Analyzing Profitability - From the textbook - Financial Analysis with Microsoft Excel Read Chapter 3 Review PPT Chapter 3. ***ATTACHED Using you

08 Apr Analyzing Profitability – From the textbook – Financial Analysis with Microsoft Excel Read Chapter 3 Review PPT Chapter 3. ***ATTACHED Using you

Posted at 01:02h in Business & Finance /Accounting by

Analyzing Profitability –

From the textbook – Financial Analysis with Microsoft Excel

Read Chapter 3

Review PPT Chapter 3. ***ATTACHED

Using your financial statements from Southwest Airlines in Week 2, calculate the following ratios : ***ATTACHED (Professor comments to fix it: For your internet exercise, you need to follow the rules for Common Sized statements – also referred to as a vertical analysis. You need to make the sales = to 100% and it will be the denominator to everything on the income statement. Total Assets will be the denominator on the balance sheet.)

Gross Profit Margin, Operating Profit Margin, Current Ratio,

From the Red Company Software Materials –

Drilling down into the Dupont Analysis

Read Red Company Chapter 4 pages 35-57. ***ATTACHED

Watch the videos at the Red Company website on the Dupont Analysis (04A, 04B, 04C)

URL: https://www.youtube.com/watch?v=qRBHfpyTDU8

Complete Homework EX 4-1 through 4-10

Red Company Homework

Enter your answers below – numbers only with
		2017	2016
EX2-1		% of net sales	% of net sales
1	Cost of Sales	63.20%	63.40%
2	Gross profit	36.70%	36.50%
3	selling, general, and admin expense	22.50%	22.50%
4	operating earnings	14.17%	13.97%
5	net earnings	10.60%	9.65%
B.	Discuss which line item (Cost of sales or selling, general and administrative expense) helped to increase the operating earnings and net earnings as a % of Net Sales from 2016 to 2017	This helped operating earnings and net earnings as a percent of sales go up from 2016 to 2017, because the cost of sales was a little less in 2017. This helped.
		2017	2016
EX 2-2		% of net sales	% of net sales
1	Total receivables, net	12.25%	11.79%
2	Inventories, net	22%	22.17%
3	Accounts payable	14.17%	13.61%
4	Retained earnings	7.50%	7.88%
5	Total stockholders' equity	41.31%	39.72%
B.	Did liabilities or equity finance more of Toro's Total assets in 2017?	liabilities
		2017	2016
EX-2-3		% of net sales	% of net sales
1	Net sales	4.72%	0.05%
2	Cost of sales	4.21%	2.40%
3	Gross profit	5.28%	4.69%
4	selling, general, and admin expense	4.72%	0.62%
5	net earnings	18.89%	14.58%
B.	Coment on the percent change in gross profit from 2016 to 2017 compared to the percent change in net sales from 2016 to 2017	It is the percentage change in net sales from 2016 to 2017. Even though net sales have gone up a lot from last year compared to gross profit.
		2017	2016
EX2-4		% of net sales	% of net sales
1	Total receivables, net	$19,808	12.13%
2	Inventories, net	$21,958	7.15%
3	Accounts payable	$37,084	21.23%
4	Retained Earnings	$54,285	11.30%
B.	Comment on the percent change in inventory from 2016 to 2017 compared to the percent change in cost of sales from 2016 to 2017	When you compare the percentage changes in inventory from 2016 to 2017 to the percentage changes in cost of sales from 2016 to 2017, you see that inventory changed more than cost of sales changed.

Internet Exercise

Big RockCandy Mountain Mining Co.
Income Statement
For the Year Ended Dec. 31,2020
	2020	2019
Sales	412,500	398,600
Cost of Goods Sold	318,786	315,300
Gross Profit	93,714	83,300	=B5-B6
Selling and G&A Expenses	26,250	24,550
Other Expenses	1,210	1,245
Depreciation Expense	29,800	29,652
EBIT	36,454	27,853	=B7-SUM(B8:B10)
Interest Expense	8,582	8,457
Earnings Before Taxes	27,872	19,396	=B11-B12
Taxes	6,968	4,849	=B13*B18
Netlncome	20,904	14,547	=B13-B14
Notes:
Tax Rate	0.25	0.25
Shares	52,100	52,100
EPS	$0.40	$0.40
Big Rock Candy Mountain Mining Co.
Balance Sheet
As of Dec. 31,2020
Assets	2020	2019
Cash	16,435	11,596
Accounts Receivable	45,896	47,404
Marketable Securities	3,656	619
Inventory	52,397	54,599
Total Current Assets	118,384	114,218	=SUM(B5:B8)
Gross Fixed Assets	436,573	397,023
Accumulated Depreciation	87,450	57,650
Net Plant & Equipment	349,123	339,373	=B10-B11
Total Assets	467,507	453,591	=B9+B12
Liabilities and Owner's Equity
Accounts Payable	37,752	36,819
Accured Expenses	3,183	3,085
Total Current Liabilities	40,935	39,904	=SUM(B15:B16)
Long-term Debt	170,562	178,581
Total Liabilities	211,497	218,485	=B17+B18
Common Stock	58,664	58,664
Additional Paid-In-Capital	136,807	136,807
Retained Earnings	60,539	39,635
Total Shareholder's Equity	256,010	235,106	=SUM(B20:B22)
Total Liabilities and Owner's Equity	467,507	453,591	=B19+B23
Big Rock Candy Mountain Mining Co.
Common Size Income Statement
For the years 2019 and 2020
	Income Statement		Common Size Income Statement
	2020	2019	2020	2019
Sales	412,500.00	398,600.00	100.00%	100.00%
Cost of Goods	318,786.00	315,300.00	77.28%	79.10%
Gross Profit	93,714.00	83,300.00	22.72%	20.90%
Depreciation	29,800.00	29,652.00	7.22%	7.44%
Selling & Admin. Expense	26,250.00	24,550.00	6.36%	6.16%
Other Operating Expense ___	1,210.00	1,245.00	0.29%	0.31%
Net Operating Income	36,454.00	27,853.00	8.84%	6.99%
Interest Expense	8,582.00	8,457.00	2.08%	2.12%
Earnings Before Taxes	27,872.00	19,396.00	6.76%	4.87%
Taxes	6,968.00	4,849.00	1.69%	1.22%
Net Income	20,904.00	14,547.00	5.07%	3.65%
New Smyrna Surf Shop
Statement of Cash Flows
For the Year 2020
Cash Flows from Operations
Net Income	120.540.00
Depreciation Expense	7,148
Change in Accounts Receivable	(11,248)
Change in Inventories	(8,276)
Change in Accounts Payable	1,589
Total Cash Flows from Operations		109,753.00
Cash Flows from Investing
Change in fixed assets	(41,704)
Total Cash Flows from Investing		S (41,704)
Cash Flows from Financing
Change in Notes Payable	(3,025)
Change in Long-Term Debt	755
Change in Common Stock	–
Change in Paid-In Capital	–
Cash Dividends	(60,000)
Total Cash Flows from Financing		(62,270.00)
Net Change in Cash Balance		5,779.00
Check answer against Balance Sheet
Beginning Cash From Balance Sheet	15,187
Ending Cash From Balance Sheet	20,966
Net Change in Cash Balance		5,779.00

Chapter 3

Financial Statement Analysis Tools

Timothy R. Mayes, Financial Analysis with Microsoft Excel, 9th Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Analysis Tools Covered in this Chapter

In this chapter will see:

How to calculate many financial ratios

How to use financial ratios to make predictions about potential bankruptcy

How to calculate the economic profit (as opposed to net income) that a firm earned in a period

Financial Ratios

Financial ratios are simply comparisons of two financial statement items

These comparisons help us to draw conclusions about the financial health of the firm that aren’t immediately obvious by looking at the raw values (e.g., net income may be positive, but what matters is how large it is relative to sales, assets, or equity)

We will calculate five categories of ratios:

Liquidity ratios

Efficiency ratios

Leverage ratios

Coverage ratios

Profitability ratios

Liquidity Ratios

Liquidity ratios describe the ability of a firm to meets its short-term obligations by comparing current assets to current liabilities

Current assets will be converted to cash which will then be used to retire current liabilities

For both ratios, higher values are indicative of a higher probability of being able to pay off short-term debts

Efficiency Ratios

Efficiency ratios, also called asset management ratios, provide information about how well the company is using its assets to generate sales

Leverage Ratios (1 of 2)

Leverage ratios describe the degree to which the firm uses debt in its capital structure

Leverage Ratios (2 of 2)

Generally, lower leverage ratios are preferred though a reasonable amount of debt is usually considered to be a good thing

Coverage Ratios

Coverage ratios describe the quantity of funds available to “cover” certain expenses, particularly interest expense (though this is not the only one)

We generally prefer higher coverage ratios as that indicates a level of debt that is easy for the firm to service

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08 Apr Analyzing Profitability – From the textbook – Financial Analysis with Microsoft Excel Read Chapter 3 Review PPT Chapter 3. ***ATTACHED Using you

Red Company Homework

Internet Exercise

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