Exam 3: Financial Statement Analysis

Balance Sheet Cole Eagan Enterprises December 31, 2002 Cash \ 4,500 Accounts Payable \ 10,000 Accounts Receivable Notes Payable Inventories Accruals 1,000 Total Current Assets Total Current Liab. Net Fixed Assets Long-Term Debt Total Assets Stockholders' Equity Total Liab. \& S.E. Information (2002 values) 1. Sales totaled $\$ 110,000$ 2. The gross profit margin was 25 percent. 3. Inventory turnover was 3.0 . 4. There are 360 days in the year. 5. The average collection period was 65 days 6. The current ratio was 2.40 . 7. The total asset turnover was 1.13. 8. The debt ratio was 53.8 percent -Total assets for CEE in 2002 were_________

The firm's creditors are primarily interested in the short-term liquidity of the company and its ability to make interest and principal payments.

$\text { Dana Dairy Products Key Ratio }$ Industry Actual Actual Average 2001 2002 Current Ratio 1.3 1.0 Quick Ratio 0.8 0.75 Average collection Period 23 days 30 days Inventory Turnover 21.7 19 Debt Ratio 64.7\% 50\% Times Interest Earned 4.8 5.5 Gross Profit Margin 13.6\% 12.0\% Net Profit Margin 1.0\% 0.5\% Return on total assets 2.9\% 2.0\% Return on Equity 8.2\% 4.0\% Income Statement Dana Dairy Products For the Year Ended December 31, 2002 Sales Revenue \ 100,000 Less: Cost of Goods Sold 87,000 -\@cdots Gross Profits \ 13,000 Less: Operating Expenses 11,000 -\@cdots Operating Profits 2,000 Less: Interest Expense 500 -\@cdots Net Profits Before Taxes \ 1,500 Less: Taxes (40\%) 600 Balance Sheet Dana Dairy Products December 31, 2002 ASSETS Cash \ 1,000 Accounts Receivable 8,900 Inventories 4,350 ---- Total Current Assets \ 14,250 Gross Fixed Assets \ 35,000 Less: Accumulated Depreciation 13,250 Net Fixed Assets 21,750 ---- Total Assets \3 6,000 Liabilities \& Stockholders' Equity Accounts Payable \ 9,000 Accruals 6,675 ---- Total Current Liabilities \ 15,675 Long-term Debts 4,125 ---- Total Liabilities \1 9,800 Common Stock 1,000 Retained Earnings 15,200 ---- Total Stockholders' Equity \1 6,200 ---- Total Liab. \& S.E. \3 6,000 -The gross profit margin and net profit margin for Dana Dairy Products in 2002 are

$\text { Dana Dairy Products Key Ratio }$ Industry Actual Actual Average 2001 2002 Current Ratio 1.3 1.0 Quick Ratio 0.8 0.75 Average collection Period 23 days 30 days Inventory Turnover 21.7 19 Debt Ratio 64.7\% 50\% Times Interest Earned 4.8 5.5 Gross Profit Margin 13.6\% 12.0\% Net Profit Margin 1.0\% 0.5\% Return on total assets 2.9\% 2.0\% Return on Equity 8.2\% 4.0\% Income Statement Dana Dairy Products For the Year Ended December 31, 2002 Sales Revenue \ 100,000 Less: Cost of Goods Sold 87,000 -\@cdots Gross Profits \ 13,000 Less: Operating Expenses 11,000 -\@cdots Operating Profits 2,000 Less: Interest Expense 500 -\@cdots Net Profits Before Taxes \ 1,500 Less: Taxes (40\%) 600 Balance Sheet Dana Dairy Products December 31, 2002 ASSETS Cash \ 1,000 Accounts Receivable 8,900 Inventories 4,350 ---- Total Current Assets \ 14,250 Gross Fixed Assets \ 35,000 Less: Accumulated Depreciation 13,250 Net Fixed Assets 21,750 ---- Total Assets \3 6,000 Liabilities \& Stockholders' Equity Accounts Payable \ 9,000 Accruals 6,675 ---- Total Current Liabilities \ 15,675 Long-term Debts 4,125 ---- Total Liabilities \1 9,800 Common Stock 1,000 Retained Earnings 15,200 ---- Total Stockholders' Equity \1 6,200 ---- Total Liab. \& S.E. \3 6,000 -Dana Dairy Products' gross profit margin is inferior to the industry standard.

In the DuPont system, the return on equity is equal to

In the DuPont system, the return on total assets (asset) is equal to

The financial leverage multiplier is an indicator of a corporation utilizing

The ___________indicates the percentage of each sales dollar remaining after the firm has paid for its goods.

The use of the audited financial statements for ratio analysis may not be preferable because there may be no reason to believe that the data contained in them reflect the firm's true financial condition.

If the inventory turnover is divided into 360, it becomes a measure of

When assessing the fixed-payment coverage ratio,

The return on total assets (ROA) measures the overall effectiveness of management in generating profits with the owners' investment in the firm.

$\text { Dana Dairy Products Key Ratio }$ Industry Actual Actual Average 2001 2002 Current Ratio 1.3 1.0 Quick Ratio 0.8 0.75 Average collection Period 23 days 30 days Inventory Turnover 21.7 19 Debt Ratio 64.7\% 50\% Times Interest Earned 4.8 5.5 Gross Profit Margin 13.6\% 12.0\% Net Profit Margin 1.0\% 0.5\% Return on total assets 2.9\% 2.0\% Return on Equity 8.2\% 4.0\% Income Statement Dana Dairy Products For the Year Ended December 31, 2002 Sales Revenue \ 100,000 Less: Cost of Goods Sold 87,000 -\@cdots Gross Profits \ 13,000 Less: Operating Expenses 11,000 -\@cdots Operating Profits 2,000 Less: Interest Expense 500 -\@cdots Net Profits Before Taxes \ 1,500 Less: Taxes (40\%) 600 Balance Sheet Dana Dairy Products December 31, 2002 ASSETS Cash \ 1,000 Accounts Receivable 8,900 Inventories 4,350 ---- Total Current Assets \ 14,250 Gross Fixed Assets \ 35,000 Less: Accumulated Depreciation 13,250 Net Fixed Assets 21,750 ---- Total Assets \3 6,000 Liabilities \& Stockholders' Equity Accounts Payable \ 9,000 Accruals 6,675 ---- Total Current Liabilities \ 15,675 Long-term Debts 4,125 ---- Total Liabilities \1 9,800 Common Stock 1,000 Retained Earnings 15,200 ---- Total Stockholders' Equity \1 6,200 ---- Total Liab. \& S.E. \3 6,000 -The current ratio for Dana Dairy Products in 2002 is________

The ___________measures the percentage of each sales dollar remaining after ALL expenses,including taxes, have been deducted.

$\text { Dana Dairy Products Key Ratio }$ Industry Actual Actual Average 2001 2002 Current Ratio 1.3 1.0 Quick Ratio 0.8 0.75 Average collection Period 23 days 30 days Inventory Turnover 21.7 19 Debt Ratio 64.7\% 50\% Times Interest Earned 4.8 5.5 Gross Profit Margin 13.6\% 12.0\% Net Profit Margin 1.0\% 0.5\% Return on total assets 2.9\% 2.0\% Return on Equity 8.2\% 4.0\% Income Statement Dana Dairy Products For the Year Ended December 31, 2002 Sales Revenue \ 100,000 Less: Cost of Goods Sold 87,000 -\@cdots Gross Profits \ 13,000 Less: Operating Expenses 11,000 -\@cdots Operating Profits 2,000 Less: Interest Expense 500 -\@cdots Net Profits Before Taxes \ 1,500 Less: Taxes (40\%) 600 Balance Sheet Dana Dairy Products December 31, 2002 ASSETS Cash \ 1,000 Accounts Receivable 8,900 Inventories 4,350 ---- Total Current Assets \ 14,250 Gross Fixed Assets \ 35,000 Less: Accumulated Depreciation 13,250 Net Fixed Assets 21,750 ---- Total Assets \3 6,000 Liabilities \& Stockholders' Equity Accounts Payable \ 9,000 Accruals 6,675 ---- Total Current Liabilities \ 15,675 Long-term Debts 4,125 ---- Total Liabilities \1 9,800 Common Stock 1,000 Retained Earnings 15,200 ---- Total Stockholders' Equity \1 6,200 ---- Total Liab. \& S.E. \3 6,000 -The net working capital for Dana Dairy Products in 2002 is__________

Present and prospective shareholders are mainly concerned with a firm's

$\text { Dana Dairy Products Key Ratio }$ Industry Actual Actual Average 2001 2002 Current Ratio 1.3 1.0 Quick Ratio 0.8 0.75 Average collection Period 23 days 30 days Inventory Turnover 21.7 19 Debt Ratio 64.7\% 50\% Times Interest Earned 4.8 5.5 Gross Profit Margin 13.6\% 12.0\% Net Profit Margin 1.0\% 0.5\% Return on total assets 2.9\% 2.0\% Return on Equity 8.2\% 4.0\% Income Statement Dana Dairy Products For the Year Ended December 31, 2002 Sales Revenue \ 100,000 Less: Cost of Goods Sold 87,000 -\@cdots Gross Profits \ 13,000 Less: Operating Expenses 11,000 -\@cdots Operating Profits 2,000 Less: Interest Expense 500 -\@cdots Net Profits Before Taxes \ 1,500 Less: Taxes (40\%) 600 Balance Sheet Dana Dairy Products December 31, 2002 ASSETS Cash \ 1,000 Accounts Receivable 8,900 Inventories 4,350 ---- Total Current Assets \ 14,250 Gross Fixed Assets \ 35,000 Less: Accumulated Depreciation 13,250 Net Fixed Assets 21,750 ---- Total Assets \3 6,000 Liabilities \& Stockholders' Equity Accounts Payable \ 9,000 Accruals 6,675 ---- Total Current Liabilities \ 15,675 Long-term Debts 4,125 ---- Total Liabilities \1 9,800 Common Stock 1,000 Retained Earnings 15,200 ---- Total Stockholders' Equity \1 6,200 ---- Total Liab. \& S.E. \3 6,000 -The inventory turnover for Dana Dairy Products in 2002 is__________

Benchmarking is a type of time-series analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors, primarily to isolate areas of opportunity for improvement.

If a project was financed with 50% equity and 50% debt costing 8%, the return on equity would be___________assuming the project pays a _________return.

A firm with a total asset turnover lower than industry standard and a current ratio which meetsindustry standard must have excessive