# Track software case | Accounting homework help

Description

This is a Collaborative Learning Community (CLC) assignment.

Read the (Integrative Case 2) in your textbook and answer Questions a-g at the end of the case. The case is cumulative and incorporates concepts learned throughout the course. Keep the following in mind as your complete the assignment:

1. In Question b, calculate EPS for each year 2009-2015.
2. In Question d, make sure to include each ratio listed in Table 5 of the case for both 2014 and 2015. You will have to calculate the 2015 ratio values.
3. For Question d, you are required to write an evaluation of each area of performance as part of your answer. Merely citing numerical ratio values will not earn full credit.
4. Note that your answers for Questions and do not necessarily match.

1. Submit a single spreadsheet file for this assignment, do not submit multiple files.
3. Label all numbers, both variables and the final answer.

This assignment uses a rubric.  Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

Track Software, Inc.
Seven years ago, after 15 years in public accounting, Stanley Booker, CPA,
resigned his position as manager of cost systems for Davis, Cohen, and O’Brien
Public Accountants and started Track Software, Inc. In the 2 years preceding his
departure from Davis, Cohen, and O’Brien, Stanley had spent nights and weekends
developing a sophisticated cost-accounting software program that became Track’s
initial product offering. As the firm grew, Stanley planned to develop and expand
the software product offerings, all of which would be related to streamlining the
accounting processes of medium- to large-sized manufacturers.
Although Track experienced losses during its first 2 years of operation—2009
and 2010—its profit has increased steadily from 2011 to the present (2015). The
firm’s profit history, including dividend payments and contributions to retained
earnings, is summarized in Table 1.
Stanley started the firm with a \$100,000 investment: his savings of \$50,000 as
equity and a \$50,000 long-term loan from the bank. He had hoped to maintain his
initial 100 percent ownership in the corporation, but after experiencing a \$50,000
loss during the first year of operation (2009), he sold 60 percent of the stock to a
group of investors to obtain needed funds. Since then, no other stock transactions
have taken place. Although he owns only 40 percent of the firm, Stanley actively
manages all aspects of its activities; the other stockholders are not active in management
of the firm. The firm’s stock was valued at \$4.50 per share in 2014 and at
\$5.28 per share in 2015.

Track Software, Inc.,
Profit, Dividends, and Retained Earnings, 2009–2015

Year                          Net profits after taxes (1)                  Dividends paid (2)                       Contribution to retained earnings [(1) − (2)] (3)

2009                            (\$50,000)                                            \$ 0                                                        (\$50,000)
2010                             (20,000)                                                  0                                                          (20,000)
2011                                15,000                                                   0                                                            15,000
2012                               35,000                                                   0                                                           35,000
2013                               40,000                                            1,000                                                           39,000
2014                               43,000                                           3,000                                                           40,000
2015                               48,000                                           5,000                                                           43,000

Stanley has just prepared the firm’s 2015 income statement, balance sheet, and
statement of retained earnings, shown in Tables 2, 3, and 4, along with the 2014
balance sheet. In addition, he has compiled the 2014 ratio values and industry
average ratio values for 2015, which are applicable to both 2014 and 2015 and
are summarized in Table 5. He is quite pleased to have achieved record earnings of
\$48,000 in 2015, but he is concerned about the firm’s cash flows. Specifically, he
is finding it more and more difficult to pay the firm’s bills in a timely manner and
generate cash flows to investors, both creditors and owners. To gain insight into
these cash flow problems, Stanley is planning to determine the firm’s 2015 operating
cash flow (OCF) and free cash flow (FCF).
Stanley is further frustrated by the firm’s inability to afford to hire a software
developer to complete development of a cost estimation package that is believed
to have “blockbuster” sales potential. Stanley began development of this package
2 years ago, but the firm’s growing complexity has forced him to devote more of
his time to administrative duties, thereby halting the development of this product.
Stanley’s reluctance to fill this position stems from his concern that the added
\$80,000 per year in salary and benefits for the position would certainly lower the
firm’s earnings per share (EPS) over the next couple of years. Although the project’s
success is in no way guaranteed, Stanley believes that if the money were spent to hire
the software developer, the firm’s sales and earnings would significantly rise once
the 2- to 3-year development, production, and marketing process was completed.
With all these concerns in mind, Stanley set out to review the various data to
develop strategies that would help ensure a bright future for Track Software. Stanley
believed that as part of this process, a thorough ratio analysis of the firm’s 2015
results would provide important additional insights.

Track Software, Inc., Income Statement (\$000)
for the Year Ended December 31, 2015

Sales revenue                                                          \$ 1,550
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Selling expense                                                    \$ 150
Depreciation expense
Total operating expense
Operating profits (EBIT)                                        \$ 89
Less: Interest expense
Net profits before taxes                                        \$ 60
Less: Taxes (20%)
Net profits after taxes

TABLE 3

Track Software, Inc., Balance Sheet (\$000)

Cash                                                                         \$ 12           \$ 31
Marketable securities                                               66              82
Accounts receivable                                                152            104
Inventories
Total current assets
Gross fixed assets                                                   \$195         \$180
Less: Accumulated depreciation
Net fixed assets

Accounts payable                                                     \$136         \$126
Notes payable                                                             200           190
Accruals
Total current liabilities                                      \$363         \$341
Long-term debt
Total liabilities
Common stock (50,000 shares outstanding
at \$0.40 par value)                                                       \$  20        \$  20
Paid-in capital in excess of par                                       30             30
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity

TABLE 4

Track Software, Inc.,
Statement of Retained Earnings (\$000)
for the Year Ended December 31, 2015

Retained earnings balance (January 1, 2015)                                         \$ 59
Plus: Net profits after taxes (for 2015)                                                       48
Less: Cash dividends on common stock (paid during 2015)
Retained earnings balance (December 31, 2015)

TABLE 5

Current ratio                                                       1.06                                                     1.82
Quick ratio                                                          0.63                                                     1.10
Inventory turnover                                            10.40                                                  12.45
Average collection period                               29.6 days                                           20.2 days
Total asset turnover                                           2.66                                                    3.92
Debt ratio                                                             0.78                                                    0.55
Times interest earned ratio                                3.0                                                      5.6
Gross profit margin                                           32.1%                                                  42.3%
Operating profit margin                                      5.5%                                                   12.4%
Net profit margin                                                 3.0%                                                    4.0%
Return on total assets (ROA)                            8.0%                                                   15.6%
Return on common equity (ROE)                    36.4%                                                  34.7%
Price/earnings (P/E) ratio                                   5.2                                                        7.1
Market/book (M/B) ratio                                     2.1                                                        2.2

TO DO
a. (1) On what financial goal does Stanley seem to be focusing? Is it the correct
goal? Why or why not?
(2) Could a potential agency problem exist in this firm? Explain.
b. Calculate the firm’s earnings per share (EPS) for each year, recognizing that the
number of shares of common stock outstanding has remained unchanged since
the firm’s inception. Comment on the EPS performance in view of your response
in part a.
c. Use the financial data presented to determine Track’s operating cash flow (OCF)
and free cash flow (FCF) in 2015. Evaluate your findings in light of Track’s current
cash flow difficulties.
d. Analyze the firm’s financial condition in 2015 as it relates to (1) liquidity, (2) activity,
(3) debt, (4) profitability, and (5) market, using the financial statements
provided in Tables 2 and 3 and the ratio data included in Table 5. Be sure to
evaluate the firm on both a cross-sectional and a time-series basis.
e. What recommendation would you make to Stanley regarding hiring a new software
f. Track Software paid \$5,000 in dividends in 2015. Suppose that an investor approached
Stanley about buying 100% of his firm. If this investor believed that by
owning the company he could extract \$5,000 per year in cash from the company
in perpetuity, what do you think the investor would be willing to pay for the firm
if the required return on this investment is 10%?
g. Suppose that you believed that the FCF generated by Track Software in 2015
could continue forever. You are willing to buy the company in order to receive
this perpetual stream of free cash flow. What are you willing to pay if you require
a 10% return on your investment?

Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

## Calculate the price of your order

Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

## Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.