Jackson Automated System Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Jackson Automated System Case Solution

Analysis of Monthly Statements:

For every company the analysis of financial statement plays an important role which reviews and analyzes the statements for better economic decision. The analysis includes the income statement, balance sheet, and cash flows statements. Financial statements are used by stakeholders (i.e.: banks, equity investors, creditors, and suppliers) that give the correct result of company’s performance. Companies like JAS could never be in financial distress because of positive ratios which show the ability of the company to pay debts and expenses timely explained below.

The income statement shows the performance of a company that deals with operating activities of the company from the result of revenue and sales as well asit shows the profit or loss incurred over the period. In this case, in the fiscal year from October 2012 to May 2013, the company generated sales of $44,014,000 by bearing the cost of $34,297,000 which made the gross profit of $9,717,000. The company’sFiscal Net Income is $1,986,000 after paying all expense which includes operation expenses, Depreciation, and tax and interest income.

The BalanceSheet shows the position of thecompany as it involves all accrual activities. The balance sheetconsists of Assets, Liabilities and owner’s equity that has several sub-parts based on industry. Total Assets is the sum of current assets and fixed assets; current assets are in increasing trend and highest in May 2013, which is $20,955,000. Jackson automotive system is using straight line method to depreciate the equipment and fittings, therefore the total fixed assets are $45,500,000 in all months, and depreciation is accumulated as $120,000 every month, then gradually when the useful life of fixed assets would come to an end the company will generate profit from its production.

Cash flows are crucial for every business as they show the cash in hand for every operations/activity; it shows the abilityof company to pay off its immediate liabilities or cash in difficult times. In the fiscal year, the company has beengenerating cash of $144,945,000.

Ratios are the key parts of every company that showthe profitability and liquidity position of a company. ROE is calculated as NI/TE, which is1.8% in Oct 2012, 1.6% in Nov 2012 and then it declined to 0.6% on May 2013, which shows that the companyhas diluted its shares. ROA is NI/TA whichshows 1% of income wasgenerated on Oct 2012 by total assets, however it declined to 0.3% in May 2013. As far as liquidity ratios are concerned, the current ratio and quick ratios show the ability of the company to pay out its debt. Moreover, its benchmark is 2:1, 1:1 respectively and in this fiscal year, the company wasunable to maintain its liquidity ratios, which indicates thatJAS feltdifficulty in paying its debt.

Altman Z-score is the combination four or five ratios, which is used to estimate the company's state on corporate default and gives the measure to control the financial distress of company. JAS’ Altman Z-score is 4.24which shows the ratio profile of bankruptcy of JAS. See exhibit 1.

Differentiation of Cash Budget and Cash Flow Statements:

Cash flow statements and cash budget are not the same one because, cash budget includes the cash inflows determined by total money left for the payment of bills and other operating expenses. For preparing the cash budget, it requires making the operating budget and capital expenditure budget which help the owner to identify how much money is left for expenses. It is more helpful to the owner if it is prepared on a regular basis. Cash flows show the net cash from investing, financing and operating costs. Moreover, if cash flows are positive then that would help the company to plan for further investment to earn better return, whereas negative cash flows suggest financing to grow the business.................

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