Managerial Finance

  
BA 620 Managerial Finance 
Group Problem Set 1: This problem Set is based on materials covered in module 1/week 1. It is designed for you to demonstrate your understanding of basic financial statements, financial statement analysis, break-even concepts, financial and operating leverages. Before you start this assignment, please review weeks 1 and 2 materials thoroughly. 
Finance date of Adams Stores, Inc. for the year ending 2016 and 2017. 
  
Items 
Sales   
Cash   
Other   Expenses 
Retained   Earnings 
Long-term   debt 
Cost   of goods sold 
Depreciation   
Short-term   investments 
Fixed   Assets 
Interest   Expenses 
Shares outstanding (par   value 
=   $4.60) 
Market   Price of stock Accounts Receivable 
Accounts   payable 
Inventory   
Notes   Payable 
Accumulated   Depreciation 

2016 
$3,432,000 
9,000 340,000 
203,768 
323,432 
2,864,000 18,900 
48,600 
491,000 
62,500 
100,000 
8.50 351,200 
145,600 
715,200 
200,000 
146,200   

2017 
$5,834,400 
7,282 
720,000 
97,632 1,000,000 
4,980,000 
116,960 
20,000 
1,202,950 
176,000 
100,000 
6 632,160 
324,000 
1,287,360 720,000 
263,160   
 
Accruals   

136,000 

284,960 
 
Tax Rate 

40% 

40% 
Instructions: 
As a group, complete the following activities using the financial information above: 
Part 1: Financial Statements 
A. Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017 
B. Prepare the balance sheet for 2016 and 2017 
C. Prepare Common-Size financial statements of income statement and balance sheet. 
D. Prepare Statement of Cash Flows 
Part 2: Financial Statement Analysis 
A. Based on your financial statements (from Part 1), calculate the following ratios for the two years. Show all your calculations in good form. Show your formulas. If you use excel, each calculation need to show the excel formula 
Current ratio 
Quick ratio   
Inventory turnover (times) 
Average collection period (days) 
Total asset turnover (times) 
Debt ratio 
Times interest earned 
Gross profit margin 
Net profit margin 
Return on total assets 
Return on equity 
P/E ratio 
Return on equity using DuPont Analysis 
B. Comments on the ratios by comparing 2016 to 2017 ratios. 
C. Assume Adams Stores, Inc. is a retail company similar to WalMart, Myers, or Target. Compare 2017 ratios to the industry average. Please note that Adams Stores, Inc. is not a real company. To find comparable industry ratios, you need to search for industry ratios for retail. See information on Moodle for instructions on how to find industry ratios. Based on the industry average, how is Adams Stores, Inc. doing financially? 
Part 3: Break-even, Financial and Operating Leverages 

Johnson Products, Inc. 
Income Statement 
For the Year Ended December 31, 2018 
  
Sales (40,000 bags at $50 each)   .................................. 

$2,000,000 
 
Less: Variable costs (40,000 bags at $25) ................ 

1,000,000 
 
Fixed costs   .............................................................. 

600,000 
 
Earnings before interest and   taxes .............................. 

400,000 
 
Interest expense ........................................................... 

120,000 
 
Earnings before taxes ................................................. 

280,000 
 
Income tax expense (20%)   .......................................... 

56,000 
 
Net income   .................................................................. 

$ 224,000 

Based on the information above, calculate (show all calculations and responses in good form): 
a. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning? 
b. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? 
c. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? 
Specific Instructions: 
1. Complete and submit your assignment no later than the last day of Module 1/Week 1. 
2. Include only the names of your group members who participated in this assignment when you submit. 
3. Submit only one copy per group. 
4. You may use Excel or Word. Please DO NOT use any other format such PDF, etc. 
  
Side Note:   Please note that this is not the type of assignment where the assignment is 
 
divided and   each student completes the part that is assigned. Each person in your

 
group need   participate fully in the completion of each part of the assignment.