FIN3461 Financial Analysis
Course Test 2 – F15 M2
Name: ______
I certify I have fully complied with the SPC integrity standards
(5) 1. What is the value of Liquidity and its measures to Investors and bankers?
(5) 2. Your firm has been approached evaluate a 3 year Pro-Forma Financial plan for a firm. What are
the three most essential interacting variables you wish to examine? And what do they represent?
(5) 3. Using the Banker’s Direct Statement of Cash Flows -
a) What is the most important measure? Why?
b) What is the second most important measure? Why?
(5) 4. You have been asked to look at a firm’s accounting statements in order to assess the firm’s
future performance and outlook. Is this an effective technique? Specifically what specific steps &
practices would you use to go about assessing this firm?
Questions #5 through #11 involve the evaluation of Davis & Howard, Inc. They have approached you firm for a Loan. Attached are copies of the Davis & Howard Income Statements, Balance Sheets, and Statement of Changes in Cash Flows – that are to be used in your evaluations.
(5) 5. Measure and assess the Cash Conversion Cycle for 2011 and 2012. What are the cycle’s
dynamics in 2011, 2012? What are the firm’s short-term needs? What are the longer term
considerations?
(10) 6. Prepare a Statement of Cash Flows – FASB95 version for 2012
(15) 7. Prepare a Statement of Cash Flows – Bankers version for 2012
(5) 8. Conduct an Altman’s Z-Score for 2012. What is your outlook for the firm and why?
(7) 9. Are the firm’s Cash Flows from Operations sufficient to satisfy the short-term debt? How
sufficient are they?
(8) 10. What is your assessment of the Financial Flexibility of the firm in 2012?
(15) 11. Would you consider Davis & Howard to be a reasonable loan or investment candidate?
Why / Why not? Be very specific.
(15) 12. Subject to the following provisions, prepare a Cash Budget for Brown & Sons. Based on your
results:
a. Would you provide the firm with a 1 year Line of Credit (LOC)?
b. What is the maximum amount of the LOC?
c. What is the payback date requirement?
Cash Budget provisions: To evaluate the Brown & Sons request you must prepare a Cash Budget for the next year using the following criteria.
1. The firm’s Sales Collection schedule has been historically consistent and is expected to remain the same into the next year. That schedule is: 15% in current month; 50% in next month; and 35% in the following month.
2. The firm purchases production materials 1 month prior to the sale – and the cost of the purchase is 55% of the expected sale amount.
3. Brown & Sons A/P – trade credit policy is to pay 30% of purchases immediately; 65% in the next month; and the remaining 5% in the following month.
4. Production expenses are 25% of the current month’s sales.
5. Brown & Sons opening cash balance at the start of Jan in the forecast year will be $10,000.
6. Brown & Sons are required to maintain a minimum cash balance of $7,000