a few accounting analysis questions.

Name:_________Zilin Li________ Name:__________Yueran Chen____

Name:__________Sylvia Tang _____ __

Accounting 211

Annual Report Analysis

Using the financial statements you have prepared for the Behrend Company, complete the following questions. Use your Excel horizontal and vertical analyses to answer the following.

Income Statement Analysis

1. By how much did net sales increase or (decrease) from 2012 to 2013? $ 216600

By how much is it predicted to increase from 2013 to 2014? $ 111300

2. By what percentage did net sales increase or (decrease) from 2012 to 2013? 24.2 %

By how much is it predicted to increase from 2013 to 2014? 10.0 %

3. Net sales can change either due to the quantity sold, or because the same quantity is sold at a different price. What is the reason for the Net Sales change for this company?

Net sale will increase if more quantities are sold and it will decrease if fewer quantities are sold (both under the condition of same price). If the same quantity is sold at a different price, the net sales will increase if the price is charge at a higher amount. The net sales will decrease if the price is charge at a lower amount.

4. What was the COGS Percentage for the first year of operations (2012)? -56.9 %_ What was the COGS Percentage for the second year of operations (2013)? -55 %_ What is the COGS Percentage projected for the third year of operations (2014)? -45 %_

5. Cost of Goods Sold (“COGS”) decreased from the first year to the second year and from the second year to the third year. Normally, we would expect that when sales increase, the cost of those sales would also increase. How could a large increase in the quantity sold help lower the cost of each unit being purchased or manufactured for sale? Possibility 1: since there is always fixed cost, the higher amount of goods sold lowers the fixed cost per unit sold. Possibility 2: when a company produce more goods for sold, the company is likely to get a discount from material/inventory suppliers, which lowers the product cost per unit produced. Possibility 3: When a company produces one additional good, the cost of each unit decreases. The company should produce at marginal revenue equal marginal cost to maximize profit.

6. How much is the Company’s total gross margin in dollars in 2012? _$_ 386400

In 2013? _$_ 504900 In 2014? _$673365

7. What is the total gross margin percent in 2012? 43.1 %

In 2013? _ 45 % In 2014? __ 55 %

8. How much is the Company’s operating expenses in dollars in 2012_$_ -362000

In 2013? _$_ -312463 In 2014? _$_ -598944

9. What is the operating expenses percentage in 2012? _ -49 %

In 2013? _ -28 % In 2014? _ -40.4 %

10. What would cause operating expenses to decrease from the start-up year until the first full year, and then increase as a percentage of net sales as they ramped up their operations? Operating expenses decrease because the company cuts its labor and supply/ shipping cost from 2012 to 2013. The company realized that they are spending too much money on operating expense. One possible explanation is, when the company first enter the market, it have low net sales because it didn’t have many customers. Therefore, there left many finished goods unsold. In the coming year, the company cut the labor cost and supply cost which lowers the operation expense. However, the company then has a bigger market share (more customers, higher reputation) which leads to higher net sales. Goods unsold were successfully sold out. Therefore, it cause operating expenses to decrease from the start-up year until the first full year, and then increase as a percentage of net sales as they ramped up their operations.

Balance Sheet Analysis

1. Using your Vertical Analysis for your balance sheet, list the two assets that represent the largest percentage impact on total assets at the end of 2014.

Percentage of

ASSET Total Assets

1. Accounts Receivable 35.6 %__

2. Building-Net of A/D 51.2 %__

2. Using your Horizontal Analysis for your balance sheet, list the two assets that increased or decreased by the largest dollar amount, from 2013 to 2014.

Increase/(Decrease)

ASSET in Dollars

1. Inventory ___$ 34600

2. Building-Net of A/D ___$ 213000

3. Using your Horizontal Analysis for your balance sheet, list the two assets that increased or decreased by the largest percentage from 2013 to 2014.

Increase/(Decrease)

ASSET in Percentage

1. Inventory 1193.1 %__

2. Building-Net of A/D 244.8 %__

4. Using your Vertical Analysis for your balance sheet, list the two Liabilities/Stockholders’ Equity items that represent the largest percentage impact on total liabilities/shareholders’ equity at the end of 2014.

Percentage of

LIAB/STOCKHOLDERS’ EQUITY Total Liab/Equity

1. Utilities Payable 11.9 %__

2. Retained Earnings 46.6 %__

5. Using your Horizontal Analysis for your balance sheet, list the two Liabilities/Stockholders’ Equity items that increased or decreased by the largest dollar amount from 2013 to 2014.

Increase/(Decrease)

LIAB/STOCKHOLDERS’ EQUITY in Dollars

1. Interest Payable ___$ 2791

2. Utilities Payable ___$ 50858

6. Using your Horizontal Analysis for your balance sheet, list the two Liabilities/Stockholders’ Equity items that increased or decreased by the largest percentage from 2013 to 2014.

Increase/(Decrease)

LIAB/STOCKHOLDERS’ EQUITY in Percentage

1. Interest Payable 558.2 %__

2. Utilities Payable 273.4 %__

Ratio Analysis

Compute the following ratios for the projected 2014 (budgeted) operations. The 2013 analysis is completed. Indicate in the far right column if the Company expects to get BETTER based on their budget, have NO CHANGE, or get WORSE based on each ratio. Do your work in the boxes provided below.

1. TESTS OF LIQUIDITY (Measures a company’s ability to pay debt in the short term):

Liquidity Ratios	2014	2013	Analysis?
1) Working Capital	349036	290837	BETTER
2) Current Ratio	2.47:1	2.64:1	WORSE
3) Quick Ratio	2.32:1	2.62:1	WORSE
4) Accounts Receivable Turnover (use net sales and ending A/R balance)	5.32	6.79	WORSE
5) Avg. # of Days to collect A/R	68.61	53.76	BETTER
6) Inventory Turnover (use ending inventory)	27.27	78.97	WORSE
7) Avg. # of days to sell Inventory	13.38	4.62	BETTER

2. TESTS OF SOLVENCY (Measures a company’s ability to pay long-term debt, and its financing structure):

Solvency Ratios	2014	2013	Analysis?
8) Debt to assets ratio	0.4042:1	0.3787:1	NO CHANGE
9) Debt to equity ratio	0.6784:1	0.6096:1	BETTER
10) Times interest earned (Since we have not calculated a tax expense, use “0”)	4.72	96.22	WORSE
11) Plant assets to long-term liabilities	6.6	2.34	BETTER

3. TESTS OF PROFITABILITY (Measures a company’s ability to generate earnings):

Profitability Ratios	2014	2013	Analysis?
12) Net (profit) margin	0.0479	0.1711	WORSE
13) Asset turnover (Use total assets instead of average)	2.32	3.26	BETTER
14) Return on investment ("ROI") (Use total assets instead of average)	0.1113	0.5572	WORSE
15) Return on equity (Use total stockholders’ equity instead of average)	0.1834	1.011	WORSE

4. TESTS OF THE STOCK MARKET (Measures market performance of a company’s stock):

Behrend Corporation began on January 1, 2012, they issued 5,000 shares of no-par common stock for $50,000.

Stock Market Ratios	2014	2013	Analysis?
16) Earnings per share (BASIC)	11.73	38.09	WORSE
17) Book value per share	69.81	58.17	BETTER
18) Price-Earnings Ratio (Use an average market price of $37.00 and $32.00 per share for 2014 and 2013, respectively)	3.15	0.84	WORSE
19) Dividend Yield (Use average market price noted in #18.)	0	0	NO CHANGE

Based on your results above, answer the following questions:

1. Overall, is the company expecting profitability to get better or worse? Explain. Be specific given the profitability ratios you prepared above.

The company expecting profitability to get worse

Based on the table above, the Net margin, ROI and Return on equity this company from 2013 to 2014 are getting worse.

12) Net (profit) margin	0.0479	0.1711	WORSE
13) Asset turnover (Use total assets instead of average)	2.32	3.26	BETTER
14) Return on investment ("ROI") (Use total assets instead of average)	0.1113	0.5572	WORSE
15) Return on equity (Use total stockholders’ equity instead of average)	0.1834	1.011	WORSE

2. If you were a banker, would you lend them money based on their forecast? Why? Be specific given the liquidity and solvency ratios you prepared above.

3. If you had the cash to invest in the stock of this corporation would you do so? EXPLAIN WHY? Be specific given the stock market ratios you prepared above. You must state YES you would or NO you wouldn’t and why.