Mangerial Finance

User Generated

wj7085448

Business Finance

Alabama A & M University

Description

Group Problem Set 1: This problem Set is based on materials covered in modules 1 and

2. 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 Modules 1 and 2 materials

thoroughly.

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

Items 2016 2017

Sales $3,432,000 $5,834,400

Cash 9,000 7,282

Other Expenses 340,000 720,000

Retained Earnings 203,768 97,632

Long-term debt 323,432 1,000,000

Cost of goods sold 2,864,000 4,980,000

Depreciation 18,900 116,960

Short-term investments 48,600 20,000

Fixed Assets 491,000 1,202,950

Interest Expenses 62,500 176,000

Shares outstanding (par value =

$46.00) 100,000 100,000

Market Price of stock 8.50 6

Accounts Receivable 351,200 632,160

Accounts payable 145,600 324,000

Inventory 715,200 1,287,360

Notes Payable 200,000 720,000

Accumulated Depreciation 146,200 263,160

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. The company paid $11,000 dividend in 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?



Need answer for part 2 only.Please send the solution as early as possible.

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Explanation & Answer

Here is the solution for part 2

Part 2
Current ratio
Current ratio = Total current assets/Total current liabilities
Total current assets (2016) = 9,000+48,600+351,200+715,200 = 1,124,000
Total current assets (2017) = 7,282+20,000+632,160+1,287,360 = 1,946,802
Total current liabilities (2016) = 145,600+200,000+136,000 = 481,600
Total current liabilities (2017) = 324,000+720,000+284,960 = 1,328,960
Current ratio (2016) = 1,124,000/481,600 = 2.33
Current ratio (2017) = 1,946,802/1,328,960 = 1.46
Quick ratio
Quick ratio = quick assets/Total current liabilities
Quick assets = Cash + short-term investments + accounts receivable
Total quick assets (2016) = 9,000+48,600+351,200 = 408,800
Total quick assets (2017) = 7,282+20,000+632,160 = 659,442
Total current liabilities (2016) = 145,600+200,000+136,000 = 481,600
Total curren...

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