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Department of Management Sciences
BBA 8th Morning
Analysis of Financial Statements
Numerical Questions
Final Term
Numerical Questions:
Q1. Using the information, complete the balance sheet.
Long term debt to equity
50%
Total assets turnover
2.5 times
Average collection period*
18 days
Inventory turnover
9 times
Gross profit margin
10%
Acid test ratio
1
*Assume a 360 days year and all sales on credit.
Assets
Cash
Accounts Receivable
Inventory
Plant And Equipment
Total Assets
Rs.
Liabilities And Equity
Notes And Payables
Long Term Debt
Common Stock
Retained Earnings
Total Liabilities And Equity
Rs.
100,000
100,000
100,000
Ans1.
Owais Shafique
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Assets
Cash
Accounts Receivable
Inventory
Plant And Equipment
Total Assets
Rs.
50,000
50,000
100,000
200,000
400,000
Liabilities And Equity
Notes And Payables
Long Term Debt
Common Stock
Retained Earnings
Total Liabilities And Equity
Rs.
100,000
100,000
100,000
100,000
400,000
Q2. ABC Company has the following balance sheet and income statement over the last year. (in
thousands):
Ans2.
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Q3.
Ans3.
Owais Shafique
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Q4.
Owais Shafique
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Ans4.
Owais Shafique
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Q5.
Allied Company expects sales of Rs 2.4 million next year and the same amount the following year.
Sales are spread evenly throughout the year. On the basis of the following information, prepare a
forecast income statement and balance sheet for year end:
1. Cash: Minimum of 4 percent of annual sales.
2. Accounts receivable: 60-day average collection period based on annual sales.
3. Inventories: Turnover of eight times a year.
4. Net fixed assets: Rs 500,000 now. Capital expenditures equal to depreciation.
5. Accounts payable: One month's purchases.
6. Accrued expenses: 3 percent of sales.
7. Bank borrowings: Rs 27,000 now.
8. Can borrow up to Rs 250,000.
9. Long-term debt: Rs 300,000 now, payable Rs 75,000 at year end.
10. Common stock: Rs 100,000. No additions planned.
11. Retained earnings: Rs 500,000 now.
12. Net profit margin: 8 percent of sales.
13. Dividends: None.
14. Cost of goods sold: 60 percent of sales.
15. Purchases: 50 percent of cost of goods sold.
16. Income taxes: 50 percent of before-tax profits.
Ans5.
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Owais Shafique
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Q6. Using the data below produce common size and indexed balance sheet.
Q7. Using the data below produce common size and indexed income statement.
Owais Shafique
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Ans6
Ans7.
Owais Shafique
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Q8. Prepare common size income statement for Pellum Company, for the two years shown below
by converting dollar amounts into percentage. Sales will be 100% for each year and other items will
be expressed as a percentage of sales.
Sales
Cost of goods sold
Gross profit
Operating expenses
Net income
2005
2004
(Rs. 000) (Rs. 000)
500
400
330
268
170
132
130
116
40
16
Ans8.
Sales
Cost of goods sold
Gross profit
Operating expenses
Net income
2005
100%
66%
34%
26%
8%
2004
100%
67%
33%
29%
4%
Q9.
During the year the company earned a gross profit of $1,116,000 on sales of $2,950,000. Accounts
receivable, inventory, and plant assets remained almost constant in amount throughout the year.
Compute the following:
a)
b)
c)
d)
e)
f)
Current Ratio
Quick Ratio
Net Working Capital
Debt Ratio
Account Receivable Turnover (all sales were on credit)
Inventory Turnover
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Ans9.
a)
b)
c)
d)
e)
f)
Current Ratio = 580,000 / 150,000 = 3.87
Quick Ratio = 250,000 / 150,000 = 1.67
Net Working Capital = 580,000 - 150,000 = 430,000.
Debt Ratio = 510,000 / 1,240,000 = 0.41 or 41%
Account Receivable Turnover = 2,950,000 / 155,000 = 19 x
Inventory Turnover = ( 2,950,000 – 1,116,000 ) / 270,000 = 6.79 x
Q10. The following data applies to Kaiser company(millions of dollars):
Cash & marketable securities
Fixed assets
Sales
Net income
Quick ratio
Current ratio
DSO (average collection period)*
ROE
$ 100
$283.5
$1,000
$50
2.0x
3.0x
40 days
12%
*Calculation is based on a 360 day year.
Kaiser has no preferred stock – only common equity, current liabilities, and long-term debt.
Find Kaiser’s (1) accounts receivable (A/R), (2) current liabilities, (3) current assets,
(4) total assets, (5) ROA, ( 6 ) common equity, and (7) long-term debt.
Ans10.
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Q11. Ace industries have current assets equal to Rs. 3 Million. The company’s current ratio is 1.5,
and its quick ratio is 1.0.
a) What is the firm’s level of current liabilities?
b) What is the firm’s level of inventories?
Ans11.
Current liabilities = 3000000 / 1.5 = Rs. 2,000,000.
Inventory = 3,000,000 – 2,000,000 = Rs. 1,000,000.
Q12. Complete the balance sheet and sales information in the table that follows for Hoffmeister
Industries using the following financial data:
Debt ratio: 50%
Quick ratio: 0.80x
Total assets turnover: 1.5x
Days sales outstanding / average collection period: 36 days*
Gross profit margin on sales: (sales – cost of goods sold)/sales = 25%
Inventory turnover ratio: 5x
*Calculation is based on a 360 day year.
Assets
Cash
Accounts receivable
Inventory
Fixed assets
Total Assets
Sales
Balance Sheet
$
Liabilities & Equity
Accounts payable
Long-term debt
Common stock
Retained earnings
300,000 Total Liabilities & Equity
$
60,000
97,500
Cost of Goods Sold
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Ans12.
Total Assets = Total Liabilities & Equity = 300,000
Sales = 300,000 x 1.5 = 450,000.
Sales = 100%
CGS = 75% GPM = 25%
Cost of goods sold = 450,000 x .75 = 337,500
Accounts payable = ( x + 60,000) / 300,000 x 100 = 50%
X = ( 300,000 x .50 ) - 60,000 = 90,000.
Common Stock = 300,000 - 97,500 - 90,000 - 60,000 = 52,500.
Inventory = 337,500 / 5 = 67,500.
Account receivable turnover = 360 / 36 = 10
Accounts receivable = 450,000 / 10 = 45,000.
Total current assets except inventory = 90,000 x .8 = 139,500
Cash = 139,500 - 45,000 = 94,500.
Fixed Assets = 300,000 - 94,500 - 45,000 - 67,500 = 93,000.
Assets
Cash
Accounts receivable
Inventory
Fixed assets
Total Assets
Balance Sheet
$
Liabilities & Equity
94,500
Accounts payable
45,000
Long-term debt
67,500
Common stock
93,000
Retained earnings
300,000
Total Liabilities & Equity
$
90,000
60,000
52,500
97,500
300,000
Sales
450,000
337,500
Cost of Goods Sold
Q13. Data for Barry Computer Company and its industry averages is as follows:
Assets
Cash
Accounts receivable
Inventory
Total current assets
Fixed assets
Total Assets
Balance Sheet
($ 000)
Liabilities & Equity
77,500
Accounts payable
336,000
Notes payable
241,500
Other current liabilities
655,000
Total current liabilities
292,500
Tong term debt
Common equity
947,500
Total Liabilities & Equity
Owais Shafique
($ 000)
129,000
84,000
117,000
330,000
256,500
361,000
947,500
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Income Statement
($ 000)
Sales
Cost of goods sold
Materials
Labour
Heat, light, and power
Indirect labour
depreciation
Gross profit
Selling expense
Genral and admin expenses
EBIT
Interest
EBT
Tax (40% of EBT)
Net profit
RATIO
717
453
68
113
41.5
BARRY
Current ratio
Days Sale Outstanding / average collection period
Sales /inventory
Sales / total assets
Net Income / Sales
Net Income / total assets
Net Income / common equity
Total Debt / Total Assets
($ 000)
1,607.5
1,392.5
215
115
30
70
24.5
45.5
18.2
27.3
INDUSTRY
AVERAGE
2.0x
35 days
6.7x
3.0x
1.2%
3.6%
9.0%
60.0%
*Calculation is based on a 360 day year.
Calculate the industry ratios for barry?
Ans13.
a)
b)
c)
d)
e)
f)
g)
h)
Current ratio = 655,000 / 330,000 = 2
DSO = 360 / ( 1,607,500 / 336,000 ) = 76 days
Sales /inventory = 1,607,500 / 241,500 = 6.7 x
Sales / total assets = 1,607,500 / 947,500 = 1.7 x
Net Income / Sales = 27,300 / 1,607,500 x 100 = 1.7%
Net Income / total assets = 27,300 / 947,500 x 100 = 2.9%
Net Income / common equity = 27,300 / 361,000 x 100 = 7.6%
Total Debt / Total Assets = 586,500 / 947,500 x 100 = 61.9%
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Q14. Here is data for allied food products for the year 2006.
Allied Food Products
Balance Sheet
For the year ended on 31 December 2006.
Assets
(Rs. In
Liability & Equity
Millions)
Cash and Marketable
10
Total Current Liability
Securities
Accounts Receivable
375
Long Term Bonds
inventories
615
Total Debt
Total Current Assets
1,000
Common Stock
Plant and Equipment
1,000
Retained Earnings
Total Common Equity
2,000



(Rs. In
Millions)
310
754
1,064
170
766
896
2,000
Sales for the year 2006 were Rs. 3 Billion and they are expected to grow by 10% by 2007.
long term debt and common stocks will remain content in 2007.
The difference in the balance sheet belongs to retained earnings.
Prepare a projected balance sheet for Allied Food Products for the year 2007 using percentage of
sales method?
Ans14.
Allied Food Products
Balance Sheet
For the year ended on 31 December 2007.
Assets
(Rs. In
Liability & Equity
Millions)
Cash and Marketable
11
Total Current Liability
Securities
Accounts Receivable
412
Long Term Bonds
inventories
677
Total Debt
Total Current Assets
1,100
Common Stock
Plant and Equipment
1,100
Retained Earnings
Total Common Equity
2,200
Owais Shafique
(Rs. In
Millions)
341
754
1,0895
170
935
1105
2,200
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Q15. Here is data for allied food products for the year 2006.
Allied Food Products
Income Statement
For the year ended on 31 December 2006.
(Rs. In Millions)
Sales
3,000
Cost except depreciation
2,616
Depreciation
100
Total operating cost
2716
EBIT
284
Interest
88
EBT
196
Tax (40% of EBT)
78
Net Income Available for Common shareholders
118
Dividend (50 % of net profit)
59
Addition to retained earnings
59


Sales for the year 2006 were Rs. 3 Billion and they are expected to grow by 10% by 2007.
Depreciation and interest will remain content in 2007.
Prepare a projected income statement for Allied Food Products for the year 2007 using percentage
of sales method?
Ans15.
Allied Food Products
Income Statement
For the year ended on 31 December 2007.
(Rs. In Millions)
Sales
3,300
Cost except depreciation
2,878
Depreciation
100
Total operating cost
2978
EBIT
322
Interest
88
EBT
234
Tax (40% of EBT)
94
Net Income Available for Common shareholders
140
Dividend (50 % of net profit)
70
Addition to retained earnings
70
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Q16. Cooley Textile’s 2000 financial statements are shown below.
Assets
Cash (3%)
Accounts receivable (18%)
Inventory (25%)
Total current assets
Fixed assets (35%)
Balance Sheet
$ (000)
Liabilities & Equity
1,080
Accounts payable (20%)
6,480
Accruals (7%)
9,000
Notes payable
16,560
Total current liabilities
12,600
Mortgage Bonds
Total debt
Common stock
Retained earnings
29,160
$ (000)
4,320
2,880
2,100
9,300
3,500
12,800
3,500
12,860
29,160
Income Statement
sales
Operating cost (90.11%)
EBIT
Interest
EBT
Tax (40% of EBT)
Net income
Dividend (45% of net income)
Retained earnings
$ (000)
36,000
32,440
3,560
560
3,000
1,200
1,800
810
990
Suppose 2001 sales are projected to increase by 15% over 2000 sales. Assume that the company
was operating at full capacity in 2000, that it cannot sell off any of its fixed assets, and that any
required financing will be borrowed as notes payable. Also assume that assets, spontaneous
liabilities, and operating costs are expected to increase in proportion to sales. Use the percentage of
sales method to develop a pro forma balance sheet and income statement for December 31, 2001.
Use the pro forma income statement to determine the addition to retained earnings. Interest,
Mortgage Bonds and Common Stocks will remain content.
Ans16.
Income Statement
sales
Operating cost (90.11%)
EBIT
Interest
EBT
Tax (40% of EBT)
Net income
Dividend (45% of net income)
Retained earnings
Owais Shafique
$ (000)
41,400
37,306
4,094
560
3,534
1414
2120
954
1166
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Assets
Cash (3%)
Accounts receivable (18%)
Inventory (25%)
Total current assets
Fixed assets (35%)
Balance Sheet
$ (000)
Liabilities & Equity
1,242
Accounts payable (20%)
7,452
Accruals (7%)
10,350
Notes payable
19,044
Total current liabilities
14,490
Mortgage Bonds
Total debt
Common stock
Retained earnings
33,534
$ (000)
4,968
3,312
4,228
12,508
3,500
16,008
3,500
14,026
33,534
Balance Sheet
$ (000) Liabilities & Equity
1,800
Accounts payable (20%)
10,800
Accruals (7%)
12,600
Notes payable
25,200
Total current liabilities
21,600
Mortgage Bonds
Total debt
Common stock
Retained earnings
46,800
$ (000)
7,200
3,472
2,520
13,192
5,000
18,192
2,000
26,608
46,800
Q17.
Assets
Cash (5%)
Accounts receivable (30?%)
Inventory (35%)
Total current assets
Fixed assets (60%)
Income Statement
sales
Operating cost (85.5%)
EBIT
Interest
EBT
Tax (40% of EBT)
Net income
Dividend (45% of net income)
Retained earnings
$ (000)
36,000
30,783
5,217
1,017
4,200
1,680
2,520
1,512
1,008
Suppose 2001 sales are projected to increase by 20% over 2000 sales. Assume that the company
was operating at full capacity in 2000, that it cannot sell off any of its fixed assets, and that any
required financing will be borrowed as notes payable. Also assume that assets, spontaneous
liabilities, and operating costs are expected to increase in proportion to sales. Use the percentage of
sales method to develop a pro forma balance sheet and income statement for December 31, 2001.
Use the pro forma income statement to determine the addition to retained earnings. Interest,
Mortgage Bonds and Common Stocks will remain content.
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Ans17.
Income Statement
sales
Operating cost (85.5%)
EBIT
Interest
EBT
Tax (40% of EBT)
Net income
Dividend (45% of net income)
Retained earnings
Assets
Cash (5%)
Accounts receivable (30?%)
Inventory (35%)
Total current assets
Fixed assets (60%)
$ (000)
43,200
36,940
6,260
1,017
5,243
2,097
3,146
1,416
1,730
Balance Sheet
$ (000) Liabilities & Equity
2,160
Accounts payable (20%)
12,960
Accruals (7%)
15,120
Notes payable
30,240
Total current liabilities
25,920
Mortgage Bonds
Total debt
Common stock
Retained earnings
56,160
$ (000)
8,640
3,024
9158
20,822
5,000
25,822
2,000
28,338
56,160
Q18. Using the data below calculate the firm’s current and quick ratios for each year.
ITEM
TOTAL CURRENT ASSETS
TOTAL CURRENT LIABELITIES
INVENTORY
2006
16,950
9,000
6,000
2007
21,900
12,600
6,900
2008
22,500
12,600
6,900
2009
27,000
17,400
7,200
Ans18.
ITEM
CURRENT RATIO
QUICK RATIO
2006
2007
2008
2009
1.88
1.74
1.79
1.55
1.22
1.19
1.24
1.14
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Q19. Using the data below prepare a common size income statement?
($ 000)
Sales revenue
Cost of goods sold
Gross profit
operating expenses
Selling expenses
General and admin. expenses
Lease expenses
Depreciation expenses
Total operating expenses
Operating profit
Interest
EBT
Tax (40% of EBT)
Net profit
($ 000)
30,000
21,000
9,000
3,000
1,800
200
1,000
6,000
3,000
1,000
2,000
800
1,200
Ans19.
Sales revenue
Cost of goods sold
Gross profit
operating expenses
Selling expenses
General and admin. expenses
Lease expenses
Depreciation expenses
Total operating expenses
Operating profit
Interest
EBT
Tax (40% of EBT)
Net profit
100%
70%
30%
10%
6%
0.7%
3.33%
20%
10%
3.33%
6.67%
2.67%
4%
Q20. Use the data given below to calculate the values for the following:
sales
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Return on total assets
Return on common equity
Total asset turnover
Average collection period
Owais Shafique
$40,000,000
80%
35%
8%
16%
20%
2
62.2 days
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Required:
a)
b)
c)
d)
e)
f)
g)
h)
Gross profit
Cost of goods sold
Operating profit
Operating expenses
Earnings available for common shareholders
Total assets
Total common stock equity
Accounts receivable
It is a 365 days year, assume all sales are on credit basis.
Ans20.
a)
b)
c)
d)
e)
f)
g)
h)
Gross profit = 40,000,000 x .80 = 32,000,000
Cost of goods sold = 40,000,000 - 32,000,000 = 8,000,000
Operating profit = 40,000,000 x .35 = 14,000,000
Operating expenses = 32,000,000 - 14,000,000 = 18,000,000
Earnings available for common shareholders = 40,000,000 x .08 = 3,200,000
Total assets = 40,000,000 / 2 = 20,000,000 or 3,200,000 /16 x 100 = 20,000,000
Total common stock equity = 3,200,000 / 20 x 100 = 16,000,000
Accounts receivable = 40,000,000 / (365 / 62.2) = 6,816,438.
Q21. Euro Designs, Inc., expects sales during 2010 to rise from the 2009 level of $3.5 million to
$3.9 million. Because of a scheduled large loan payment, the interest expense in 2010 is expected to
drop to $325,000. The firm plans to increase its cash dividend payments during 2010 to $320,000.
The company’s year-end 2009 income statement is below.
Sales
Cost of goods sold
Gross profit
operating expenses
Operating profit
Interest
EBT
Tax (40% of EBT)
Net profit
Cash Dividend
Addition to retained earnings
($ 000)
3,500
1,925
1,575
420
1,155
400
755
302
453
250
203
Use the percent-of-sales method to prepare a 2007 pro forma income statement for Euro Designs, Ltd.
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Ans 21
Sales
Cost of goods sold
Gross profit
operating expenses
Operating profit
Interest
EBT
Tax (40% of EBT)
Net profit
Cash Dividend
Addition to retained earnings
Owais Shafique
($ 000)
3,900
2,145
1,755
468
1,287
325
962
384.8
577.2
320
257.2
24