Reference no: EM132359944

Problem P3-5 Balance sheet preparation Use the appropriate items from the following list to pre-pare Mellark's Baked Goods balance sheet at December 31, 2019.

Item	Value ($000) at December 31, 2019	Item	Value ($000) at December 31, 2019
Accounts payable	$ 220	Inventories	$ 375
Accounts receivable	450	Land	100
Accruals	55	Long-term debts	420
Accumulated depreciation	265	Machinery	420
Buildings	225	Marketable securities	75
Cash	215	Notes payable	475
Common stock (at par)	90	Paid-in capital in
Cost of goods sold	2,500	excess of par	360
Depreciation expense	45	Preferred stock	100
Equipment	140	Retained earnings	210
Furniture and fixtures	170	Sales revenue	3,600
General expense	320	Vehicles	25

Problem P3-12 Liquidity ratio Josh Smith has compiled some of his personal financial data to determine his liquidity position. The data are as follows.

Account	Amount
Cash	$3,200
Marketable securities	1,000
Checking account	800
Credit card payables	1,200
Short-term notes payable	900

a. Calculate Josh's liquidity ratio.b. Several of Josh's friends have told him that they have liquidity ratios of about 1.8. How would you analyze Josh's liquidity relative to his friends?

Problem P3-13 Inventory management Three companies that compete in the footwear market are Foot Locker, Finish Line, and DSW. The table below shows inventory levels and cost of goods sold for each company for the 2016, 2015, and 2014 fiscal years. Calculate the inventory turnover ratio for each company in each year and summa-rize your findings. All values are in $ millions.

Foot Locker	2016	2015	2014
Cost of goods sold	$4,907	$4,777	$4,372
Inventory	1,285	1,250	1,220
Finish Line
Cost of goods sold	$1,306	$1,237	$1,123
Inventory	377	343	304
DSW
Cost of goods sold	$1,852	$1,741	$1,629
Inventory	484	451	398

Problem P3-17 Profitability analysis The table below shows 2016 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders' equity for three companies competing in the bottled drinks market: The Coca-Cola Company, Pepsico Inc., and Dr Pepper Snapple Group. All dollar values are in thousands.

	Coca-Cola	Pepsico	Dr Pepper
Revenues	$41,863	$62,799	$6,440
Cost of goods sold	16,465	28,209	2,582
Earnings	6,527	6,329	847
Total assets	87,270	74,129	9,791
Shareholders equity	23,062	11,246	2,134

a. Use the information given to analyze each firm's profitability in as many different ways as you can. Which company is most profitable? Why is this question diffi-cult to answer?b. For each company, ROE > ROA. Why is that so? Look at the difference between ROE and ROA for each company. Does that difference help you determine which firm uses the highest percentage of debt to finance its activities?

Problem P3-18 Using Tables 3.1, 3.2, and 3.3, conduct a complete ratio analysis of the Bartlett Company for the years 2018 and 2019. You should assess the firm's liquidity, activ-ity, debt, and profitability ratios. Highlight any particularly positive or negative developments that you uncover when comparing ratios from 2018 and 2019.

Problem P3-21 Analysis of debt ratios Financial information from fiscal year 2016 for two compa-nies competing in the cosmetics industry-The Estée Lauder Companies and e.l.f. Beauty Inc.-appears in the table below. All dollar values are in thousands.

	Estee Lauder	e.l.f. Beauty
Total assets	$9,223,300	$414,729
Total liabilities	5,636,000	273,867
EBIT	1,625,900	26,095
Interest expense	70,700	16,283

a. Calculate the debt ratio and the times interest earned ratio for each company. In what way are these companies similar in terms of their debt usage, and in what way are they very different?

b. Calculate the ratio of interest expense to total liabilities for each company. Conceptually, what do you think this ratio is trying to measure? Why are the values of this ratio dramatically different for these two firms? Suggest some reasons.

Problem P3-24 Financial statement analysis The financial statements of Zach Industries for the year ended December 31, 2019, follow.

Zach Industries Income Statement
for the Year Ended December 31, 2019

Sales revenue                                                   $160,000

Less: Cost of goods sold                                106,000

Gross profits                                               $ 54,000

Less: Operating expenses

Selling expense                                           $ 16,000

General and administrative expenses            10,000

Lease expense                                                 1,000

Depreciation expense                                   10,000

Total operating expense                                  $ 37,000

Operating profits                                        $ 17,000

Less: Interest expense                                         6,100

Net profits before taxes                             $ 10,900

Less: Taxes                                                                                4,360

Net profits after taxes                                $ 6,540

Zach Industries Balance Sheet December 31, 2019Assets

Cash $ 500

Marketable securities 1,000

Accounts receivable 25,000

Inventories 45,500

Total current assets $ 72,000

Land $ 26,000

Buildings and equipment 90,000

Less: Accumulated depreciation 38,000

Net fixed assets $ 78,000

Total assets $150,000

Liabilities and Stockholders' Equity

Accounts payable $ 22,000
Notes payable 47,000

Total current liabilities $ 69,000

Long-term debt 22,950
Common stock° 31,500
Retained earnings 26,550
Total liabilities and stockholders' equity $150,000

Ratio           Industry average                        Actual 2018            Actual 2019
Current ratio 1.80     1.84
Quick ratio 0.70     0.78
Inventory turnover 2.50     2.59
Average collection period 37.5 days     36.5 days
Debt ratio 65%      67%
Times interest earned ratio 3.8     4.0
Gross profit margin 38%    40%
Net profit margin 3.5%    3.6%
Return on total assets 4.0%    4.0%
Return on common equity 9.5%    8.0%
Market/book ratio 1.1     1.2

Based on a 365-day year and on end-of-year figures.

a. Use the preceding financial statements to complete the following table. Assume that the industry averages given in the table are applicable for both 2018 and 2019.

b. Analyze Zach Industries' financial condition as it is related to (1) liquidity, (2) activity, (3) debt, (4) profitability, and (5) market. Summarize the company's overall financial condition.

Problem P3-26 DuPont system of analysis Use the following 2016 financial information for ATT and Verizon to conduct a DuPont system of analysis for each company.

	ATP	Verizon
Saks	$163,786	$125,980
Earnings available for common stockholders	13,333	13,608
Total assets	403,821	244,180
Stockholders' equity	124,110	24,032

a. Which company has the higher net profit margin? Higher asset turnover?b. Which company has the higher ROA? The higher ROE?

Problem P4-9 Cash disbursements schedule Maris Brothers Inc. needs a cash disbursement sched-ule for the months of April, May, and June. Use the format of Table 4.9 and the fol-lowing information in its preparation.Sales: February=$500,000; March=$500,000; April=$560,000; May=$610,000; June=$650,000; July=$650,000Purchases: Purchases are calculated as 60% of the next month's sales, 10% of purchases are made in cash, 50% of purchases are paid for 1 month after pur-chase, and the remaining 40% of purchases are paid for 2 months after purchase.Rent: The firm pays rent of $8,000 per month.Wages and salaries: Base wage and salary costs are fixed at $6,000 per month plus a variable cost of 7% of the current month's sales.Taxes: A tax payment of $54,500 is due in June.Fixed asset outlays: New equipment costing $75,000 will be bought and paid for in April.Interest payments: An interest payment of $30,000 is due in June.Cash dividends: Dividends of $12,500 will be paid in April.Principal repayments and retirements: No principal repayments or retirements are due during these months.

Problem P4-10 Cash budget: Basic Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecast sales for May, June, and July are $70,000, $80,000, and $100,000, respectively. The firm has a cash balance of $5,000 on May 1 and wishes to maintain a minimum cash balance of $5,000. Given the following data, prepare and interpret a cash budget for the months of May, June, and July. (1) The firm makes 20% of sales for cash, 60% are collected in the next month, and the remaining 20% are collected in the second month following sale. (2) The firm receives other income of $2,000 per month. (3) The firm's actual or expected purchases, all made for cash, are $50,000, $70,000, and $80,000 for the months of May through July, respectively. (4) Rent is $3,000 per month. (5) Wages and salaries are 10% of the previous month's sales. (6) Cash dividends of $3,000 will be paid in June. (7) Payment of principal and interest of $4,000 is due in June. (8) A cash purchase of equipment costing $6,000 is scheduled in July. (9) Taxes of $6,000 are due in June.