Accounting MEMO
Sam1409
ACCT2312FSAProjectspring20194252.xlsxInstructions
Appendix A Project: Financial Statement Analysis spring 2019 5% of course grade Background: This assignment uses a company case study for financial statement analysis. Students are required to solve financial ratios and analyze these ratios using a time series trend. The students must identify strengths and weakness of the company and make recommendations to the manager of the company. Instructions: Part A: Use 2017 and 2016 comparative income statements and balance sheets for XYZ Company provided in the following tab. Calculate the following ratios for 2017: working capital current ratio quick ratio days sales receivable inventory turnover debt to equity times-interest-earned return on assets (ROA) earnings per share (EPS) price to earnings (PE) Note: All work must be completed in EXCEL using formulas for grading. You must create a NEW EXCEL FILE indicating you are the file creatoer and then you can copy/paste the problem from tab 2. Do NOT work directly out of this file!! (Answers submitted in Word or without formulas in Excel will receive a zero.) All files must be original. DO NOT SHARE FILES OR USE A COMMON TEMPLATE FOR CALCULATIONS. The question only specifically asks for 2017 ratios. However, in order to do a thorough analysis in part b you may need to compute 2016 ratios as well for comparisons when applicable. (There are some ratios that you will not be able to compute from the prior year because of a lack of data.) Part B: Write a professional memo addressed to the company’s management to discuss your evaluation of solvency and performance based on calculations from part A. (No bullet lists and/or incomplete sentences.) The memo should explain the significance of the specific ratios and address strengths and weakness of the company. Memos should be typed in Word and uploaded to Blackboard through the Assignment menu. Grading: Calculations in Part A should be well-organized in Excel by the three classifications noted: Short-term solvency, Long-term solvency and Performance (Profitability). Memos should be a minimum of 500 words. See the FSA Memo Grading Rubric attached for specific grading requirements. Due Date: Projects will be due by the beginning of class on Thursday May 2, 2019.
Problem
| ACCT 2312 - Spring 2019 | |||||
| Financial Statement Analysis Project | |||||
| Instructions: | |||||
| Comparative income statements and balance sheets for XYZ Company follow for 2017 and 2016. | |||||
| XYZ | |||||
| Comparative Income Statements | |||||
| December 31, 2017 and 2016 | |||||
| 2017 | 2016 | ||||
| Sales | $ 6,394,000 | $ 6,126,000 | |||
| Cost of goods sold | $ 3,812,500 | $ 3,702,500 | |||
| Gross profit | $ 2,581,500 | $ 2,423,500 | |||
| Selling and administrative expenses | $ 1,788,000 | $ 1,788,000 | |||
| Operating income | $ 793,500 | $ 635,500 | |||
| Other expenses (revenues) | |||||
| Interest revenue | $ (52,000) | $ (44,500) | |||
| Interest expense | $ 43,500 | $ 43,500 | |||
| Total other expenses (revenues) | $ (8,500) | $ (1,000) | |||
| Income before income taxes | $ 802,000 | $ 636,500 | |||
| Income taxes | $ 361,000 | $ 361,000 | |||
| Net Income | $ 441,000 | $ 275,500 | |||
| XYZ Company | |||||
| Comparative Balance Sheets | |||||
| For Years Ended December 31, 2017 and 2016 | |||||
| 2017 | 2016 | ||||
| Assets | |||||
| Cash | $ 176,000 | $ 184,500 | |||
| Marketable securities | $ 173,500 | $ 156,500 | |||
| Accoutns receivable | $ 488,500 | $ 528,000 | |||
| Inventory | $ 805,500 | $ 815,000 | |||
| Prepaid expenses | $ 67,500 | $ 63,000 | |||
| Total current assets | $ 1,711,000 | $ 1,747,000 | |||
| Investments and other assets | $ 392,500 | $ 307,000 | |||
| Property, plant, and equipment, net | $ 1,414,500 | $ 1,246,000 | |||
| Trademarks and other intangibles | $ 136,500 | $ 145,500 | |||
| Total assets | $ 3,654,500 | $ 3,445,500 | |||
| Liabilities and stockholders' equity | |||||
| Current maturities of long-term debt | $ 10,000 | $ 12,500 | |||
| Accounts payable and accrued expenses | $ 916,000 | $ 971,500 | |||
| Total current liabilities | $ 926,000 | $ 984,000 | |||
| Notes payable | $ 94,500 | $ 92,500 | |||
| Long-term debt | $ 333,000 | $ 274,500 | |||
| Total liabilities | $ 1,353,500 | $ 1,351,000 | |||
| Common stock, $10 par value | $ 67,500 | $ 67,500 | |||
| Additional paid-in capital | $ 119,000 | $ 118,000 | |||
| Retained earnings | $ 2,114,500 | $ 1,909,000 | |||
| Total stockholders' equity | $ 2,301,000 | $ 2,094,500 | |||
| Total liabilities and stockholders' equity | $ 3,654,500 | $ 3,445,500 | |||
| Additional Company Information | |||||
| Market value of common stock: $40 in 2017 and $30 in 2016 | |||||
| Credit terms: n/30 days | |||||
| 2016 Days Sales Receivable: 32 days | |||||
| 2016 Inventory Turnover: 5 times | |||||
| Industry Average for Inventory Turnover: 4.5 times | |||||
| Bank requires a Times-Interest Earned Ratio of 10 | |||||
| 2016 ROA : 13% | |||||
| Industry Average for ROA: 12% |
