Question

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

9. What is the amount of net working capital? (1%)

10. What is the amount of net operating working capital? (1%)

11. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital? (1%)

12. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position? (2%)

Answer 1