BUSN 5200
Homework Assignment for Week 3 2024:
For Week 3, please complete the following for Joe’s Fly-By-Night Oil Company, whose latest
income statement and balance sheet are shown below:
Joe's Fly-by-Night
Oil
INCOME STATEMENT, 2024 BALANCE SHEET, as of Dec 31, 2024
Sales $10,000 ASSETS
Cost of goods sold 4,000 Cash $5,000
Gross profit $6,000 Accounts receivable 3,000
S, G & A expenses 3,000 Inventory 17,000
EBIT $3,000 Current assets $25,000
Interest $200 Equipment (gross) 27,000
Before-tax $2,800 Less Accum (12,000)
earnings
Taxes 1,000 Depreciation
Equipment (net) $15,000
Net income $1,800 Total assets $40,000
LIABILITIES AND EQUITY
EPS $1.80 Accounts payable $17,000
Current liabilities $17,000
Dividends $600 Long-term debt $3,000
Addition to retained $1,200 Total liabilities $20,000
earnings Common stock (1,000 $7,000
shares) earnings
Retained $13,000
Total equity $20,000
Total liabilities & Equity $40,000
• Prepare a graph of sales and net income for the years 2021 – 2024. For the purposes of this
exercise, assume the following historical sales and net income figures for Joe’s Fly-By-
Night Oil:
Year Sales Net Income
2021 $8,200 $1,500
2022 $8,000 $1,400
2023 $9,000 $1,600
2024 $10,000 $1,800
Answer: The graph illustrating the sales and net income for Joe's Fly-By-Night Oil
Company from 2021 to 2024 reveals a noteworthy trend of growth in both metrics over the
period. Starting from 2021, there's a slight dip in sales and net income in 2022, possibly
indicating a challenging year for the company. However, this setback appears to be temporary, as
both sales and net income demonstrate a recovery in 2023, followed by a more pronounced
increase in 2024.
This upward trend suggests that the company has successfully overcome the challenges
faced in 2022, possibly through strategic adjustments or market conditions becoming more
favorable. The growth in net income, alongside sales, indicates improved profitability,
suggesting that the company is not only increasing its revenue but possibly also enhancing its
operational efficiency or enjoying lower costs relative to its sales.
The consistent increase in net income as a percentage of sales from 2022 to 2024 could
imply that Joe's Fly-By-Night Oil Company is becoming more effective at converting sales into
actual profit, which is a positive sign for its financial health and operational management. This
trend, if sustained, could positively influence investor sentiment and the company's valuation in
the long term.
• Prepare a pie chart of Joe’s Fly-By-Night Oil’s expense distribution for 2024 and
comment on the results displayed.
Answer: The pie chart illustrating the expense distribution for Joe's Fly-By-Night Oil
Company in 2024 provides a clear visual representation of how the company's expenses are
allocated across different categories. The most significant portion of the expenses is attributed to
the Cost of Goods Sold (COGS), which accounts for a significant 62.5% of the total expenses. It
indicates that the primary financial outlay for the company is the direct costs associated with the
production and delivery of its oil products.
Operating Expenses constitute the next significant portion, making up 25.0% of the
expenses. These could include costs related to sales, marketing, administration, and other day-to-
day operational activities necessary to keep the company running.
Interest Expenses and Taxes are equally distributed, each accounting for 7.5% of the total
expenses. The interest expense reflects the cost of borrowing, suggesting the company has debt
obligations that impact its financials. Taxes, an unavoidable expense, indicate the company's
compliance with tax obligations based on its profitability.
The expense distribution highlights the significant areas where Joe's Fly-By-Night Oil is
spending its money. The dominance of COGS in the expense structure is typical for
manufacturing and product-based companies, underscoring the importance of managing these
costs efficiently to maintain profitability. The chart also underscores the significance of
controlling operating expenses and managing debt to enhance net income and overall financial
health.
• Prepare a pie chart of Joe’s Fly-By-Night Oil’s asset distribution for Dec 31, 2024 and
comment on the results displayed.
Answer:
The pie chart depicting the asset distribution for Joe's Fly-By-Night Oil Company as of
December 31, 2024, offers a comprehensive view of how the company's assets are allocated. The
largest share of the assets is tied up in Fixed Assets, which account for 55.6% of the total assets.
This significant allocation suggests that Joe's Fly-By-Night Oil has heavily invested in long-term
assets such as property, plant, and equipment. Such investments are crucial for the company's
operations, indicating a focus on expanding its capacity and enhancing its production
capabilities.
Current Assets come next, representing 44.4% of the assets. This category likely includes
cash, accounts receivable, and inventory, which are essential for the day-to-day operations of the
company. The substantial proportion of current assets indicates a healthy liquidity position,
enabling the company to meet its short-term obligations and operational needs efficiently.
Intangible Assets and Other Assets make up smaller portions of the asset distribution,
with 7.8% and 3.3%, respectively. Intangible assets encompass patents, trademarks, and
goodwill, signifying the company's investment in intellectual property and brand value, which
can be pivotal for gaining a competitive edge in the market. Other Assets, though the smallest
category, could include long-term investments or assets that do not fit neatly into the other
categories.
• Prepare a pie chart of Joe’s Fly-By-Night Oil’s capital structure for Dec 31, 2024 and
comment on the results displayed.
The pie chart illustrating Joe’s Fly-By-Night Oil Company's capital structure as of
December 31, 2024, provides a clear snapshot of how the company's finances are structured in
terms of equity and debt. The distribution shows a significant reliance on Equity, which
constitutes 60% of the capital structure. This indicates that a majority of the company's financing
comes from shareholders' equity, reflecting a strong base of ownership capital and potentially a
lower reliance on external debt financing. Such a structure can be advantageous, as it suggests
the company is not overly burdened by interest obligations, which can enhance financial
flexibility and profitability.
Long-term Debt accounts for 30% of the capital structure, illustrating that a substantial
portion of the company's funding is sourced from debt that has a maturity of more than one year.
This type of financing is typically used for significant investments or acquisitions that have the
potential to generate long-term benefits for the company. Short-term Debt makes up the
remaining 10% of the capital structure, pointing to the use of debt that needs to be repaid within
a year. This could include lines of credit or short-term loans used to cover immediate operational
needs or liquidity shortfalls.