Finance 2030 WEEK 1 Assignment 3

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2013-03-10_191316_finance_2030.xls
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Introduction to Finance FIN2030
Week 1, Assignment 3
Part One: Quantative Exercises
You are given the following information about XYZ Corporation:
Account Name Value
Accounts payable 5800
Accounts receivable 10600
Accumulated depreciation 35000
Cash 17550
Common stock (10,000 shares) 46000
Cost of goods sold 6,750
Depreciation expense 600
Earnings before taxes 21,400
General & admin expense 950
Gross buildings & equipment 123000
Gross profits 27,250
Interest expense 4,300
Inventories 7500
Long-term debt 56000
Net buildings & equipment 89000
Net income 12,840
Operating income (EBIT) 25,700
Retained earnings 16250
Sales 33,000
Short-term notes payable 700
Taxes @40% 8,560
Required:
Using the above-noted data, complete the following on the templates provided:
Part 1: Complete the balance sheet and income statement for XYZ Corporation
Part 2: Calculate the ratios for XYZ Corporation
Part 3: Complete the ratio analysis using cross-sectional analysis and trend analysis
Use this Templates for Part 1: Complete the balance sheet and income statement for XYZ Corporation.
XYZ Corporation
Balance Sheet
As of December 31, 20XX
Assets
Current Assets
Cash 17,500
Accounts receivable 10,600
Inventory 7,500
Total Current Assets 35,600
Long Term Assets
Gross building & Equip 123,000
Less: Acc Depreciation -35,000
Net G B & Equip 89,000
Total Fixed Assets 89,000
Total Assets 124,600
Liabilities and Equity
Liabilities
Accounts payable 5,800
Long Term debt 56,000
Short term note 700
62,500
Total Liabilities
Equity
Common stock 46,000
Retained earnings 16250
Total Equity 62,250
Total Liabilities and Equity 124,750
XYZ Corporation
Income Statement
For the year ending December 31, 20XX
Sales 33,000
Less Cost of goods sold -6,750
Gross Profit 27,250
Less G&A expenses -950
Less Depreciation exp -600
Earnings before I & T 25,700
Interest Expense -4,300
Earning before taxes 21,400
Less Taxes -8,560
Net Income 12,840
Use this template for Part 2: Calculate the ratios for XYZ Corporation:
Ratio Formula Your Answer
Operating Profit Margin After Taxes After tax income/net sales 38.91%
Gross Profit Margin Gross Profit/Net Sales 82.58%
Average Collection Period 365/Sales /Account Receiable 117.24 days
Total Asset Turnover Net Sales/Total Assets 26.48%
Fixed Asset Turnover Net Sales/Fixed Assets 37.08%
Inventory Turnover Cost of goods sold/Inventory 90%
Debt to Total Assets Total Liabilities/Total Assets 50.16%
Times Interest Earned EBIT/Interest Expense 5.98 times
Use this template for Part 3: Complete the ratio analysis using cross-sectional analysis and trend analysis
Ratio Company Year 1 Company Year 2 Industry Average Cross Sectional Analysis (% Difference) Trend Analysis (% Change)
Current Ratio 5x 3x 4x -25.00% -40.00%
Quick Ratio 3x 1.6x 3x -46.67% -46.67%
Total Asset Turnover .4xx .56x .7x -20.00% 40.00%
Average Collection Period 130 days 110 days 100 days 10.00% -15.38%
Inventory Turnover 1.20x 1.41 x 2.2x -35.91% 17.50%
Fixed Asset Turnover 1.01x 1.20x 1.1x 9.09% 18.81%
Debt Ratio 30% 34% 33% 3.03% 13.33%
Times Interest Earned 4.0x 5.0x 6.0x -16.67% 25.00%
Return on Common Equity 8% 12% 10% 20.00% 50.00%
The current ratio has gone down by 40% as compared to previous year and by 25% as compared to industrial average. The decline in quick ratio is same both for industrial average and as compared to previous year. The total assets turnover ratio has shown improved in year 2 as compare to year 1 but still behind the industrial average by 20%. The average collection period has also shown improvement and has declined by 15% as compared to previous year but still behind to industrial average by 10% or 10 days. The inventory turnover has gone up as compared to previous year by around 18% but still behind industrial average by around 36%. The improvement in fixed assets turnover is good both for industrial average and as compared to previous year. The company dependence on debt has gone up in year 2 by around 13% as compared to previous year but it has gone up by around 3% as compared to other industries. The TIER has shown improvement as compared to previous year by 25% but still below than industrial average by around 17%. The return on common equity is better than previous year by 50% and by 20% against industrial average.
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