Reference no: EM132484471
Financial Statement Project Overview: In corporate finance, students need to be able to understand and use financial statements in order to understand the strength of a firm. Purpose: The purpose for this project is to analyze corporate financial statements using ratio analysis and compare company performances Requirements: 1. Review the Balance Sheets and Income Statements for Company A and Company B. 2. Complete the Crunch the Numbers table and be sure to showing your calculations within each cell of the table. 3. Analyze your results by answering analysis questions.
Figure 1 - Company A Income Statement:
Sales $550,000
Cost of Goods sold 320,000
Gross Profits 230,000
General & Admin expenses $45,000
Depreciation expense 38,000
Total operating expense 83,000
Operating income (EBIT) 147,000
Interest expense 26,000
Earnings before taxes 121,000
Taxes (21%) 25,410
Net Income $95,590
Figure 2 - Company A Balance Sheet:
Cash 119,500
Accounts receivable 73,000
Inventory 47,000
Total current assets 239,500
Gross Buildings and equipment 648,000
Accumulated Depreciation 190,000
Net fixed assets 458,000
Other assets 15,000
Total assets $712,500
Accounts payable 65,000
Notes payable 29,000
Total current liabilities 94,000
Long -term debt 360,000
Total Liabilities 454,000
Common Stock 120,000
Retained earnings 138,500
Total equity 258,500
Total liabilities and equity $712,500
Figure 3 - Company B Income Statement:
Sales 525,000
Cost of Goods sold 300,000
Gross Profits 225,000
General & Admin expenses 41,00 0
Depreciation expense 36,000
Total operating expense 77,000
Operating income (EBIT) 148,000
Interest expense 23,000
Earnings before taxes 125,000
Taxes (40%) 26,250
Net Income $98,750
Figure 4 - Company B Balance Sheet:
Cash 119,500
Accounts receivable 69,000
Inventory 44,000
Total current assets 232,500
Gross Buildings and equipment 600,000
Accumulated Depreciation 175,000
Net fixed assets 425,000
Other assets 11,000
Total assets $668,500
Accounts payable 60,000
Notes payable 26,000
Total current liabilities 86,000
Long -term debt 342,500
Total Liabilities 428,500
Common Stock 110,000
Retained earnings 130,000
Total equity 240,000
Total liabilities and equity $668,500
Crunch the Numbers (show your calculation and the answer) Company A Company B Working Capital Debt Ratio Current Ratio
Inventory to Net Working Capital Acid-test Ratio Gross Profit Margin Analysis:
Question 1. Which firm has a larger amount of working capital?
Question 2. Which firm would you be more concerned about related to their debt?
Question 3. Which firm is more liquid?
Question 4. Which firm has higher amounts of liquid assets relative to its current liabilities?
Question 5. Which firm has a higher Gross Profit Margin?
Question 6. Which firm has would you be more concerned about regarding it's inventory?
Question 7. Based on your answers to #1 - #6, which Company would attract more investors? Why?