured by lverage and liquidity ratio that is if the company is being able to pay off both short term as well as long term loan. As evident from the ratio, the company is at financial risk.  
	Business risk 
	The operation of the business should be efefctive and efficent. The effiicency ratios are an indicator for that. As these ratios indicate  hoe effciently the company is using its assets and is generating revenue. These ratios are also not good for the company. 
	Q2.								 
	- Calculate EFN in G41 and H41
	- Explain the meaning of Apex's financial statement forecast, i.e, what is the external financing needed (EFN)?
	- Can Apex repay the loan, and is the loan within Apex's debt capacity? 
	Use the table in Q6 row 63-71 to calculate debt capacity to answer this question
	SCORING FOR THE EFN PART OF THE QUESTION IS BASED ON YOUR ABILITY TO SIZE-UP THE INFORMATION AND CRAFT AS
	REASONABLE ANSWER ABOUT EFN.
	The company requires external financing of at least $200,000 and the amount is within the debt paying capacity of the organization. It can repay the loans.
PEER DATA
	DATA ON PEER COMPANIES (COMPARABLES)
								Number of
		Percent Sales	Price/				Market	Shares	Last Annual
		from Carbon Fiber	Earnings	 	Book	Book Value	Price	Outstanding	Dividend
	    Name	Production	Ratio	Beta	 Debt/Equity	per Share	per Share	(millions)	per Share
	Peer A	20%	9.0	1.10	0.23	1.24	1.37	9.3	1.82
	Peer B	95%	NMF	1.50	1.72	1.46	6.39	177.2	0.15
	Peer C	90%	18.2	1.70	1.33	7.06	27.48	8.9	none
	Peer D	30%	34.6	1.20	0.00	17.75	75.22	48.3	none
	Peer E	45%	NMF	1.50	0.42	6.95	22.19	371.2	1.57
	Note:  NMF means not a meaningful figure.  This arises when a company's earnings or projected earnings are negative.

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