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?