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Department of Management Sciences

BBA 8th MorningAnalysis of Financial Statements

Numerical QuestionsFinal Term

Numerical Questions:

Q1. Using the information, complete the balance sheet.

Long term debt to equity 50%Total assets turnover 2.5 timesAverage collection period* 18 daysInventory turnover 9 timesGross profit margin 10%Acid test ratio 1*Assume a 360 days year and all sales on credit.

Assets Rs. Liabilities And Equity Rs.Cash Notes And Payables 100,000Accounts Receivable Long Term DebtInventory Common Stock 100,000Plant And Equipment Retained Earnings 100,000Total Assets Total Liabilities And Equity

Ans1.

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Assets Rs. Liabilities And Equity Rs.Cash 50,000 Notes And Payables 100,000Accounts Receivable 50,000 Long Term Debt 100,000Inventory 100,000 Common Stock 100,000Plant And Equipment 200,000 Retained Earnings 100,000Total Assets 400,000 Total Liabilities And Equity 400,000

Q2. ABC Company has the following balance sheet and income statement over the last year. (in thousands):

Ans2.

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Q3.

Ans3.

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Q4.

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Ans4.

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Q5.

Allied Company expects sales of Rs 2.4 million next year and the same amount the following year. Sales are spread evenly throughout the year. On the basis of the following information, prepare a forecast income statement and balance sheet for year end:

1. Cash: Minimum of 4 percent of annual sales.2. Accounts receivable: 60-day average collection period based on annual sales.3. Inventories: Turnover of eight times a year. 4. Net fixed assets: Rs 500,000 now. Capital expenditures equal to depreciation.5. Accounts payable: One month's purchases. 6. Accrued expenses: 3 percent of sales.7. Bank borrowings: Rs 27,000 now. 8. Can borrow up to Rs 250,000. 9. Long-term debt: Rs 300,000 now, payable Rs 75,000 at year end. 10. Common stock: Rs 100,000. No additions planned. 11. Retained earnings: Rs 500,000 now. 12. Net profit margin: 8 percent of sales.13. Dividends: None. 14. Cost of goods sold: 60 percent of sales.15. Purchases: 50 percent of cost of goods sold. 16. Income taxes: 50 percent of before-tax profits.

Ans5.

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Q6. Using the data below produce common size and indexed balance sheet.

Q7. Using the data below produce common size and indexed income statement.

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Ans6

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Ans7.

Q8. Prepare common size income statement for Pellum Company, for the two years shown below by converting dollar amounts into percentage. Sales will be 100% for each year and other items will be expressed as a percentage of sales.

2005 2004(Rs. 000) (Rs. 000)

Sales 500 400Cost of goods sold 330 268Gross profit 170 132Operating expenses 130 116Net income 40 16

Ans8.

2005 2004Sales 100% 100%Cost of goods sold 66% 67%Gross profit 34% 33%Operating expenses 26% 29%Net income 8% 4%

Q9.

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During the year the company earned a gross profit of $1,116,000 on sales of $2,950,000. Accounts receivable, inventory, and plant assets remained almost constant in amount throughout the year. Compute the following:

a) Current Ratiob) Quick Ratio c) Net Working Capitald) Debt Ratio e) Account Receivable Turnover (all sales were on credit)f) Inventory Turnover

Ans9.

a) Current Ratio = 580,000 / 150,000 = 3.87b) Quick Ratio = 250,000 / 150,000 = 1.67c) Net Working Capital = 580,000 - 150,000 = 430,000.d) Debt Ratio = 510,000 / 1,240,000 = 0.41 or 41%e) Account Receivable Turnover = 2,950,000 / 155,000 = 19 xf) Inventory Turnover = ( 2,950,000 – 1,116,000 ) / 270,000 = 6.79 x

Q10. The following data applies to Kaiser company(millions of dollars):

Cash & marketable securities $ 100Fixed assets $283.5Sales $1,000Net income $50Quick ratio 2.0xCurrent ratio 3.0xDSO (average collection period)* 40 daysROE 12%

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*Calculation is based on a 360 day year.

Kaiser has no preferred stock – only common equity, current liabilities, and long-term debt.

Find Kaiser’s (1) accounts receivable (A/R), (2) current liabilities, (3) current assets,

(4) total assets, (5) ROA, ( 6 ) common equity, and (7) long-term debt.

Ans10.

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Q11. Ace industries have current assets equal to Rs. 3 Million. The company’s current ratio is 1.5, and its quick ratio is 1.0.

a) What is the firm’s level of current liabilities? b) What is the firm’s level of inventories?

Ans11.

Current liabilities = 3000000 / 1.5 = Rs. 2,000,000.

Inventory = 3,000,000 – 2,000,000 = Rs. 1,000,000.

Q12. Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data:

Debt ratio: 50%

Quick ratio: 0.80x

Total assets turnover: 1.5x

Days sales outstanding / average collection period: 36 days*

Gross profit margin on sales: (sales – cost of goods sold)/sales = 25%

Inventory turnover ratio: 5x


Balance SheetAssets $ Liabilities & Equity $ Cash Accounts payable Accounts receivable Long-term debt 60,000Inventory Common stockFixed assets Retained earnings 97,500Total Assets 300,000 Total Liabilities & Equity

Sales Cost of Goods Sold

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Ans12.

Total Assets = Total Liabilities & Equity = 300,000

Sales = 300,000 x 1.5 = 450,000.

Sales = 100% CGS = 75% GPM = 25%

Cost of goods sold = 450,000 x .75 = 337,500

Accounts payable = ( x + 60,000) / 300,000 x 100 = 50%

X = ( 300,000 x .50 ) - 60,000 = 90,000.

Common Stock = 300,000 - 97,500 - 90,000 - 60,000 = 52,500.

Inventory = 337,500 / 5 = 67,500.

Account receivable turnover = 360 / 36 = 10

Accounts receivable = 450,000 / 10 = 45,000.

Total current assets except inventory = 90,000 x .8 = 139,500

Cash = 139,500 - 45,000 = 94,500.

Fixed Assets = 300,000 - 94,500 - 45,000 - 67,500 = 93,000.

Balance SheetAssets $ Liabilities & Equity $ Cash 94,500 Accounts payable 90,000Accounts receivable 45,000 Long-term debt 60,000Inventory 67,500 Common stock 52,500Fixed assets 93,000 Retained earnings 97,500Total Assets 300,000 Total Liabilities & Equity 300,000

Sales 450,000 Cost of Goods Sold 337,500

Q13. Data for Barry Computer Company and its industry averages is as follows:

Balance SheetAssets ($ 000) Liabilities & Equity ($ 000)Cash 77,500 Accounts payable 129,000Accounts receivable 336,000 Notes payable 84,000Inventory 241,500 Other current liabilities 117,000Total current assets 655,000 Total current liabilities 330,000Fixed assets 292,500 Tong term debt 256,500

Common equity 361,000

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Total Assets 947,500 Total Liabilities & Equity 947,500

Income Statement($ 000) ($ 000)

Sales 1,607.5Cost of goods sold Materials 717 Labour 453 Heat, light, and power 68 Indirect labour 113 depreciation 41.5 1,392.5Gross profit 215Selling expense 115Genral and admin expenses 30EBIT 70Interest 24.5EBT 45.5Tax (40% of EBT) 18.2Net profit 27.3

RATIO BARRY INDUSTRY AVERAGE

Current ratio 2.0xDays Sale Outstanding / average collection period 35 daysSales /inventory 6.7xSales / total assets 3.0xNet Income / Sales 1.2%Net Income / total assets 3.6%Net Income / common equity 9.0%Total Debt / Total Assets 60.0%


Calculate the industry ratios for barry?

Ans13.

a) Current ratio = 655,000 / 330,000 = 2b) DSO = 360 / ( 1,607,500 / 336,000 ) = 76 daysc) Sales /inventory = 1,607,500 / 241,500 = 6.7 xd) Sales / total assets = 1,607,500 / 947,500 = 1.7 xe) Net Income / Sales = 27,300 / 1,607,500 x 100 = 1.7%f) Net Income / total assets = 27,300 / 947,500 x 100 = 2.9%

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g) Net Income / common equity = 27,300 / 361,000 x 100 = 7.6%h) Total Debt / Total Assets = 586,500 / 947,500 x 100 = 61.9%

Q14. Here is data for allied food products for the year 2006.

Allied Food ProductsBalance Sheet

For the year ended on 31 December 2006.Assets (Rs. In

Millions)Liability & Equity (Rs. In

Millions)Cash and Marketable Securities

10 Total Current Liability 310

Accounts Receivable 375 Long Term Bonds 754inventories 615 Total Debt 1,064Total Current Assets 1,000

Common Stock 170Plant and Equipment 1,000 Retained Earnings 766

Total Common Equity 8962,000 2,000

Sales for the year 2006 were Rs. 3 Billion and they are expected to grow by 10% by 2007. long term debt and common stocks will remain content in 2007. The difference in the balance sheet belongs to retained earnings.

Prepare a projected balance sheet for Allied Food Products for the year 2007 using percentage of sales method?

Ans14.

Allied Food ProductsBalance Sheet

For the year ended on 31 December 2007.Assets (Rs. In

Millions)Liability & Equity (Rs. In

Millions)Cash and Marketable Securities

11 Total Current Liability 341

Accounts Receivable 412 Long Term Bonds 754inventories 677 Total Debt 1,0895Total Current Assets 1,100

Common Stock 170Plant and Equipment 1,100 Retained Earnings 935

Total Common Equity 11052,200 2,200

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Q15. Here is data for allied food products for the year 2006.

Allied Food ProductsIncome Statement

For the year ended on 31 December 2006.(Rs. In Millions)

Sales 3,000Cost except depreciation 2,616Depreciation 100Total operating cost 2716EBIT 284Interest 88EBT 196Tax (40% of EBT) 78Net Income Available for Common shareholders 118Dividend (50 % of net profit) 59Addition to retained earnings 59

Sales for the year 2006 were Rs. 3 Billion and they are expected to grow by 10% by 2007. Depreciation and interest will remain content in 2007.

Prepare a projected income statement for Allied Food Products for the year 2007 using percentage of sales method?

Ans15.

Allied Food ProductsIncome Statement

For the year ended on 31 December 2007.(Rs. In Millions)

Sales 3,300Cost except depreciation 2,878Depreciation 100Total operating cost 2978EBIT 322Interest 88EBT 234Tax (40% of EBT) 94Net Income Available for Common shareholders 140Dividend (50 % of net profit) 70Addition to retained earnings 70

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Q16. Cooley Textile’s 2000 financial statements are shown below.

Balance SheetAssets $ (000) Liabilities & Equity $ (000)Cash (3%) 1,080 Accounts payable (20%) 4,320Accounts receivable (18%) 6,480 Accruals (7%) 2,880Inventory (25%) 9,000 Notes payable 2,100Total current assets 16,560 Total current liabilities 9,300Fixed assets (35%) 12,600 Mortgage Bonds 3,500

Total debt 12,800Common stock 3,500Retained earnings 12,860

29,160 29,160

Income Statement$ (000)

sales 36,000Operating cost (90.11%) 32,440EBIT 3,560Interest 560EBT 3,000Tax (40% of EBT) 1,200Net income 1,800Dividend (45% of net income) 810Retained earnings 990

Suppose 2001 sales are projected to increase by 15% over 2000 sales. Assume that the company was operating at full capacity in 2000, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also assume that assets, spontaneous liabilities, and operating costs are expected to increase in proportion to sales. Use the percentage of sales method to develop a pro forma balance sheet and income statement for December 31, 2001. Use the pro forma income statement to determine the addition to retained earnings. Interest, Mortgage Bonds and Common Stocks will remain content.

Ans16.


sales 41,400Operating cost (90.11%) 37,306

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EBIT 4,094Interest 560EBT 3,534Tax (40% of EBT) 1414Net income 2120Dividend (45% of net income) 954Retained earnings 1166

Balance SheetAssets $ (000) Liabilities & Equity $ (000)Cash (3%) 1,242 Accounts payable (20%) 4,968Accounts receivable (18%) 7,452 Accruals (7%) 3,312Inventory (25%) 10,350 Notes payable 4,228Total current assets 19,044 Total current liabilities 12,508Fixed assets (35%) 14,490 Mortgage Bonds 3,500


33,534 33,534

Q17.

Balance SheetAssets $ (000) Liabilities & Equity $ (000)Cash (5%) 1,800 Accounts payable (20%) 7,200Accounts receivable (30?%) 10,800 Accruals (7%) 3,472Inventory (35%) 12,600 Notes payable 2,520Total current assets 25,200 Total current liabilities 13,192Fixed assets (60%) 21,600 Mortgage Bonds 5,000


46,800 46,800


sales 36,000Operating cost (85.5%) 30,783EBIT 5,217Interest 1,017EBT 4,200Tax (40% of EBT) 1,680Net income 2,520Dividend (45% of net income) 1,512Retained earnings 1,008

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Suppose 2001 sales are projected to increase by 20% over 2000 sales. Assume that the company was operating at full capacity in 2000, that it cannot sell off any of its fixed assets, and that any required financing will be borrowed as notes payable. Also assume that assets, spontaneous liabilities, and operating costs are expected to increase in proportion to sales. Use the percentage of sales method to develop a pro forma balance sheet and income statement for December 31, 2001. Use the pro forma income statement to determine the addition to retained earnings. Interest, Mortgage Bonds and Common Stocks will remain content.

Ans17.


sales 43,200Operating cost (85.5%) 36,940EBIT 6,260Interest 1,017EBT 5,243Tax (40% of EBT) 2,097Net income 3,146Dividend (45% of net income) 1,416Retained earnings 1,730

Balance SheetAssets $ (000) Liabilities & Equity $ (000)Cash (5%) 2,160 Accounts payable (20%) 8,640Accounts receivable (30?%) 12,960 Accruals (7%) 3,024Inventory (35%) 15,120 Notes payable 9158Total current assets 30,240 Total current liabilities 20,822Fixed assets (60%) 25,920 Mortgage Bonds 5,000


56,160 56,160

Q18. Using the data below calculate the firm’s current and quick ratios for each year.

ITEM 2006 2007 2008 2009TOTAL CURRENT ASSETS 16,950 21,900 22,500 27,000TOTAL CURRENT LIABELITIES 9,000 12,600 12,600 17,400INVENTORY 6,000 6,900 6,900 7,200

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Ans18.

ITEM 2006 2007 2008 2009CURRENT RATIO 1.88 1.74 1.79 1.55QUICK RATIO 1.22 1.19 1.24 1.14

Q19. Using the data below prepare a common size income statement?

Ans19.

Q20. Use the data given below to calculate the values for the following:

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($ 000) ($ 000)Sales revenue 30,000Cost of goods sold 21,000Gross profit 9,000operating expenses Selling expenses 3,000 General and admin. expenses 1,800 Lease expenses 200 Depreciation expenses 1,000Total operating expenses 6,000Operating profit 3,000Interest 1,000EBT 2,000Tax (40% of EBT) 800Net profit 1,200

Sales revenue 100%Cost of goods sold 70%Gross profit 30%operating expenses Selling expenses 10% General and admin. expenses 6% Lease expenses 0.7% Depreciation expenses 3.33%Total operating expenses 20%Operating profit 10%Interest 3.33%EBT 6.67%Tax (40% of EBT) 2.67%Net profit 4%


sales $40,000,000Gross Profit Margin 80%Operating Profit Margin 35%Net Profit Margin 8%Return on total assets 16%Return on common equity 20%Total asset turnover 2Average collection period 62.2 days

Required:

a) Gross profitb) Cost of goods soldc) Operating profitd) Operating expensese) Earnings available for common shareholdersf) Total assetsg) Total common stock equityh) Accounts receivable

It is a 365 days year, assume all sales are on credit basis.

Ans20.

a) Gross profit = 40,000,000 x .80 = 32,000,000b) Cost of goods sold = 40,000,000 - 32,000,000 = 8,000,000c) Operating profit = 40,000,000 x .35 = 14,000,000d) Operating expenses = 32,000,000 - 14,000,000 = 18,000,000e) Earnings available for common shareholders = 40,000,000 x .08 = 3,200,000f) Total assets = 40,000,000 / 2 = 20,000,000 or 3,200,000 /16 x 100 = 20,000,000 g) Total common stock equity = 3,200,000 / 20 x 100 = 16,000,000h) Accounts receivable = 40,000,000 / (365 / 62.2) = 6,816,438.

Q21. Euro Designs, Inc., expects sales during 2010 to rise from the 2009 level of $3.5 million to $3.9 million. Because of a scheduled large loan payment, the interest expense in 2010 is expected to drop to $325,000. The firm plans to increase its cash dividend payments during 2010 to $320,000. The company’s year-end 2009 income statement is below.

($ 000)Sales 3,500Cost of goods sold 1,925Gross profit 1,575operating expenses 420

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Operating profit 1,155Interest 400EBT 755Tax (40% of EBT) 302Net profit 453Cash Dividend 250Addition to retained earnings 203

Use the percent-of-sales method to prepare a 2007 pro forma income statement for Euro Designs, Ltd.

Ans 21

($ 000)Sales 3,900Cost of goods sold 2,145Gross profit 1,755operating expenses 468Operating profit 1,287Interest 325EBT 962Tax (40% of EBT) 384.8Net profit 577.2Cash Dividend 320Addition to retained earnings 257.2

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