Assignment: Compute the missing values in the shaded cells, making sure the Balance Sheet Balances!

ILLUSTRATIVE CASE FOR FINANCIAL STATEMENT ANALYSISExhibit 1 ABC CORPORATION INCOME STATEMENTS (in 000s)

Statement of Income2000 2001 2002

Revenue $104,618 $320,414 $635,191

Operating Expenses 121,811 283,190 503,282Depreciation 3,995 10,417 26,922 Total Operating Expenses 125,806 293,607 530,204

Earnings or (Loss) before Interest & Taxes (21,188) 26,807 104,987

Interest Expense (7,395) (14,132) (21,009)Capitalized Interest 4,487 8,043 5,325 4.83603753524708Interest Income 2,527 2,491 5,314 15.4111875330672Other 0 18,706 407 20.2472250683143

Earnings or (Loss) before Tax (21,569) 41,915 95,024

Tax Expense or (Credit) (239) 3,378 40,116 Net Income or (Loss) -$42,996 $72,100 $240,127

Less: Preferred Stock Dividends $14,092 $16,970 $5,955

Net Income for Common -$57,088 $55,130 $234,172

Exhibit 2 BALANCE SHEETS as of December 31, 20XX (in 000s)ASSETS 2000 2001 2002Cash & Cash equivalents $34,403 $117,522 $257,853 Receivables 21,633 20,791 11,931 Inventories 1,133 2,210 4,840 Other 2,744 3,742 8,435 Total Current Assets 59,913 144,265 283,059

Fixed Assets 272,970 518,714 1,035,133 3,966 13,836 37,972

Total Fixed Assets 269,004 504,878 997,161

Other Assets 15,211 24,630 98,703

TOTAL ASSETS 344,128 673,773 1,378,923

LIABILITIES & OWNERS' EQUITYAccts Payable $12,867 $24,549 $46,042

Other Income or (Expense)1

Less Depreciation

Salaries Payable 5,599 18,265 37,140 Current Portion, Long Term Debt 24,800 54,985 50,754 Short Term Borrowings 15,138 28,781 21,679 Other Current liabilities 32,620 67,546 114,049 Total Current Liabilities 91,024 194,126 269,664

Long Term Debt 137,110 290,665 639,498 Deferred Credits & Other 6,595 10,708 55,088

Convertible Preferred Stock 163,552 210,441 0

Common Stock ($.01 par) 44 65 638 Additional Paid-in Capital 487 3,868 407,471 Other net 0 (2,983) (9,272)Retained Earnings/Deficit (54,684) (33,117) 15,836 Total Common Stock Equity (54,153) (32,167) 414,673

TOTAL LIAB. & OWN. EQUITY $344,128 $673,773 $1,378,923

FOOTNOTE:

shown as a negative number and interest earned from investments is shown as a positive.

Jan.1 Common Stock Shares 6,399,900 6,511,150 6,545,950Exercise of Stock Options 111,250 34,800 811,623Initial Public Offering 10,120,000Auto. Conversion Preferred Stock 46,038,393Employee Stock Purchase Plan 242,718Other (272)Year End Common Stock 6,511,150 6,545,950 63,758,412

Common Stockholder's Equity (Deficit)2

1Presented in same format as the Annual Report to the SEC on form 10-K; Interest paid is

2Number of Shares of Common Stock:

TREND ANALYSIS of ABC CORPORATION FINANCIAL STATEMENTS

corresponding item of the base year (e.g., Revenue: 2001 ratio will be 349654/111632=3.13;2002 ratio is 646237/111632=5.78); b) Divide each item by that year's REVENUE for theIncome Statement, and by TOTAL ASSETS for the Balance Sheet. The ratios of each item can be compared to determine a trend.

A: Trend Analysis compared to base year values as 1 for selected accounts:NOTE: Compute the missing values in the shaded cells.

TREND INCOME STATEMENT: 2000 2001 2002

Revenue 1.00 3.06 6.07Operating Expenses 1.00Depreciation & amortization expense 1.00

Net Income available for common (1.00)

TREND BALANCE SHEET:

Inventory 1.00Current Assets 1.00Total Fixed Assets 1.00Total Assets: 1.00

Current Liabilities 1.00Long-term Debt 1.00Total Liab. & Equity: 1.00

B: Trend Analysis using Common Size Income Statement and Balance Sheet for each year,on selected accounts.

Common Size Income StatementRevenue 1.00 1.00 1.00 Operating Expenses 1.20 0.92 0.83 Depr. & Amortiz. ExpensesInterest expenseEarnings before TaxNet Income available for common

Common Size Balance SheetTotal Assets: 1.00 1.00 1.00Current Assets 0.17 Other Assets 0.04 Fixed Assets 0.78

Current Liabilities 0.26 Long Term Debt excluding Current Portion 0.40 Deferred Credits 0.02 Preferred Equity 0.48 Common Stock Equity (0.16)

NOTE: The Trend Analysis can be done in two ways: a) Comparing each line item of a year with the

FINANCIAL RATIO ANALYSIS OF ABC CORPORATION

RATIO EQUATION 2001 2002 2002 One Major CompetitorAve. 2000 & 2001 Year End Ave. 2001 & 2002 Ave. 2001 & 2002

A: LIQUIDITY: Current Ratio Current Assets/ Current Liabilities 0.70 1.05 0.58 Quick Ratio (Current Assets - Inventory) / CL 0.69 0.645764 1.03 0.56

0.731767B: PROFITABILITY: 0.688765

Net Profit Margin % 8.64% -9.67%

Return on Assets 3.98% -5.21%

Return on Equity 13.24% -88.38%Earning Power EBIT / Total Assets 7.61% -6.00%

Leverage Total Assets / Equity -13.65 3.33 16.97 Assets Turnover Revenue / Total Assets 0.39 0.46 0.57

C: EFFICIENCY: AR Turnover Revenue / Accts Receivable 10.12 53.24 41.64

Days Sales outstanding Accts receivable / (Revenue/360) 48.9 6.76 8.73

D: DEBT:Debt Ratio Long-term Debt/(Long-term Debt+Equity) 0.63 0.79 Times Interest Earned EBIT / Interest Expense 5.00 (2.62)

E: FINANCIAL:Earnings Per Share (EPS) Net Income/ No. of Shares 0.77 ($10.22)Price/Earnings (P/E) Market Price / EPS 35.17 N/A

$200.00 $27.00 $12.10

Notes:

ABC Stock Closed at $44.20 on first day of trading in April 2002 and $27.00 at year-end.Stock Price is Actual at December 31, not an average. Competitor stock price was $12.10on December 31, 2002 and $29.26 on December 31, 2001.

Net Income3 / Revenue in %

Net Income3 / Total Assets in %

Net Income3 / Total Equity in %

Stock Price December 314

3 Net Income before preferred dividends should be used for these ratios

4 Stock not public prior to 2002, Price per share is assumed as $200 in 2001 and $100 in 2000.