Assignment I
1. Please refer to following accounting line items of a new start-up company and fill in the financial
statements accordingly. Please remember to fill in total amount for assets and liabilities & equity.
Some items belong to the Balance Sheet, and some other belong to the Income Statement.
- Retained earnings: 0 in 2018; 20,190 in 2019
- SG&A: 1,200 in 2019
- Taxes payable: 0 in 2018; 13,460 in 2019
- Sales: 59,000 in 2019
- Interest expense: 1,100 in 2019
- A/P: 0 in 2018; 18,000 in 2019
- Inventory: 0 in 2018; 34,700 in 2019
- Cash: 10,000 in 2018; 4,200 in 2019
- Depreciation: 250 in 2019
- Long-term debt: 0 in 2018; 109,000 in 2019
- Initial stock: 10,000 in 2018; 10,000 in 2019
- Net fixed assets: 0 in 2018; 119,750 in 2019
- Cost of goods sold: 22,800 in 2019
- A/R: 0 in 2018; 12,000 in 2019
- Taxes: 13,460 in 2019
Also, please note that some blanks have to be filled in with your own calculations.
Balance Sheet as of December 31st,
2019 2018 2019 2018
Assets Liabilities
Current Assets Current Liabilities
Cash 4,200 10,000 A/P 18,000 0
A/R 12,000 0 Taxes Payable 13,460 0
Inventory 34,700 0
Fixed Assets Long-term Liabilities
Net Fixed Assets 119,750 0 Long-term Debt 109,000 0
Shareholder’s Equity
Initial Stock 10,000 10,000
Retained
20,190 0
Earnings
Total Liab. and
Total Assets 170,650 10,000 170,650 10,000
Equity
Income Statement during January 1st 2019 – December 31st, 2019
Sales 59,000
Cost of Goods Sold 22,800
Gross profit 36,200
SG&A Expense 1,200
Depreciation 250
Operating income 34,750
Interest Expense 1,100
Profit before tax 33,650
Taxes 13,460
Net income 20,190
2. Please refer to the completed Balance Sheet and Income Statement in Problem 1. Calculate the
Cash Flow from Assets.
You should obtain same answer using either of the two methods below.
CFFA = Cash Flow to Creditors + Cash Flow to Stockholders = Interest Paid – Net Borrowing +
Dividends Paid – Net Equity Issued
CFFA = Operating Cash Flow – Net Capital Spending – Changes in NWC (Including Cash) = EBIT +
Depreciation – Tax – Ending Net Fixed Asset + Beginning Net Fixed Asset – Depreciation – Ending
NWC + Beginning NWC
CFFA = 1,100 – 109,000 + 0 – 0 = -107,900
CFFA = 34,750 + 250 – 13,460 - 119,750 + 0 – 250 – (4,200 + 12,000 + 34,700) + (18,000 + 13,460) +
10,000 – 0 = 21,540 – 120,000 – 50,900 + 31.460 + 10,000 = 107,900
3. Please refer to the completed Balance Sheet and Income Statement in Problem 1, and solve
following problems.
a. Calculate Quick Ratio.
2019: 16,200 / 31,460 = 0.51494; 2018: N/A
b. Calculate Cash Ratio.
2019: 4,200 / 31,460 = 0.1335; 2018: N/A
c. Calculate Total Asset Turnover.
2019: 59,000 / 170,650 = 0.3457; 2018: N/A
d. Calculate Debt-to-Equity.
2019: 109,000 / 30,190 = 3.6105; 2018: 0
e. Calculate Cash Coverage Ratio.
2019: (34,750 + 250) / 1,100 = 31.8182; 2018: N/A
f. Calculate Days in Accounts Receivables.
2019: 365 * 12,000 / 59,000 = 74.2373; 2018: N/A
4. Please refer to the completed Balance Sheet and Income Statement in Problem 1, and solve
following problems.
a. What is the profit margin?
20,190 / 59,000 = 0.342203
b. What is the ROA?
20,190 / 170,650 = 0.118312
c. What is the ROE?
20,190 / 30,190 = 0.668764
d. Please decompose ROE using Dupont Identity.
0.668764 = 0.342203 (PM) * 0.3457 (TAT) * 5.652534 (EM) = 0.668692