Fin 571 Week 3 Individual Assignment Interpreting Financial Results

Ratio Analysis Problems

Ratio Analysis

(Individual Assignment)

 You may use excel or word.doc format for this assignment.
Please post your homework as a word.doc or excel file in the class discussion section below by the due date.

1.  Analysis of cost of goods sold problem.

                                                                                     1992       1993    1994

      Gross Profit Margin                                                      60%     55%     51% 

What is happening to cost of goods sold?  As was done in the week 2 online lecture on ratio analysis, please assume sales of 1 dollar each year as you do your analysis.  This problem follows the process shown in the Week 2 Ratio Analysis online lecture section titled: "Another Income Statement Analytical Approach: Percent of Sales"

  (5 points)

2.  Overhead (or Sales, General and Administrative Expense) problem. 

                                                                                 1992       1993    1994

   Gross Profit Margin                                                   40%        39%    41%

   Operating Margin (NOI/Sales)                                     15%        10%      5% 

What is happening to S,G and A (or overhead expenses)?  Please set up an illustration assuming sales of 1.00 dollar each year just as you did in problem number one. 

(5 points)

3. Balance Sheet Problem 

                                                                               1992       1993    1994

   Annual Sales Growth (over prior yr)                         + 1%         0%     +1%

   Current Ratio                                                          3.5X        2X      1.2X

   Average Collection Period                                    25 days   30 days  55 days 

What is happening to liquidity?  Why? What are some follow-up questions your would ask?  (5 points) 

4.  Using the data provided below, which is the better managed company?  Why?  Please support your answers by calculating appropriate ratios. (5 points) 

                              Company A                      Company B 

Sales              10 million dollars                    20 million dollars

Net Income       1 million dollars                      2 million dollars

Total Assets     10 million dollars                   15 million dollars 

Click the Assignment Files tab to submit your assignment.

Resources:

Harvard Business Publishing: Working Capital Simulation: Managing Growth Assignment

Ch. 1 - 21 ofFundamentals of Corporate Finance

WileyPLUS Assignments

All additional resources from each week

 

Review the following scenario:

Acting as the CEO of a small company, you will apply the principles of capital budgeting to invest in growth and cash flow improvement opportunities in three phases over 10 simulated years. Each opportunity has a unique financial profile and you must analyze the effects on working capital. Examples of opportunities include taking on new customers, capitalizing on supplier discounts, and reducing inventory.

You must understand how the income statement, balance sheet, and statement of cash flows are interconnected and be able to analyze forecasted financial information to consider possible effects of each opportunity on the firm's financial position. The company operates on thin margins with a constrained cash position and limited available credit. You must optimize use of internal and external credit as you balance the desire for growth with the need for maintaining liquidity.

 

Sign-in to the simulation and review each of the following:

  • Welcome Statement
  • How to Play
  • Terminology Primer
  • More Details (this includes information to help you understand how to play the simulation)

 

Write a paper of no more than 1,400 words that analyzes your decisions during each phase (1-3) and how they influenced each of the following final outcomes (metrics) of SNC:

  • Sales
  • EBIT
  • Net Income
  • Free Cash Flow
  • Total Firm Value

Address the following in your paper:

  • A summary of your decisions and why you made them
  • How they affected SNC's working capital
  • What general effects are associated with limited access to financing

 

Include scholarly references (in addition to your course textbook and simulation materials) to support your positions.

Format your paper consistent with APA guidelines.

Click the Assignment Files tab to submit your assignment.

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