Analysis, Evaluation, and Benchmarking
The financial team has been properly selected and charged to proceed with their analysis of EEV’s financial statements. In the course of their evaluation, they will be assessing the firm’s operating performance, benchmarking their competitors, and looking at the industry using financial ratios as their source of measurement. However, the chief executive officer (CEO) of Electronic Equipment USA agrees with numerous practitioners who promote the use of nonfinancial measures as well as financial measurements to evaluate the performance of a given firm. Nevertheless, Tony agrees that nonfinancial measurements can be valuable, and he tends to support the premise that when evaluating operating performance, benchmarking competitors, and comparing industry results, nonfinancial measurements have little measurable value.
The CEO of the parent company agrees with numerous practitioners who promote the use of nonfinancial measures as well as financial measurements to evaluate the performance of a given firm. Nevertheless, Tony agrees that nonfinancial measurements can be valuable, and he tends to support the premise that when evaluating operating performance, benchmarking competitors, and comparing industry results, nonfinancial measurements have little measurable value.
Tony has asked you to present a position paper comparing the effectiveness and reliability of using financial measures as opposed to nonfinancial measures. Include the following:
- Provide an analysis of the utilization of assets in terms of efficiency (or inefficiency).
- What are measurements associated with returns and activity ratios?
- Explain why you selected each specific measurement.
- Then, review the electronic equipment industry using financial ratios.
- Assess the firm’s operating performance against these ratios.
- Research the financial reports of 1 company in the electronic equipment industry, and compare it with the performance of Electronic Equipment Venture.
- Include an Excel spreadsheet to support your analysis.
- Use this information to support your position, and compare the effectiveness and reliability of using financial measures as opposed to nonfinancial measures.
Electronic Equipment Venture
Balance Sheet
(In Thousands)
2008 2009 2010 Fcst
Assets
Cash 300 130 100
Accounts Receivables 5400 6700 8800
Inventory 6700 9000 12000
Total Current Assets 12400 15830 20900
Net Plant & Equipment 1500 1530 1700
Total Assets 13900 17360 22600
Liabilities
Accounts Payables 3000 3100 4800
Notes Payables 450 600 1200
Accured Taxes 300 350 900
Current portion of long-term Debt 200 200 200
Total Current Liabilities 3950 4250 7100
Long-term Debt 1800 1700 1600
Shareholders equity 8150 11410 13900
Total Liabilities and Net Worth 13900 17360 22600
Income statement
Electronic Equipment Venture
Income Statement
Thousands
2008 2009 2010 (Fsct)
Net Sales 98800 108000 113500
Cost of good sold
Total cost of good sold 68500 80250 85425
Gross Profit 30300 27750 28075
% 31% 26% 25%
Expenses
General & Administrative 3500 5300 5700
Marketing 7500 8500 9000
Operating Expense 9900 10610 11120
Total Expenses 20900 24410 25820
Income Before Taxes 9400 3340 2255
Taxes 3760 1336 902
Net Income 5640 2004 1353
Headcount
Direct 2080 2400 2500
Indirect 320 350 400
Total Headcount 2400 2750 2900
Products 2008 2009 2010 Fcst
Sales Margin % Sales Margin % Sales Margin %
Electronic Equipment
Television 4000 1000 25% 3500 900 26% 5000 1045 21%
Computers 5000 2400 48% 5200 2300 44% 7600 3300 43%
Medical 2300 1500 65% 3500 2000 57% 4000 1800 45%
Automotive 15000 3200 21% 16000 2800 18% 15400 3000 19%
Electronic Equipment Total 26300 8100 31% 28200 8000 28% 32000 9145 29%
Electronic Equipment Parts
Television 12000 3200 27% 13000 3050 23% 12000 2230 19%
Computers 44500 13000 29% 50000 10500 21% 48000 10500 22%
Medical 6000 3500 58% 7000 3700 53% 7500 3700 49%
Automotive 10000 2500 25% 9800 2500 26% 14000 2500 18%
Electronic Equipment Parts Total 72500 22200 31% 79800 19750 25% 81500 18930 23%
Total 98800 30300 31% 108000 27750 26% 113500 28075 25%
Use Excel spreadsheet.
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