Use the Excel spreadsheet provided to conduct a financial analysis of Gemini Electronics. Use this analysis to inform your decisions about the company. Assuming the role of Sarah McIv
see the case study and also financial ratio and make recommendations and some ratios as well as see the requirement in case study guidance
Gemini Electronics Case Analysis
Use the Excel spreadsheet provided to conduct a financial analysis of Gemini Electronics. Use this analysis to inform your decisions about the company. Assuming the role of Sarah McIvor, CA, prepare a 2-3 page memorandum that analyzes the financial condition of Gemini Electronics and makes recommendations relating to the company’s desired expansion. The memo should be divided into sections describing:
· Liquidity – Use the current and cash ratios to evaluate Gemini’s ability to cover their short-term liabilities (up to 12 months). As compared to industry averages, what do these ratios tell you about Gemini’s financial position and how might that influence its expansion capability?
· Asset management – Consider the various inventory ratios, A/R and A/P ratios, cash conversion cycle, and asset turnover. Do these support Gemini’s desire to expand? If so, how? If not, why not?
· Long-term debt paying ability – Examine Gemini’s debt and long-term debt to total capitalization ratios. What do these tell about Gemini’s use of debt vs. equity to fuel its growth and its ability to be sustainable going forward? Also consider Gemini’s TIE and cash flow coverage ratios. How do all these ratios impact Gemini’s expansion potential?
· Profitability – Use the three profit margin ratios and items in the horizontal and vertical income statement and balance sheet to evaluate Gemini’s performance. Look also at ROA and ROE as compared to industry averages.
· Recommendations regarding Gemini’s growth potential
· What recommendations do you have for Gemini related to expanding product lines?
· What recommendations do you have regarding their distribution in the USA and outside the USA?
· What recommendations do you have regarding use of capital (R&D, marketing, reducing days to pay A/P, potential acquisitions, etc.) and sources of capital (debt vs. equity)?
A few online resources to help you calculate and understand these ratios are found below. There are other online resources, as well, but these are a good start.
· https://www.investopedia.com/terms/r/ratioanalysis.asp
· https://www.accountingcoach.com/financial-ratios/outline
· https://corporatefinanceinstitute.com/assets/financial-ratios-definitive-guide.pdf
Important note regarding industry average ROA.
The industry average ROA in the Excel spreadsheet is correct. The industry average on page 7 of your case study is a typo.
The main objective of the case analysis is the decision regarding growth. However, that decision is highly influenced by the company’s financial performance and the story (information) that the data tells.
New due date: Thursday, Dec. 7 by 5:00 p.m.
You will be graded on the following:
· Accuracy of your financial calculations (ratios, analysis) – 25%
· Accurate analysis of liquidity, asset management, debt repayment, and profitability – 30%
· Appropriateness of and support for your recommendations – 30%
· Spelling and grammar – 15%
Do your own work. Do NOT use ChatGPT or any other AI tools for your calculations, analysis, or recommendations. Doing so will result in a grade of 0 for the Case Study Analysis section of this course and likely failure in the course.
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ratios
| 2005 | 2006 | 2007 | 2008 | 2009 | Industry Average | |
| Current Ratio | 2.84 | |||||
| Cash Ratio | 0.05 | |||||
| Parts Inventory Turnover in Days | 32.26 | |||||
| Work In Progress Turnover in Days | 7.89 | |||||
| Final Inventory Turnover in Days | 188.33 | |||||
| A/R Turnover in Days | 30.44 | |||||
| A/P Turnover in Days | 66.11 | |||||
| Cash Conversion Cycle | 192.81 | |||||
| Fixed Assets Turnover | 2.42 | |||||
| Total Assets Turnover | 1 | |||||
| Debt Ratio | 0.5 | |||||
| LT Debt Total Capitalization | ||||||
| Times Interest Earned | 3.21 | |||||
| Cash Flow Coverage | ||||||
| Gross Profit Margin | 38% | |||||
| Operating Profit Margin | 7.41% | |||||
| Net Profit Margin | 3.32% | |||||
| ROA | 2.16% | |||||
| REO | 6.60% |
vertical analysis
| 2005 | 2006 | 2007 | 2008 | 2009 | Industry Average | |
| Sales | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 100 |
| COGS | 62 | |||||
| Gross Profit | 38 | |||||
| Operating Costs | ||||||
| Selling & Distribution | 10.89 | |||||
| R&D | 7.01 | |||||
| Administration | 8.34 | |||||
| Depreciation | 4.35 | |||||
| Operating Profit | 7.41 | |||||
| Interest | 2.32 | |||||
| EBT | 5.1 | |||||
| Taxes | -1.79 | |||||
| Net Income | 3.32 | |||||
| 2005 | 2006 | 2007 | 2008 | 2009 | Industry Average | |
| Cash | 4.54 | |||||
| A/R | 8.34 | |||||
| Parts Inventory | 5.48 | |||||
| WIP Inventory | 1.34 | |||||
| Finished Goods Inventory | 31.99 | |||||
| Total Current Assets | 51.69 | |||||
| Land, Plant & Equip | 41.34 | |||||
| Other Assets | 6.97 | |||||
| Total Assets | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 100 |
| A/P | 11.23 | |||||
| Current Portion of LT Debt | 7 | |||||
| Total Current Liabilities | 18.23 | |||||
| Long-term Debt | 31.5 | |||||
| Shareholders' Equity | 50.27 | |||||
| Total Liabilities & Equity | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 | 100 |
horizontal analysis
| 2005 | 2006 | 2007 | 2008 | 2009 | |
| Sales | 2,142,659,000 | 5,413,625,000 | 8,671,715,000 | 12,175,476,500 | 13,664,714,160 |
| COGS | 1,323,957,000 | 3,120,000,500 | 5,032,513,200 | 7,886,796,000 | 8,974,149,576 |
| Gross Profit | 818,702,000 | 2,293,624,500 | 3,639,201,800 | 4,288,680,500 | 4,690,564,584 |
| Operating Costs | |||||
| Selling & Distribution | 212,340,640 | 545,980,400 | 854,300,000 | 934,532,230 | 1,001,234,530 |
| R&D | 93,640,450 | 220,340,340 | 365,660,340 | 476,350,230 | 785,774,340 |
| Administration | 95,003,300 | 405,340,300 | 832,740,300 | 999,453,230 | 980,340,500 |
| Depreciation | 81,414,429 | 122,465,588 | 187,929,165 | 288,216,088 | 394,440,051 |
| Operating Profit | 336,303,182 | 999,497,873 | 1,398,571,995 | 1,590,128,722 | 1,528,775,163 |
| Interest | 53,251,456 | 145,434,234 | 288,898,584 | 277,686,944 | 329,923,700 |
| EBT | 283,051,726 | 854,063,638 | 1,109,673,411 | 1,312,441,778 | 1,198,851,462 |
| Taxes | 99,068,104 | 298,922,273 | 388,385,694 | 459,354,622 | 419,598,012 |
| Net Income | 183,983,622 | 555,141,365 | 721,287,717 | 853,087,156 | 779,253,450 |
| 2005 | 2006 | 2007 | 2008 | 2009 | |
| Cash | 310,630,300 | 790,419,373 | 1,437,227,573 | 1,366,526,361 | 1,413,474,400 |
| A/R | 316,972,950 | 758,988,750 | 1,201,094,250 | 1,328,523,975 | 1,503,560,340 |
| Parts Inventory | 253,578,360 | 607,191,000 | 960,875,400 | 1,062,819,180 | 1,201,345,530 |
| WIP Inventory | 26,789,180 | 45,354,460 | 66,650,675 | 75,640,210 | 89,575,400 |
| Finished Goods Inventory | 359,340,630 | 960,187,250 | 1,451,230,215 | 1,605,660,505 | 1,805,340,520 |
| Total Current Assets | 1,267,311,420 | 3,162,140,833 | 5,117,078,113 | 5,439,170,231 | 6,013,296,190 |
| Land, Plant & Equip | 710,727,625 | 812,956,891 | 1,317,388,220 | 2,281,077,095 | 3,363,891,508 |
| Other Assets | 103,416,660 | 411,698,984 | 561,903,428 | 601,083,781 | 580,509,006 |
| Total Assets | 2,081,455,705 | 4,386,796,708 | 6,996,369,761 | 8,321,331,107 | 9,957,696,704 |
| A/P | 422,630,600 | 1,011,985,000 | 1,305,530,320 | 1,509,430,300 | 1,564,430,450 |
| Current Portion of LT Debt | 147,920,710 | 341,394,916 | 607,184,919 | 651,847,287 | 785,532,620 |
| Total Current Liabilities | 570,551,310 | 1,353,379,916 | 1,912,715,239 | 2,161,277,587 | 2,349,963,070 |
| Long-term Debt | 739,603,550 | 1,706,974,582 | 3,035,924,595 | 3,259,236,437 | 3,927,663,101 |
| Shareholders' Equity | 771,300,845 | 1,326,442,210 | 2,047,729,927 | 2,900,817,082 | 3,680,070,533 |
| Total Liabilities & Equity | 2,081,455,705 | 4,386,796,708 | 6,996,369,761 | 8,321,331,106 | 9,957,696,704 |
analysis of ROE
| 2005 | 2006 | 2007 | 2008 | 2009 | |
| EBIT/sales | |||||
| EBT/EBIT | |||||
| NI/EBT | |||||
| Total Asset Turnover | |||||
| Debt Ratio (%) | |||||
| ROE (%) |
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W11710
GEMINI ELECTRONICS
Dan Thompson wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected].
Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-03-15
Sarah McIvor, CA, a junior part
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