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Case Study: John & Jon (J&J) Financial Statement Preparation & Analysis You are recently hired as...

Case Study: John & Jon (J&J) Financial Statement Preparation & Analysis

You are recently hired as a senior financial analyst for John & Jon (J&J) and you are in charge of preparing the financial statements and presenting an annual analysis on the board meeting.

Overview of John & Jon’s Balance Sheet

The assets of John & Jon (J&J) in 2017 has both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. J&J only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firm’s current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.

John & Jon’s Income Statement in 2017 (dollars are in millions)

Sales     $15

Operating costs excluding depreciation and amortization              $5

EBITDA $10

Depreciation & Amortization      $0.6

EBIT      $9.4

Interest $0.4

EBT       $9

Taxes (40%)      $3.6

Net Income $5.4

Cash Dividends $2.0

5. What is the amount of company’s inventory? (1%)

6. What is the amount of total liabilities? (1%)

7. What is the amount of total debt? (1%)

8. What is the amount of total capital? (1%)

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Homework Answers

Answer #1

(5) Total Assets = $ 7,5 million and Net Plant and Equipments = $ 5 million

Current Assets = Total Assets - Net Plant and Equipments = 7.5 - 5 = $ 2.5 million

Current Assets = Cash and Cash Equivalents + Account Receivables + Inventory =

Inventory + 1.5 + 0.4 = 2.5

Inventory = $ 0.6 million

(6) Total Liabilities = Long Term Debt + Accounts Payable + Accruals + Notes Payable = 2.5 + 0.4 + 0.6 + 0.5 = $ 4 million

(7) Total Debt = Long-Term Debt + Notes Payable = 2.5 + 0.5 = $ 3 million

(8) Total Capital = Sources used to Finance the Firm = Long-Term Debt + Notes Payable + Total Common Equity = 2.5 + 0.5 + 3.5 = $ 6.5 million

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