Using the financial statements on the next three pages of this assignment, and using all the UBT standard ratios, work out the ratios for the financial accounts on all years shown. For each category, indicate what direction you would like the Year 4 number to move in. Up, the same, or down:
Year 3 (Current Year) |
Year 2 | Year 1 | Industry Averages | ||||
---|---|---|---|---|---|---|---|
Sales | |||||||
Category 1 | 4,500,000 | 29.03% | 4,200,000 | 34.43% | 4,200,000 | 34.43% | |
Category 2 | 6,500,000 | 41.94% | 2,500,000 | 20.49% | 2,000,000 | 16.39% | |
Category 3 | 4,500,000 | 29.03% | 5,500,000 | 45.08% | 6,000,000 | 49.18% | |
Total Sales | 15,500,000 | 100.00% | 12,200,000 | 100.00% | 12,200,000 | 100.00% | 100.00% |
Cost of Goods Sold | |||||||
Category 1 | 4,275,000 | 27.58% | 4,060,000 | 33.28% | 4,200,000 | 34.43% | |
Category 2 | 3,770,000 | 24.32% | 1,450,000 | 11.89% | 1,160,000 | 9.51% | |
Category 3 | 1,575,000 | 10.16% | 2,170,000 | 17.79% | 2,480,000 | 20.33% | |
Total Cost of Goods Sold | 9,620,,000 | 62.06% | 7,680,000 | 62.95% | 7,840,000 | 64.26% | 55.33% |
Gross Profit | 5,880,000 | 37.94% | 4,520,000 | 37.05% | 4,360,000 | 35.74% | 44.67% |
Expenses | |||||||
Owners/Officers Compensation | 300,000 | 1.94% | 300.000 | 2.46% | 300,000 | 2.46% | 2.50% |
Salary/Wages (incl. benefits) | 2,200,000 | 14.19% | 1,952,000 | 16.00% | 1,800,000 | 14.75% | 13.30% |
Rent | 380,000 | 2.45% | 376,980 | 3.09% | 366,000 | 3.00% | 2.20% |
Amortization & Depreciation | 400,000 | 2.58% | 400,000 | 3.28% | 302,000 | 2.48% | 3.70% |
Advertising | 300,000 | 1.94% | 240,000 | 1.97% | 200,000 | 1.64% | 1.90% |
Other SG&A Exp. | 1,200,000 | 7.74% | 800,000 | 6.56% | 800,000 | 6.56% | 7.00% |
Total Expenses | 4,780,000 | 30.84% | 4,068,980 | 33.35% | 3,768,000 | 30,89% | 30.60% |
Operating Profit | 1,100,000 | 7.10% | 451,020 | 3.70% | 592,000 | 4.85% | 14.07% |
Interest Expense Other Income (Such as :Interest) |
100,000 | 0.65% | 100,000 | 0.82% | 85,500 | 0.70% | 2.80% |
Net Profit Before Tax | 1,000,000 | 6.45% | 351,020 | 2.88% | 506,500 | 4.15% | 11.27% |
Tax Provision | 200,000 | 1.29% | 70,204 | 0.58% | 175,360 | 1.44% | 2.00% |
Net Profit | 800,000 | 5.16% | 280,816 | 2.30% | 331,140 | 2.71% | 8.20% |
Owners Draws/Dividends | 100,000 | 75,000 | 0 | ||||
Retained Earnings | 700,000 | 205,816 | 331,140 |
Assets | Year 3 | Year 2 | year 1 | Averages | |||
---|---|---|---|---|---|---|---|
Current Assets | |||||||
Cash | 528.956 | 5.61% | 178,956 | 1.97% | 707,140 | 8.64% | 8.45% |
Accounts Receivable | 2,500,000 | 26.51% | 2,400,000 | 26.43% | 1,800,000 | 22.00% | 15.47% |
Inventory | 1,600,000 | 16.97% | 1,300,000 | 14.32% | 1,200,000 | 14.67% | 15.54% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 5.63% | |||
Total Current Assets | 4,628,956 | 49.09% | 3,878,956 | 42.72% | 3,707,140 | 45.31% | 45.09% |
Long-term Assets | |||||||
Property, Plant & Equipment | 5,902,000 | 5,902,000 | 4,776,000 | ||||
Less: Accumulated depreciation | 1,102,000 | 702,000 | 302,000 | ||||
Net Fixed Assets | 4,800,000 | 50.91% | 5,200,000 | 57.28% | 4,474,000 | 54.69% | 54.91% |
Total Long-term Assets | 4,800,000 | 50.91% | 5,200,000 | 4,474,000 | 54.69% | 54.91% | |
Total Assets | 9,428,956 | 100.00% | 9,078,956 | 100.00% | 8,181,140 | 100.00% | 100.00% |
Liabilities | |||||||
Current Liabilities | |||||||
Accounts Payable | 2,200,000 | 23.33% | 2,000,000 | 22.03% | 2,200,000 | 26.89% | 8.82% |
Loans/Notes Payable | 800,000 | 8.84% | 0.00% | 0.00% | |||
Other Current Liabilities | 800,000 | 0.00% | 0.00% | 0.00% | |||
Total Current Liabilities | 3,000,000 | 31.82% | 2,000,000 | 22.03% | 0.00% | ||
Long-term Liabilities | |||||||
Loans Payable | 3,500,000 | 37.12% | 3,850,000 | 42.41% | 2,850,000 | 34.84% | |
Other Long Term Liabilities | 0.00% | 0.00% | 0.00% | ||||
Total Long Term Liabilities | 3,500,000 | 37.12% | 3,850,000 | 42.41% | 2,850,000 | 34.84% | 40.23% |
Total Liabilities | 6,500,000 | 68.94% | 5,850,000 | 64.43% | 5,050,,000 | 61.73% | 64.10% |
Stockholder's Equity | |||||||
Paid in Capital | 1,692,000 | 17.94% | 2,692,000 | 29.65% | 2,800,000 | 34.23% | 0.00% |
Retained Earnings | 1,236,956 | 13.12% | 536,956 | 5.91% | 331,140 | 4.05% | 0.00% |
Total Stockholder's Equity | 2,928,956 | 31.06% | 3,228,956 | 35.57% | 3,131,140 | 38.27% | 35.90% |
Total Liabilities & Equity | 9,428,956 | 100.00% | 9,078,956 | 100.00% | 8,181,140 | 100.00% | 100.00% |
Cash Flow Statement | Year 3 | Year 2 | Year 1 |
---|---|---|---|
Cash Flows From Operating Activities | |||
Net Profit | 800,000 | 280,816 | 331,140 |
Accounts Receivable Increase(-) | (100,000) | (600,000) | (1,800,000) |
Inventory Increase(-) | (300,000) | (100,000) | (1,200,000) |
Other Current Assets Increase(-) | 0 | 0 | 0 |
Depreciation Expense | 400,000 | 400,000 | 302,000 |
Accounts Payable Increase | 200,000 | (200,000) | 2,200,000 |
Total Cash Flows From Operating Activities | 1,000,000 | (219,184) | (166,860) |
Cash Flows From Inventory Activities | |||
Purchases of property, plant and equipment(-) | 0 | (1,126,00) | (4,776,000) |
Total Cash Flows From Investing Activities | 0 | (1,126,00) | (4,776,000) |
Cash Flows From Financial Activities | |||
Increase/Decrease in Short-term borrowings | 800,000 | 0 | 0 |
Increase/Decrease in Long-term borrowings | (350,000) | 1,000,000 | 2,850,000 |
Increase/Decrease in Equity Accounts | (1,000,000) | 183,000 | 2,800,000 |
Total Cash Flows From Financial Activities | (650,000) | 817,000 | 5,650,000 |
Net Change in Cash During Year | 350,000 | (528,184) | 707,140 |
Beginning Cash Balance | 178,956 | 707,140 | 0 |
Ending Cash Balance (Beginning Cash Bal. + Net Change) | 528,956 | 178,956 | 707,140 |
Financial Ratios | Industry Averages | ||||
---|---|---|---|---|---|
Year 1 | Year 2 | Year 3 | Year 4 | ||
Profitability | |||||
Gross Margin | 35.74% | 37.05% | 37.94% | increase | 43.5% |
Net Operating Margin | 4.85% | 3.69% | 7.09% | increase | 14.1% |
Net Operating Margin | 4.85% | 3.69% | 7.09% | increase | 14.1% |
Return on Assets (ROA) | 4.05% | 3.09% | 8.48% | increase | 8.9% |
Return on Equity (ROE) | 10.57% | 8.69% | 27.31% | increase | 24.7% |
Efficiency | |||||
Productivity Factor (factor 4) | 1.05 | 1.04 | 1.07 | increase | 2.8 |
Stock Turnover | 6.53 | 6.144 | 6.63 | decrease | 5.3 |
Stock on Hand Period (days) | 56 | 50 | 55 | same | 69 |
Debtor Collection Period (days) | 54 | 63 | 58 | decrease | 40 |
Creditor Payment Period (days) | 102 | 99 | 80 | decrease | 55 |
Working Capital Cycle (days) | 45 | 56 | 38 | same | 54 |
Liquidity | |||||
Working Capital | 18.42% | 20.69% | 17.27% | same | 14.8% |
Over or Under Trading | 2.04 | 1.72 | 2.41 | increase | 7 |
Current Ratio | 1.68 | 1.94 | 1.54 | increase | 1.9 |
Quick Ratio | 1.14 | 1.29 | 1.01 | increase | 1.2 |
Stability | |||||
Liabilities to Equity (Leverage) | 1.61 | 1.81 | 2.22 | decrease | 1.79 |
Equity | 38.27% | 35.56% | 31.06% | same | 36% |
Interest Cover | 6.92 | 4.51 | 11 | same | 11.0 |
Cash flow to Debt | (3.304%) | (3.74%) | increase | increase | 19% |
For each ratio, give two possible reasons why the numbers look the way they do, good or bad. Give two actions you would want to take to improve the ratios.
Gross Margin | Reasons:
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Net Operating Margin | Reasons:
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Return on Assets | Reasons:
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Return on Equity | Reasons:
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Productivity Factor | Reasons:
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Stock Turnover | Reasons:
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Stock on Hand Period | Reasons:
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Debtor Collections Period | Reasons:
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Creditor Payment Period | Reasons:
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Working Capital Cycle | Reasons:
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Working Capital Percent | Reasons:
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Over or Under Trading | Reasons:
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Current Ratio | Reasons:
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Quick Ratio | Reasons:
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Liabilities to Equity | Reasons:
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Equity | Reasons:
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Interest Cover | Reasons:
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Cash Flow to Debt | Reasons:
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For each of the following scenarios, decide what the most likely effect on the cash flow on the Cash Flow Statement will be. Does the total cash flow on the Cash Flow Statement go up, down, stay the same, or is it unknown with the information given?
Cash Direction | |
---|---|
1. Depreciation is recorded on the Income Statement as an expense | down |
2. Machinery is purchased for $500,000 with a $500,000 loan | up |
3. Accounts payable balance goes down | down |
4. An owner sells his shares at book value to a new owner for cash | same |
5. The LOC is drawn on for $10,000 | same |
6. A loan is repaid | down |
7. Accounts receivables balance goes down | up |
8. A sale is made | up |
9. A piece of equipment is sold for cash | up |
10. Inventory balance decreases | up |
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