Microline

1
Microline

• Team Sticky Fingers
• ACTG 301

2
Introduction

• Our team was tasked with reviewing Microline
  Corporation as a potential acquisition target.
  Areas we looked at included Microlines solvency
  and ability to generate cash, expectations of
  earnings persistence, past activities (including
  ambiguous transactions) and overall quality and
  transparency of the statements.
• Green, amber, red light system used

3
Earning Power Potential

• Sales 14.3 growth
• Gross Margin 3 points improvement (40 in 2001
  43 in 2002)
• Profitability Net Income growth of 261
• Ellery Acquisition

4
Solvency

• Cash Short-Term Investments increased by 3,200
• From 4,200 to 7,400
• A/R turnover - generated 115,400 in cash in 2002
• However,
• Debt increased by 14,000K
• Debt to Equity Ratio went from .89 in 2001 to
  1.16 in 2002

5
Quality of Mgmt Decisions / Financial Statements

• In 2002, Bonuses paid 7.1 Net Income,
  Dividends paid 3,000 L/T debt 14,000
• 90 day note of 8,000 L/T debt
• Debt covenant ratio greater than 1
• Land Deals
• 20,000 expenditure for PPE
• Acquisitions Littleton and Ellery

6
Conclusion

• Our analysis indicates Microline has the
  potential to be a profitable acquisition.
  However, management motives need further
  investigation. Furthermore, more information on
  future plans and financial statements is
  required. Therefore, the project is receiving an
  amber light until specific vital information can
  be provided.