Problem Set 1

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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 Accruals	2016	2017
	$3,432,000	$5,834,400
	9,000	7,282
	340,000	720,000
	203,768	97,632
	323,432	1,000,000
	2,864,000	4,980,000
	18,900	116,960
	48,600	20,000
	491,000	1,202,950
	62,500	176,000
	100,000	100,000
	8.50	6
	351,200	632,160
	145,600	324,000
	715,200	1,287,360
	200,000	720,000
	146,200	263,160
	136,000	284,960

Tax Rate40%40%

Instructions:

As a group, complete the following activities using the financial information above:

Part 1: Financial Statements

• Prepare the income statement for 2016 and 2017. Include statement of retained earnings for 2017
• Prepare the balance sheet for 2016 and 2017
• Prepare Common-Size financial statements of income statement and balance sheet.
• Prepare Statement of Cash Flows

• 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
• Comments on the ratios by comparing 2016 to 2017 ratios.
• 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?
  • 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?
  • What is the degree of financial leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?
  • What is the degree of operating leverage? Explain what your number mean. As a manager, how would you use the numbers in financial planning?

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

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):

Specific Instructions:

• You may use Excel or Word. Please DO NOT use any other format such PDF, etc.