financial analysis help

FINAL PROJECT: 40%

Congratulations!

Your promotion to the position of CEO is well-deserved!

Entering your executive suite, you will find a single folder on your desk.

The folder is entitled the “2011 Diversification and Investment Project”

The owner, Ms. Dion, explained in your promotion that this project is essential to reaching your targets

for 2011.

There are two pages in this folder. One page is named “Dreamtest Balance Sheet” and the other, “Ben

and Tong, Income Statement.”

You have four weeks to give your recommendation to Ms. Dion.

Which company do you recommend buying, and why?

Your analysis will certainly be supported by the appropriate financial ratios!

Question (reworking of the scenario from the first page):

The company is asking you to evaluate the two financial statements given above. The analysis must

include the development of accounting ratios such as: the % of sales costs vs. gross sales; the % of gross

profit, the % of net profit margin. Which company do you recommend buying, and why ?

In both cases, the conclusion must be supported by financial analysis.

Ben & Tong Inc. Profit and loss statement – As at 31/12/2010

Gross sales $500,000

Less: Returns and discounts on sales $1,000

Less: Discounts on sales $850

Net sales $498,150

Cost of goods sold

Inventory at beginning of period $25,000

Plus : Purchases $235,000

Less Returns & rebates – purchases

Less: Discounts on purchases $2500

Plus : Freight on purchases $9700

Net purchases $233,700

Cost of goods sold $258700

Less Inventory end of period $30,000

$228,700

Gross profit $269,450

Operating expenses

Cost of sales $75,400

Cost of administration $74,670

Operating costs $150,070

Other income

Dividends received $33,700

Interest received $6,000

$39,700

Gross profit $79,680

Taxes - rate 48% $38,246

Net profit $41,434

Dreamtest Balance Sheet As at 31/12/2010

ASSET

Current Assets

Petty Cash 0.00

Bank account 94,950.00

Total Cash 94,950.00

VISA receivable 6,250.00

Total Receivable 6,250.00

Prepaid Expenses 0.00

Inventory A 15,000.00

Total Current Assets 116,200.00

TOTAL ASSET 116,200.00

LIABILITY

Current Liabilities

Accounts payable 12000.00

Bank loan 80000.00

Total Current Liabilities 92000.00

Long Term Liabilities

Mortgage owing 150000.00

Loans from Owners 0.00

Total Long Term Liabilities 150,000.00

TOTAL LIABILITY 242,000.00

EQUITY

Owners Equity

Owners Contribution 85,000.00

Owners Withdrawals 0.00

Retained Earnings - Previous Year 0.00

Current Earnings 25,000.00

Total Owners Equity 110,000.00

TOTAL EQUITY 110,000.00

LIABILITIES AND EQUITY 352,000.00