BA 620 Managerial Finance Group Problem Set 1: This problem Set is based on materials covered in module 1/week 1. It is designed for you to demonstrate your understanding of basic financial statements, financial statement analysis, break-even concepts, financial and operating leverages. Before you start this assignment, please review weeks 1 and 2 materials thoroughly. Finance date of Adams Stores, Inc. for the year ending 2016 and 2017. Items Sales Cash Other Expenses Retained Earnings Long-term debt Cost of goods sold Depreciation Short-term investments Fixed Assets Interest Expenses Shares outstanding (par value = $4.60) Market Price of stock Accounts Receivable Accounts payable Inventory Notes Payable Accumulated Depreciation 2016 $3,432,000 9,000 340,000 203,768 323,432 2,864,000 18,900 48,600 491,000 62,500 100,000 8.50 351,200 145,600 715,200 200,000 146,200 2017 $5,834,400 7,282 720,000 97,632 1,000,000 4,980,000 116,960 20,000 1,202,950 176,000 100,000 6 632,160 324,000 1,287,360 720,000 263,160 Accruals 136,000 284,960 Tax Rate 40% 40% Instructions: As a group, complete the following activities using the financial information above: Part 1: Financial Statements A. Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017 B. Prepare the balance sheet for 2016 and 2017 C. Prepare Common-Size financial statements of income statement and balance sheet. D. Prepare Statement of Cash Flows Part 2: Financial Statement Analysis A. Based on your financial statements (from Part 1), calculate the following ratios for the two years. Show all your calculations in good form. Show your formulas. If you use excel, each calculation need to show the excel formula Current ratio Quick ratio Inventory turnover (times) Average collection period (days) Total asset turnover (times) Debt ratio Times interest earned Gross profit margin Net profit margin Return on total assets Return on equity P/E ratio Return on equity using DuPont Analysis B. Comments on the ratios by comparing 2016 to 2017 ratios. C. Assume Adams Stores, Inc. is a retail company similar to WalMart, Myers, or Target. Compare 2017 ratios to the industry average. Please note that Adams Stores, Inc. is not a real company. To find comparable industry ratios, you need to search for industry ratios for retail. See information on Moodle for instructions on how to find industry ratios. Based on the industry average, how is Adams Stores, Inc. doing financially? Part 3: Break-even, Financial and Operating Leverages Johnson Products, Inc. Income Statement For the Year Ended December 31, 2018 Sales (40,000 bags at $50 each) ……………………………. $2,000,000 Less: Variable costs (40,000 bags at $25) ……………. 1,000,000 Fixed costs …………………………………………………….. 600,000 Earnings before interest and taxes ………………………… 400,000 Interest expense ………………………………………………….. 120,000 Earnings before taxes …………………………………………. 280,000 Income tax expense (20%) …………………………………… 56,000 Net income ………………………………………………………… $ 224,000 Based on the information above, calculate (show all calculations and responses in good form): a. Break-even in units (in dollars and units). Explain what your numbers mean. As a manager, how would you use the numbers in financial planning? b. What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? c. What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning? Specific Instructions: 1. Complete and submit your assignment no later than the last day of Module 1/Week 1. 2. Include only the names of your group members who participated in this assignment when you submit. 3. Submit only one copy per group. 4. You may use Excel or Word. Please DO NOT use any other format such PDF, etc. Side Note: Please note that this is not the type of assignment where the assignment is divided and each student completes the part that is assigned. Each person in your group need participate fully in the completion of each part of the assignment.