《财务管理：理论与实践》（Brigham）的教学PPTCh 04 Show.ppt

Suppose in 2001 fixed assets had been operated at only 75% of capacity. With the existing fixed assets, sales could be $2,667. Since sales are forecasted at only $2,500, no new fixed assets are needed. Capacity sales = Actual sales % of capacity = = $2,667. $2,000 0.75 How would the excess capacity situation affect the 2002 AFN? The projected increase in fixed assets was $125, the AFN would decrease by $125. Since no new fixed assets will be needed, AFN will fall by $125, to $179 - $125 = $54. Q. If sales went up to $3,000, not $2,500, what would the F.A. requirement be? A. Target ratio = FA/Capacity sales = $500/$2,667 = 18.75%. Have enough F.A. for sales up to $2,667, but need F.A. for another $333 of sales: ?FA = 0.1875($333) = $62.4. How would excess capacity affect the forecasted ratios? 1. Sales wouldn’t change but assets would be lower, so turnovers would be better. 2. Less new debt, hence lower interest, so higher profits, EPS, ROE (when financing feedbacks considered). 3. Debt ratio, TIE would improve. 2002 Forecasted Ratios: S02 = $2,500 % of 2001 Capacity 100% 75% Industry BEP 10.00% 11.11% 20.00% Profit Margin 2.27% 2.51% 4.00% ROE 7.68% 8.44% 15.60% DSO 43.20 43.20 32.00 Inv. Turnover 8.33x 8.33x 11.00x F.A. turnover 4.00x 5.00x 5.00x T.A. turnover 2.00x 2.22x 2.50x D/A ratio 40.34% 33.71% 36.00% TIE 4.12x 6.15x 9.40x Current ratio 1.99x 2.48x 3.00x How is NWC performing with regard to its receivables and inventories? DSO is higher than the industry average, and inventory turnover is lower than the industry average. Improvements here would lower current assets, reduce capital requirements, and further improve profitability and other ratios. Improvements in Working Capital Management Before After DSO (days) 43.20 32.00 Accts. rec./Sales 12.00% 8.89% Inventory turnover 8.33x 11.00x Inventory/Sales 12.00% 9.09% Impact of Improvements in Working Capital Management Before After Free cash flow (1999) -$150.0 $0.5 ROIC (NOPAT/C