FINANCIAL MANAGEMENT
Midterm Examination
I.
NBA Shoe Manufacturing Corporation (NSMC) is engaged in manufacturing and distribution
of high-quality basketball shoes both for international and local use. NSMC is one of the
successful companies in the shoe industry, operating for almost two decades now. Provided
herein is the latest two-year comparative balance sheet and income statements for the
company. Using these statements, compute for the following financial ratios (i.e. liquidity,
leverage/solvency, coverage, activity and profitability ratios) and briefly explain the
significance of these computed ratios in the analysis of financial performance of the business.
(50 points)
NBA SHOE MANUFACTURING CORPORATION (NSMC)
Balance Sheet
December 31, 2018
ASSETS
Cash
Accounts Receivables
Inventories
Prepaid Expenses
Accumulated Tax Prepayment
Total Current Assets
Land, Building & Equipment
Less: Accumulated Depreciation
Net Land, Building & Equipment
Investment, Long Term
Other Assets, Long Term
Total Non-Current Assets
Total Assets
LIABILITIES
Bank Loans and Notes Payable
Accounts Payable
Accrued Taxes
Other Accrued Liabilities
Total Current Liabilities
Long Term Debt
Total Liabilities
SHAREHOLDERS EQUITY
Common Stocks
Years Ended December 31
2018
2017
9,950,000
8,750,000
33,900,000
37,000,000
66,450,000
61,750,000
1,050,000
850,000
1,750,000
1,450,000
113,100,000
109,800,000
84,800,000
76,900,000
-42,850,000
-39,550,000
41,950,000
37,350,000
3,250,000
0
10,250,000
10,250,000
55,450,000
47,600,000
168,550,000
157,400,000
22,400,000
7,400,000
1,800,000
9,550,000
41,150,000
31,550,000
72,700,000
17,800,000
6,800,000
6,350,000
8,200,000
39,150,000
31,350,000
70,500,000
21,050,000
21,050,000
Additional Paid-In
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
18,050,000
56,750,000
95,850,000
168,550,000
18,050,000
47,800,000
86,900,000
157,400,000
NBA SHOE MANUFACTURING CORPORATION (NSMC)
Income Statement
December 31, 2018
Net Sales
Cost of Goods Sold
Gross Profit
Selling, General & Administrative Expenses
Earnings before Interest & Expenses
Interest Expense
Earnings before Taxes
Income Taxes
Earnings after Taxes
Cash Dividends
Increase in Retained Earnings
II.
Years Ended December 31
2018
2017
225,000,000
197,500,000
-140,000,000
-125,000,000
85,000,000
72,500,000
-50,600,000
-44,750,000
34,400,000
27,750,000
-5,250,000
-4,500,000
29,150,000
23,250,000
-5,700,000
-5,600,000
23,450,000
17,650,000
-14,500,000
-11,500,000
8,950,000
6,150,000
Choose any five (5) among the following questions for 10 points each:
1. What is financial management and how important it is in the business enterprise?
2. What do financial managers do? Discuss its roles and responsibilities in the business
enterprise.
3. Discuss the trade-off between risk and return. As an investor, how are you going to deal
with it?
4. What are the goals of the business enterprise? Among these goals, what do you think
would be the primary goal to consider? Please explain.
5. How would the agency problem arise between the manager and the owner of the
business?
6. Discuss the general flow of funds among financial institutions and financial markets.
7. Differentiate the basic forms of business organization. If you are to establish your own
business, what form would you prefer?
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