Fiscal Year End 2006—12/31/06 at 11:58 p



Financial Statement Analysis Deliverable

FIN333: Financial Management

Instructor: Jim Wehrley

EDP III, Spring Semester, Online

Name: _____________________

Good Luck!

This is an individual assignment.

Note: While I realize you have access to resources for this deliverable, you should be able to complete this deliverable with only one source, the financial ratios sheet. That is, to obtain a better feel for how you will do on the final exam, you should be able to complete this deliverable using just the financial ratios sheet. You should be able to complete the 40 point problem with no additional resources. Likewise, you should be able to work through the time value deliverable with only one resource, your calculator.

Part I

1. (40 points) Develop the three following statements from the information provided below:  1) 12/31/06 Balance Sheet; 2) 12/31/07 Balance Sheet; and 3) Fiscal Year 2007 Income Statement (Jan 1, 2007 – December 31, 2007). All the major classification categories (e.g., current assets, gross profit) should be used.

At fiscal year end, December 31, 2006, Denver Clothing Retail, Inc. has $15,000 cash, $1,000 in short term debt, $55,000 in inventory, $30,000 Accounts Payable, $99,000 long term mortgage loan due in 2015, and $175,000 Property Plant and Equipment.

For the next fiscal year ending December 31, 2007, the company’s sales = $600,000.  The cost of the clothing sold = $300,000 and selling general and administrative expense = $100,000.

For simplification, there is no depreciation expense.  The $99,000 and $1,000 debt stayed the same all year.  The company keeps its cash in a non-interest bearing checking account.  The interest rate was 5% for both loans.  The income tax rate = 30%.  The company paid a $20,000 dividend at the end of fiscal year December 31, 2007.  As of December 31, 2007, all balance sheet items remained the same unless information is provided that would change a category.

Part II

Each question = 5 points

| |Fiscal Year End |Transaction: 12/31/06 11:59 p.m. |

| |2006—12/31/06 at 11:58 |Obtain a $2,000 long term loan and buy back $1,000 |

| |p.m. |of stock at $10 per share |

|Total Assets |$10,000 | |

|Total Liabilities |$6,000 | |

|Equity | | |

|Sales |$5,000 | |

|Net Income |$1,000 | |

|Shares |600 | |

Note: Above boxes will not be part of the grade; however, filling in the boxes may help you develop your answers.

Use the table above to answer questions 1 through 5.

1. Using the current ratio as a measure of liquidity, will the transaction improve liquidity? Explain.

2. Using the Return on Assets (ROA) ratio as a measure of performance, will the transaction improve the company’s performance? Explain.

3. Using the Return on Equity (ROE) ratio as a measure of performance, will the transaction improve the company’s performance? Explain.

4. Using the Earnings Per Share (EPS) ratio as a measure of performance, will the transaction improve the company’s performance? Explain.

5. Using the debt ratio as a measure of risk, will the transaction make the company more or less risky? Explain.

6. The goal is for your company to earn a net income of $400,000. You expect your net profit margin to equal 5 percent. Revenue must equal how much to reach your goal? Show your work!

7. The goal is for your company’s annual EPS (Earnings Per Share) to equal $5.00. There are 1,000 shares outstanding. Sales are expected to reach $200,000 per year. What does your net profit margin have to equal to reach your goal? Show your work!

8. Q1: Sales = $1,000, COGS = $400

Q2: Gross Profit = $600

The gross profit margin . . . 1) increased, 2) decreased, 3) stayed the same; or 4) not enough information—EXPLAIN YOUR ANSWER

9. Qualcomm’s Gross Profit Margin (GPM) = 30.2% on Sales of $9 billion. If Qualcomm’s GPM was 30.3% due to increased efficiency, gross profit would increase by $_______________. Explain or show your work!

10. ROA and ROE are the same. What does this imply or mean regarding how the company is financed?

| | |ProForma for Q2 |

| |Q1 Actual |Scenario A |Scenario B |Scenario C |

|Sales |$200 |$400 |$400 |$400 |

|Units Sold |20 |40 |20 |40 |

|COGS |$80 |$160 |$80 |$120 |

Q1: $200 in Sales: $10 per unit X 20 units = $200; Per unit COGS: $4 per unit: $80/20

Show your work below for questions 11 and 12

Use the table above to answer questions 11 and 12

11. Which scenario, if any, increases the gross profit margin by increasing the (average) price per unit? If applicable, what does the gross profit margin equal for this scenario?

12. Which Scenario, if any, increases the gross profit margin by cutting the (average) cost per unit? If applicable, what does the gross profit margin equal for this scenario?

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