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Chapter 03 Assignment - Part of Project 1

This document provides instructions for a finance project that involves analyzing financial statements and ratios for a hypothetical company. Students are asked to: 1) Produce a cash flow statement for the company using data from 2015 and 2014. 2) Calculate various short-term liquidity, long-term leverage, asset management, profitability, and market value ratios to analyze the company's performance. These include ratios like current ratio, debt-to-equity, inventory turnover, return on assets, and price-earnings ratio. The document provides the financial data and formulas needed to complete the required calculations and cash flow statement. Answers must be typed and brought to the next class.

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dxbuae384
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11 views

Chapter 03 Assignment - Part of Project 1

This document provides instructions for a finance project that involves analyzing financial statements and ratios for a hypothetical company. Students are asked to: 1) Produce a cash flow statement for the company using data from 2015 and 2014. 2) Calculate various short-term liquidity, long-term leverage, asset management, profitability, and market value ratios to analyze the company's performance. These include ratios like current ratio, debt-to-equity, inventory turnover, return on assets, and price-earnings ratio. The document provides the financial data and formulas needed to complete the required calculations and cash flow statement. Answers must be typed and brought to the next class.

Uploaded by

dxbuae384
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Corporate Finance - FIN 220

Chapter 03

Assignment – Part of Project 1

Look at the following data for a hypothetical company.

2015 2014 2015 2014

Cash 696 58 Accounts Payable 307 303


Accounts Receivable 956 992 Notes Payable 26 119
Inventory 301 361 Other Current Liabilities 1662 1353
Other Current Assets 303 264 Total Current Liabilities 1995 1775
Total Current Assets 2256 1675 Long Term Debt 843 1091
Net Fixed Assets 3138 3358 Common Stocks 2556 2167
Total Assets 5394 5033 Total Liabilities & Equity 5394 5033

2015
Revenues 5000
Cost of Goods Sold (2,006)
Expenses (1,740)
Depreciation (116)
Earnings Before Interest and Taxes 1,138
Interest Expense (7)
Taxable Income 1,131
Taxes (442)
Net Income 689
Earning per share 3.61
Dividends per share 1.57

1. Produce Cash Flow Statement as follows

Cash, beginning of year Financing Activity


Operating Activity Decrease in Notes Payable
Net Income Decrease in Long term Debt
Plus: Depreciation Change in Common stock (less RE)
Increase in Accounts payable Dividends Paid
Increase in Other Current liabilities Net Cash from Financing
Less: Increase in other Current assets
Increase in Account receivable Net Increase in Cash
Increase in Inventory
Net Cash from Operations Cash End of Year
Investment Activity
Less: Spending on New Fixed Assets
Depreciation
Net Cash from Investments
2. Calculate the following:

Short-term solvency or liquidity ratios


•Current Ratio = CA / CL

•Quick Ratio = (CA – Inventory) / CL

•Cash Ratio = Cash / CL

•NWC to Total Assets = NWC / TA

•Interval Measure = CA / average daily operating costs

Long-term solvency or financial leverage ratios


Leverage Ratios
•Total Debt Ratio = (TA – TE) / TA

•Debt/Equity = TD / TE

•Equity Multiplier = TA / TE = 1 + D/E

•Long-term debt ratio = LTD / (LTD + TE)

Coverage Ratios
•Times Interest Earned = EBIT / Interest

•Cash Coverage = (EBIT + Depreciation) / Interest

Asset management or turnover ratios


•Inventory Turnover = Cost of Goods Sold / Inventory

•Days’ Sales in Inventory = 365 / Inventory Turnover

•Receivables Turnover = Sales / Accounts Receivable

•Days’ Sales in Receivables = 365 / Receivables Turnover

•Total Asset Turnover = Sales / Total Assets

•NWC Turnover = Sales / NWC

•Fixed Asset Turnover = Sales / NFA


Profitability ratios
•Profit Margin = Net Income / Sales

•Return on Assets (ROA) = Net Income / Total Assets

•Return on Equity (ROE) = Net Income / Total Equity

Market value ratios


•PE Ratio = Price per share / Earnings per share

•Market-to-book ratio = Market value per share / Book value per share

•Enterprise value = market value of stock + book value of liabilities -cash

•EBITDA ratio = Enterprise value / EBITDA

Answers MUST be TYPED. Handwritten submission will NOT be accepted.

Make sure that you write your name and student ID.

Print and bring to class. Please do NOT email.

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