Reference no: EM131911028
Appendix A of your textbook describes several ratios as well as vertical analysis and horizontal analysis of financial statements. Using the annual report and excel file of financial statements for Craft Brew Alliance, prepare the following items. Use the spreadsheets provided and modify them with your calculations. Just be sure to change the file name to something with your name in it. You must use spreadsheets for this assignment.
Common Size Balance Sheet
Prepare a spreadsheet with common size balance sheets for the years ended December 31, 2016 and December 31, 2017. For 2017, each line item should be shown as a percentage of total assets on December 31, 2017. Likewise, for 2016, each item should be shown as a percentage of total assets on December 31, 2016. In your calculations, round each percentage to three digits. For example if cash as a percentage of total assets is .054029834, your answer should be shown as 5.4% or .054. Remember, these numbers on the financial statements are rounded to the nearest thousand, so it is a bit silly to show calculations with more precision than the underlying data.
Common Size Income Statement
Prepare a spreadsheet with common size income statements for the 2017 and 2016 fiscal years. In this case, your denominator will be Net Sales, because the top line includes excise taxes beyond the control of management. Again, remember to round.
Horizontal Analysis
Prepare a horizontal analysis of the balance sheet and income statement, showing the percentage change from 2016 to 2017 (the dollar amounts, not the percentages you calculated in the common size statements). This is calculated as follows:
2017 amount - 2016 amount
2016 amount
Thus, each line item on the balance sheet and income statement should show a percentage increase or decrease. A negative number, or decrease, can be formatted to show in parentheses, which is the preferable notation in accounting circles.
Solvency Ratios
Calculate the follwoing solvency ratios listed in exhibit A.3 on page 510 for Craft Brew Alliance in 2017:
- Working Capital
- CurrentRatio
- Acid-Test Ratio
- InventoryTurnover
- Accounts Receivable Turnover (note: this one is missing from your textbook but is calculated as Net Sales / Average Accounts Receivable)
- DebttoEquity
- Times InterestEarned
In any place where the formula calls for an average, use the 2016 number plus the 2017 number divided by 2.
Helpful Hint: There are no marketable securities, so the acid test ratio is just (cash + receivables) / current liabilities.
Performance Ratios
Calculate the following ratios from exhibit A.3 for Craft Bew Alliance in 2017:
- Assetturnover
- Return on Sales Please note a typo in the book. The formula should say (Net Income + Net-of-tax interest expense)/Sales.
- ReturnonAssets
- ReturnonEquity
- Averageinterest rate
- Gross Margin (this is also missing from your book but is a widely used ratio. It isgrossprofitdividedby Net Sales)
Also provide the EPS, or Earnings per Share as reported. Don't worry about calculating it yourself.
For the tax rate used in the ROA, assume their effective income tax rate is 35% because tax reform did not take effect until 2018.
The listed items should be submitted in an Excel file, with separate tabs for the income statement (common size 2016 and 2017, as well as the horizontal analysis in one tab), balance sheet (common size 2016 and 2017 plus horizontal analysis in another tab), and ratios in another tab (clearly labelled!).
Finally, a similar ratio analysis will be provided shortly for Molson Coors. Compare your results from Craft Brew with Molson Coors on a separate Word document. Your analysis must address at least three key ratios or trends that are similar to Coors and three that are different, as well as what those differences mean. You will not receive full credit if you only discuss dollars instead of ratios, and you must interpret, not just list, your results.
Attachment:- Craft Brew Alliance Financial Statements.xlsx