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Homework 1

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Susan Turner
Homework # 1

1. The free cash flow for 2014 is $373,584 using the EBDA model which states that EBDA = net income + depreciation + amortization. The free cash flow for 2014 is $453,584 using the EBITDA model which states that EBITDA = net income + interest + depreciation + amortization. 2. If depreciation doubled taxable income would fall and taxes would be decreased. So your net income would decrease but net cash flow would increase. 3. The quick ratio for 2014 is .9. Quick ratio = ( current assets – inventories)/ current liabilities.
Quick ratio = ( 2,680,112 – 1,716,480)/ 1,039,800 = .9. The current ratio for 2014 is 2.5. Current ratio = current assets/ current liabilities 2,680,112 / 1,039,800 = 2.5. The higher the current ratio the more capable the company is of paying its obligations as it has a larger proportion of asset value relative to the value of its liabilities. The higher the quick ratio the better the company’s liquidity position. The company’s liquidity position in 2013 was very low when compared to 2012 and 2014 and against the industry average. 4. ROE = (net income / pretax profit) x ( pretax profit / EBIT) x (EBIT / sales) x (sales / assets) x (assets / equity). ROE = (253,584 / 422,640) x ( 422,640 / 502, 640) x (502,640 / 7,035,600) x (7,035,600 / 2,680,112) x (2,680,112 / 1,977,152). ROE = .6 x .8408403629 x .0714423788 x 2.6251141743 x 1.3555417085. ROE = .1282572104 or 12.8%. The firms major strengths are its sales and equity. The firms major weaknesses are its net income and pretax…...

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