General Company’s financial statements for 2009 follow here and on the following pages:
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GENERAL COMPANY |
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2009 |
2008 |
2007 |
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Net sales |
$860,000 |
$770,000 |
$690,000 |
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Cost and expenses: |
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Cost of products sold |
730,000 |
630,000 |
580,000 |
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Selling, general, and administrative |
46,000 |
40,000 |
38,000 |
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Interest and debt expense |
4,000 |
3,900 |
6,500 |
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780,000 |
673,900 |
624,500 |
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Income before income taxes |
80,000 |
96,100 |
65,500 |
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Provision for income taxes |
33,000 |
24,000 |
21,000 |
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Net income |
$47,000 |
$72,100 |
$44,500 |
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Net income per share |
$2.67 |
$4.10 |
$2.54 |
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GENERAL COMPANY |
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2009 |
2008 |
2007 |
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Operating activities: |
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Net income |
$47,000 |
$72,100 |
$44,500 |
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Adjustments to reconcile net income to net cash |
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provided by operating activities: |
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Depreciation and amortization |
21,000 |
20,000 |
19,000 |
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Deferred taxes |
3,800 |
2,500 |
2,000 |
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Increase in accounts receivable |
4,000 |
3,000 |
3,000 |
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Decrease (increase) in inventories |
3,000 |
2,500 |
1,000 |
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Decrease (increase) in prepaid expenses |
300 |
200 |
100 |
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Increase (decrease) in accounts payable |
6,000 |
5,000 |
1,000 |
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Increase (decrease) in income taxes |
100 |
300 |
100 |
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Increase (decrease) in accrued liabilities |
6,000 |
3,000 |
1,000 |
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Net cash provided by operating activities |
76,600 |
97,200 |
61,500 |
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Investing activities: |
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Additions to property, plant, and equipment |
66,500 |
($84,400) |
52,500 |
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Financing activities: |
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Payment on long-term debt |
1,000 |
2,000 |
1,500 |
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Issuance of other long-term liabilities |
9,200 |
1,000 |
1,000 |
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Issuance of capital stock |
1,000 |
— |
— |
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Dividend paid |
10,300 |
9,800 |
9,500 |
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Net cash used in financing activities |
1,100 |
10,800 |
12,000 |
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Increase (decrease) in cash |
9,000 |
2,000 |
3,000 |
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Cash at beginning of year |
39,000 |
37,000 |
40,000 |
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Cash at end of year |
$48,000 |
$39,000 |
$37,000 |
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GENERAL COMPANY |
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Assets |
2009 |
2008 |
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Current assets: |
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Cash |
$48,000 |
$39,000 |
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Accounts receivable, less allowance for doubtful accounts of $2,000 in 2009 and $1,400 in 2010 |
125,000 |
121,000 |
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Inventories |
71,000 |
68,000 |
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Prepaid expenses |
2,500 |
2,200 |
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Total current assets |
246,500 |
230,200 |
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Property, plant, and equipment: |
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Land and land improvements |
12,000 |
10,500 |
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Buildings |
98,000 |
89,000 |
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Machinery and equipment |
303,000 |
247,000 |
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413,000 |
346,500 |
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Less: Accumulated depreciation |
165,000 |
144,000 |
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Net property, plant, and equipment |
248,000 |
202,500 |
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Total assets |
$494,500 |
$432,700 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$56,000 |
$50,000 |
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Income taxes |
3,700 |
3,600 |
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Accrued liabilities |
34,000 |
28,000 |
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Total current liabilities |
93,700 |
81,600 |
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Long-term debt |
63,000 |
64,000 |
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Other long-term liabilities |
16,000 |
6,800 |
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Deferred federal income taxes |
27,800 |
24,000 |
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Total liabilities |
200,500 |
176,400 |
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Stockholders’ equity: |
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Capital stock |
46,000 |
45,000 |
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Retained earnings |
248,000 |
211,300 |
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Total stockholders’ equity |
294,000 |
256,300 |
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Total liabilities and stockholders’ equity |
$494,500 |
$432,700 |
Note: The market price of the stock at the end of 2009 was $30.00 per share. There were 23,000 common shares outstanding at December 31, 2009.
Required
a. Compute the Z score of General Company at the end of 2009.
b. According to the Altman model, does the Z score of General Company indicate a high probability of financial failure?