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Non-Tech : GRIN (Grand Toys International Inc) -- Ignore unavailable to you. Want to Upgrade?

To: Frank McVerry who wrote (422)	11/1/1999 8:32:00 PM
From: Frank McVerry	Read Replies (1) \| Respond to of 495

My 3Q earnings guess Here is my guess for the third quarter, using the '99 first and second quarters for trends and the '97 and '98 third quarters for seasonality. First, I present an income statement with items listed in the usual GRIN way, as percent of net sales. ITEM PERCENT Net Sales 100 Cost of goods 69.3 (average of 1Q and 2Q) Gross Profit 30.7 SG&A 21 (based on 3Q seasonality) Foreign exchange loss (gain) (1.1) (average of 1Q and 2Q) Interest 1.5 (see note 1) Bad debt 0.2 (average of 1Q and 2Q) Depreciation 1.3 (average of 1Q and 2Q) Earnings before taxes 7.8 (Gross Profit minus Expenses) Net earnings 3.8 (see note 2) NOTES (1) This is the average of the 1Q and 2Q numbers, though this may well be reduced by the large cash position which GRIN obtained through the insiders' option exercise, which will offset their credit-line interest. This new money likely was not 'in-place' until late in the quarter, so I have assumed no beneficial effect from it. (2) The percentage of pretax earnings held by GRIN to pay their income tax, varies wildly from Q to Q. I therefore took the worst case of the '97 and '98 3Q's in calculating net earnings. So my net earnings estimate is 3.8% of net sales, but what is this in terms of dollars and cents and eps, I hear you ask ? Step this way...... NET SALES Management have previously given guidance on '99 sales as around CAN$70M (about $47.7M). We know that during the first two quarters, they had $17.4M in net sales. GRIN's third quarter sales typically are around 60% of the big 4Q sales, meaning they should do about $11.33M in 3Q net sales. NET EARNINGS These should be 3.8% of the $11.33M which is about $430k. Assuming that all the insiders' options have been exercised, this corresponds to a diluted eps of about 12.7 cents. WARNING Though the above calculation is quite reasonable, being based on GRIN's historic performance, the narrow net profit margin, typical of the retail/distribution sector, means that even small changes in the above numbers (up or down) will result in a significantly different answer for net profit. My 2c, Frank McV