Managerial finance | financial management

  

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BA 620 Managerial Finance 

Group Problem Set 1: This problem Set is based on materials covered in module 1/week 1. It is designed for you to demonstrate your understanding of basic financial statements, financial statement analysis, break-even concepts, financial and operating leverages. Before you start this assignment, please review weeks 1 and 2 materials thoroughly. 

Finance date of Adams Stores, Inc. for the year ending 2016 and 2017. 

  

Items 

Sales   

Cash   

Other   Expenses 

Retained   Earnings 

Long-term   debt 

Cost   of goods sold 

Depreciation   

Short-term   investments 

Fixed   Assets 

Interest   Expenses 

Shares outstanding (par   value 

=   $4.60) 

Market   Price of stock Accounts Receivable 

Accounts   payable 

Inventory   

Notes   Payable 

Accumulated   Depreciation 

2016 

$3,432,000 

9,000 340,000 

203,768 

323,432 

2,864,000 18,900 

48,600 

491,000 

62,500 

100,000 

8.50 351,200 

145,600 

715,200 

200,000 

146,200   

2017 

$5,834,400 

7,282 

720,000 

97,632 1,000,000 

4,980,000 

116,960 

20,000 

1,202,950 

176,000 

100,000 

6 632,160 

324,000 

1,287,360 720,000 

263,160   

 

Accruals   

136,000 

284,960 

 

Tax Rate 

40% 

40% 

Instructions: 

As a group, complete the following activities using the financial information above: 

Part 1: Financial Statements 

A. Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017 

B. Prepare the balance sheet for 2016 and 2017 

C. Prepare Common-Size financial statements of income statement and balance sheet. 

D. Prepare Statement of Cash Flows 

Part 2: Financial Statement Analysis 

A. Based on your financial statements (from Part 1), calculate the following ratios for the two years. Show all your calculations in good form. Show your formulas. If you use excel, each calculation need to show the excel formula 

Current ratio 

Quick ratio   

Inventory turnover (times) 

Average collection period (days) 

Total asset turnover (times) 

Debt ratio 

Times interest earned 

Gross profit margin 

Net profit margin 

Return on total assets 

Return on equity 

P/E ratio 

Return on equity using DuPont Analysis 

B. Comments on the ratios by comparing 2016 to 2017 ratios. 

C. Assume Adams Stores, Inc. is a retail company similar to WalMart, Myers, or Target. Compare 2017 ratios to the industry average. Please note that Adams Stores, Inc. is not a real company. To find comparable industry ratios, you need to search for industry ratios for retail. See information on Moodle for instructions on how to find industry ratios. Based on the industry average, how is Adams Stores, Inc. doing financially? 

Part 3: Break-even, Financial and Operating Leverages 

Johnson Products, Inc. 

Income Statement 

For the Year Ended December 31, 2018 

  

Sales (40,000 bags at $50 each)   ……………………………. 

$2,000,000 

 

Less: Variable costs (40,000 bags at $25) ……………. 

1,000,000 

 

Fixed costs   …………………………………………………….. 

600,000 

 

Earnings before interest and   taxes ………………………… 

400,000 

 

Interest expense ………………………………………………….. 

120,000 

 

Earnings before taxes …………………………………………. 

280,000 

 

Income tax expense (20%)   …………………………………… 

56,000 

 

Net income   ………………………………………………………… 

$ 224,000 

Based on the information above, calculate (show all calculations and responses in good form): 

a. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning? 

b. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? 

c. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? 

Specific Instructions: 

1. Complete and submit your assignment no later than the last day of Module 1/Week 1. 

2. Include only the names of your group members who participated in this assignment when you submit. 

3. Submit only one copy per group. 

4. You may use Excel or Word. Please DO NOT use any other format such PDF, etc. 

  

Side Note:   Please note that this is not the type of assignment where the assignment is 

 

divided and   each student completes the part that is assigned. Each person in your

 

group need   participate fully in the completion of each part of the assignment.

      

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