Financial Statement Analysis ProjectThis project is to be used in conjunction with the Brickey Electronics Financial Statements we convertedinto excel in class. Completing this assignment in excel is not required, but it is encouraged. Some ofthe numbers have been changed in Brickey’s financial statements. The changes are highlighted in red onthe FS Analysis pdf included with the assignment posting. Either use the attached pdf or make thechanges to the Brickey Electronics financial statements you have in Microsoft excel. Refer to chapter 15for ratios that we may not have covered in class as well as additional information about financialstatement analysis.Requirement 1Perform a horizontal analysis of the financial statements, both income statement and balance sheet, foramount change and percentage change.Requirement 2Calculate the following ratios for Brickey Electronics for This Year. Hint: Last year’s ending balance is thesame as this year’s beginning balance when calculating averages.‐Working capital‐Current Ratio‐Accounts receivable turnover‐Average collection period‐Inventory turnover‐Average sale period‐Operating cycle‐Total asset turnover‐Times interest earned‐Debt‐to‐equity ratio‐Equity multiplier‐Net profit margin percentage‐Return on equity‐Earnings per share‐Price‐earnings ratio – Assume a $25 per share market price‐Dividend yield ratioRequirement 3For each Liquidity and Asset Management measure, decide if a higher or lower result is more desirableand give a brief description of what the measurement represents. Only do this for the Liquidity andAsset Management measures.
financial_statement_analysis_lecture.xlsx
financial_statement_analysis_lecture_completed.xlsx
financial_statement_analysis_project.pdf
fs_analysis.pdf
Unformatted Attachment Preview
Horizontal analysis (or trend analysis) s
the changes between years in the financi
in both dollar and percentage form
Quantifying dollar
changes over time
serves to highlight
the changes that
are the most
important
economically.
Dollar
=
Change
Quanti
percen
changes
serves to h
the chang
are the
Current Year
–
Figure
Base Ye
Figure
The dolla
amounts f
last year
become th
“base” ye
figures.
“base” ye
figures.
Calculating Change as a Percentage
Percentage
=
Change
Dollar Change
Base Year Figure
×
analysis) shows
he financial data
tage form.
Quantifying
percentage
changes over time
serves to highlight
the changes that
are the most
unusual.
Base Year
Figure
The dollar
amounts for
last year
become the
“base” year
figures.
“base” year
figures.
rcentage
×
100%
CLOVER CORPORATION
Comparative Balance Sheets
December 31
This Year
Assets
Current assets:
Cash
$
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Property and equipment:
Land
Buildings and equipment, net
Total property and equipment
Total assets
$
12,000
60,000
80,000
3,000
155,000
40,000
120,000
160,000
315,000
CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Sales
Cost of goods sold
Gross margin
Operating expenses
Net operating income
Interest expense
Net income before taxes
Less income taxes (30%)
Net income
This Year
$ 520,000
360,000
160,000
128,600
31,400
6,400
25,000
7,500
$ 17,500
CORPORATION
ve Balance Sheets
cember 31
Last Year
$
Increase (Decrease)
Amount
%
23,500
40,000
100,000
1,200
164,700
40,000
85,000
125,000
$ 289,700
CORPORATION
Income Statements
Ended December 31
Increase (Decrease)
Last Year
$ 480,000
315,000
165,000
126,000
39,000
7,000
32,000
9,600
$ 22,400
Amount
%
NORTON CORPORATION
This Year
Cash
$
30,000
Accounts receivable, net
20,000
Total current assets
65,000
Total current liabilities
42,000
Liquidity Ratios – measure of a company’s current
The excess of current assets over
current liabilities is known as
working capital.
Working Capital = Current Assets – Current Liabilities
The current ratio measures a
company’s short-term debt paying
The current ratio measures a
company’s short-term debt paying
ability.
Current Ratio = Current Assets/Current Liabilites
Acid Test (Quick Ratio) =
Quick Assets/Current Liabili
30,000
20,000
65,000
42,000
ets over
wn as
ying
Working capital is
not free. It must be
financed with longterm debt and equity.
A declining ratio may be a
sign of deteriorating
financial condition, or it
ying
sign of deteriorating
financial condition, or it
might result from
eliminating obsolete
inventories.
Current
=
Ratio
Current Assets
Current Liabilities
Quick assets include Cash,
Marketable Securities, Accounts Receiv
current Notes Receivable.
This ratio measures a company’s ability
obligations without having to liquidate i
Acid-Test
Ratio
=
Quick As
Current Liab
Assets
abilities
clude Cash,
ounts Receivable, and
Receivable.
pany’s ability to meet
to liquidate inventory.
Quick Assets
urrent Liabilities
NORTON CORPORATIO
This Ye a r
Accounts rece iva ble , ne t
Be ginning of ye a r
End of ye a r
Inve ntory
Be ginning of ye a r
End of ye a r
Tota l a sse ts
Be ginning of ye a r
End of ye a r
Sa le s on a ccount
Cost of goods sold
Asset Management Ratios – Used to determine how
is managing assets
Accounts Receivable Turnover =
Sales On Account/A
This ratio m
This ratio m
a company
Average Collection Period =
365 Days / Account
This ratio m
many day
Inventory Turnover =
Costs of Goods Sold
This ratio
times a com
been sold
Average Sale Period =
365/Inventory Turn
This ratio
days, on a
Operating Cycle =
Average Sales Perio
This ratio
time from
received fr
cash is rec
Total Asset Turnover
Sales/Average Tota
This rati
efficiently a
are being
sales. Th
beyond
include n
PORATION
ear
et
17,000
20,000
10,000
12,000
300,000
346,390
494,000
140,000
On Account/Average Accounts Recievable
This ratio measures how many times
This ratio measures how many times
a company converts its receivables
into cash each year.
This ratio measures, on average, how
many days it takes to collect an
account receivable.
This ratio measures how many
times a company’s inventory has
been sold and replaced during
the year.
This ratio measures how many
days, on average, it takes to sell
the entire inventory.
the entire inventory.
e Sales Period + Average Collection Period
This ratio measures the elapsed
time from when inventory is
received from suppliers to when
cash is received from customers.
This ratio measures how
efficiently a company’s assets
are being used to generate
sales. This ratio expands
beyond current assets to
include noncurrent assets.
NORTON CORPORATION
This Year
Earnings before interest
expense and income taxes
$
Interest expense
Stockholders’ equity
Beginning of year
End of year
Total liabilities
Debt Management Ratios – Measure how well a firm
Times Interest Earned =
Earnings before interest ex
This is the mo
a compan
protection for
A ratio of less
Debt-to-Equity
=
Total Liabilites/Stockholder
This ratio i
proportions
a compan
Stockholders like a lot of
debt if the company’s
rate of return on its
assets exceeds the rate
of return paid to
creditors.
The Equity Miltiplier – Average Total Assets/Averag
Asset Mgt Slide for Asset Data
This ratio in
a compa
funded by
average a
throughou
amounts
PORATION
ear
xes
$
84,000
7,300
180,000
234,390
112,000
This is the most common measure of
a company’s ability to provide
protection for its long-term creditors.
A ratio of less than 1.0 is inadequate.
This ratio indicates the relative
proportions of debt to equity on
a company’s balance sheet.
ders like a lot of
he company’s
return on its
xceeds the rate
urn paid to
editors.
Creditors prefer less
debt and more equity
because equity
represents a buffer of
protection.
This ratio indicates the portion of
a company’s assets that are
funded by equity. It focuses on
average amounts maintained
throughout the year rather than
amounts at one point in time.
NORTON CORPORATION
This Year
Number of common shares
outstanding
Beginning of year
End of year
Tax rate
Net income
17,000
27,400
30
$
53,690
Stockholders’ equity
Beginning of year
180,000
End of year
234,390
Dividends per share
Dec. 31 market price per share
Interest expense
2
20
7,300
Total assets
Beginning of year
300,000
End of year
346,390
Gross Margin
Percentage =
Gross Margin
Sales
This mea
of each
deducting
of each
deducting
cover exp
Refer to Asset Management Slide for Data
Net Profit Margin =
Percentage
Net Income
Sales
In add
Refer to Asset Mgt Slide for Sales Data
Return on Equity =
Net Income
Average Stockholders’ Eq
This measu
compa
investm
ION
17,000
27,400
30%
$
53,690
180,000
234,390
2
20
7,300
300,000
346,390
This measure indicates how much
of each sales dollar is left after
deducting the cost of goods sold to
of each sales dollar is left after
deducting the cost of goods sold to
cover expenses and provide a profit.
In addition to cost of goods sold, this
ratio also looks at how selling and
administrative expenses, interest
expense, and income tax expense
influence performance.
come
holders’ Equity
This measure indicates how well the
company used the owners’
investments to earn income.
NORTON CORPORATION
This Year
Number of common shares
outstanding
Beginning of year
End of year
17,000
27,400
Stockholders’ equity
234,390
Dividends per share
2
Dec. 31 market price per share
Earnings per Share
=
20
Net Income
Average Number of Co
Shares Outstandin
Earnings
payments
Net income data on Profitability Tab
Price-Earnings
=
Ratio
Market Price Per Share
Earnings Per Share
Price-Earnings
=
Ratio
Market Price Per Share
Earnings Per Share
A higher p
that inve
premium
because o
Dividend
Yield Ratio
=
Dividends Per Share
Market Price Per Share
This ratio
terms of
current m
N
17,000
27,400
234,390
2
20
et Income
umber of Common
s Outstanding
Earnings form the basis for dividend
payments and future increases in the
value of shares of stock.
Share
Share
Share
Share
A higher price-earnings ratio means
that investors are willing to pay a
premium for a company’s stock
because of optimistic future growth
prospects.
Share
Share
This ratio identifies the return, in
terms of cash dividends, on the
current market price of the stock.
Horizontal analysis (or trend analysis) s
the changes between years in the financi
in both dollar and percentage form
Quantifying dollar
changes over time
serves to highlight
the changes that
are the most
important
economically.
Dollar
=
Change
Quanti
percen
changes
serves to h
the chang
are the
Current Year
–
Figure
Base Ye
Figure
The dolla
amounts f
last year
become th
“base” ye
figures.
“base” ye
figures.
Calculating Change as a Percentage
Percentage
=
Change
Dollar Change
Base Year Figure
×
analysis) shows
he financial data
tage form.
Quantifying
percentage
changes over time
serves to highlight
the changes that
are the most
unusual.
Base Year
Figure
The dollar
amounts for
last year
become the
“base” year
figures.
“base” year
figures.
rcentage
×
100%
CLOVER CORPORATION
Comparative Balance Sheets
December 31
This Year
Assets
Current assets:
Cash
$
Accounts receivable, net
Inventory
Prepaid expenses
Total current assets
Property and equipment:
Land
Buildings and equipment, net
Total property and equipment
Total assets
$
12,000
60,000
80,000
3,000
155,000
40,000
120,000
160,000
315,000
CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31
Sales
Cost of goods sold
Gross margin
Operating expenses
Net operating income
Interest expense
Net income before taxes
Less income taxes (30%)
Net income
This Year
$ 520,000
360,000
160,000
128,600
31,400
6,400
25,000
7,500
$ 17,500
CORPORATION
ve Balance Sheets
cember 31
Last Year
$
23,500
40,000
100,000
1,200
164,700
40,000
85,000
125,000
$ 289,700
Increase (Decrease)
Amount
%
$ (11,500)
$ 20,000
$ (20,000)
$
1,800
$ (9,700)
$
$
$
$
35,000
35,000
25,300
-49%
50%
-20%
150%
-6%
0%
41%
28%
9%
CORPORATION
Income Statements
Ended December 31
Increase (Decrease)
Last Year
$ 480,000
315,000
165,000
126,000
39,000
7,000
32,000
9,600
$ 22,400
Amount
$ 40,000
$ 45,000
$ (5,000)
$ 2,600
$ (7,600)
$
(600)
$ (7,000)
$ (2,100)
$ (4,900)
%
8%
14%
-3%
2%
-19%
-9%
-22%
-22%
-22%
NORTON CORPORATION
This Year
Cash
$
30,000
Accounts receivable, net
20,000
Total current assets
65,000
Total current liabilities
42,000
Liquidity Ratios – measure of a company’s current
The excess of current assets over
current liabilities is known as
working capital.
Working Capital = Current Assets – Current Liabilities
Current Assets
65000
Current Liabilites
42000
Working Capital
23000
The current ratio measures a
company’s short-term debt paying
The current ratio measures a
company’s short-term debt paying
ability.
Current
Current
Current
Current
Ratio = Current Assets/Current Liabilites
Assets
65000
Liabilites
42000
Ratio
1.5476
Acid Test (Quick Ratio) =
Quick Assets/Current Liab
Cash
30000
AR
20000
Quick Assets
50000
Current Liablities
42000
Quick Ratio
1.1905
ION
30,000
20,000
65,000
42,000
assets over
known as
tal.
ures a
bt paying
Working capital is
not free. It must be
financed with longterm debt and equity.
A declining ratio may be a
sign of deteriorating
financial condition, or it
ures a
bt paying
sign of deteriorating
financial condition, or it
might result from
eliminating obsolete
inventories.
Current
=
Ratio
Current Asse
Current Liabilit
Quick assets include C
Marketable Securities, Accounts
current Notes Receiv
This ratio measures a company’s
obligations without having to liqu
Acid-Test
Ratio
=
Curren
tal is
ust be
longequity.
o may be a
orating
tion, or it
orating
tion, or it
t from
bsolete
urrent Assets
rent Liabilities
sets include Cash,
es, Accounts Receivable, and
Notes Receivable.
s a company’s ability to meet
having to liquidate inventory.
Quick Assets
Current Liabilities
NORTON CORPORAT
This Ye a r
Accounts re ce iva ble , ne t
Be ginning of ye a r
End of ye a r
Inve ntory
Be ginning of ye a r
End of ye a r
Tota l a sse ts
Be ginning of ye a r
End of ye a r
Sa le s on a ccount
Cost of goods sold
Asset Management Ratios – Used to determine how
is managing assets
Accounts Receivable Turnover = Sales On Accou
Sales
494000
Beginning AR
17000
This rati
Ending AR
Average AR
AR turnover
20000
18500
26.7027027
Average Collection Period =
Days
AR turnover
ACP
365
26.7027027
13.66902834
This rati
365 Days / Acco
This rati
Inventory Turnover =
Costs of Goods
COGS
140000
Beginning Inv
10000
times a
Ending Inv
12000
Average Inv
11000
Inv TO
12.72727273
Average Sale Period =
Days
Inv TO
ASP
365
12.72727273
28.67857143
365/Inventory T
Operating Cycle =
Av sales per
Av coll per
Operating Cycle
Average Sales P
28.67857143
13.66902834
42.34759977
Total Asset Turnover
Sales/Average T
Sales
494000
Beginning Assets
300000
Ending Assets
346390
Average Assets
323195
Tot Asset TO
1.528488993
ORPORATION
s Ye a r
e , ne t
17,000
20,000
10,000
12,000
300,000
346,390
494,000
140,000
Sales On Account/Average Accounts Recievable
This ratio measures how many times
This ratio measures how many times
a company converts its receivables
into cash each year.
This ratio measures, on average, how
many days it takes to collect an
account receivable.
This ratio measures how many
times a company’s inventory has
been sold and replaced during
the year.
This ratio measures how many
days, on average, it takes to sell
the entire inventory.
the entire inventory.
Average Sales Period + Average Collection Period
This ratio measures the elapsed
time from when inventory is
received from suppliers to when
cash is received from customers.
This ratio measures how
efficiently a company’s assets
are being used to generate
sales. This ratio expands
beyond current assets to
include noncurrent assets.
NORTON CORPORAT
This Year
Earnings before interest
expense and income taxes
$
Interest expense
Stockholders’ equity
Beginning of year
End of year
Total liabilities
Debt Management Ratios – Measure how well a firm
Times Interest Earned =
EBIT
Interest Expense
Times Interest Earned =
Earnings before interes
84000
This is t
7300
11.507
protecti
A ratio o
Debt-to-Equity =
Total Liabiliteis
SH Equity
Debt-to-Equity =
Total Liabilites/Stockho
112000
234390
propor
0.4778
Stockholders like a lot o
if the company’s rate of r
on its assets exceeds th
of return paid to credit
The Equity Multiplier – Average Total Assets/Avera
Average Total Assets
323195
This ra
Average SH Equity
207195
Equity Multiplier
1.5599
Asset Mgt Slide for Asset Data
ORPORATION
Year
est
taxes
$
84,000
7,300
180,000
234,390
112,000
This is the most common measure of
a company’s ability to provide
protection for its long-term creditors.
A ratio of less than 1.0 is inadequate.
This ratio indicates the relative
proportions of debt to equity on
a company’s balance sheet.
lders like a lot of debt
mpany’s rate of return
ssets exceeds the rate
rn paid to creditors.
Creditors prefer less
debt and more equity
because equity
represents a buffer of
protection.
This ratio indicates the portion of
a company’s assets that are
funded by equity. It focuses on
average amounts maintained
throughout the year rather than
amounts at one point in time.
efer less
e equity
quity
buffer of
NORTON CORPORATION
This Year
Number of common shares
outstanding
Beginning of year
End of year
Tax rate
Net income
17,0
27,4
3
$
53,6
Stockholders’ equity
Beginning of year
180,0
End of year
234,3
Dividends per share
Dec. 31 market price per share
Interest expense
7,3
Total assets
Beginning of year
300,0
End of year
346,3
Gross Margin
Percentage =
Sales
COGS
Gross Margin
Sales
494000
140000
GM Percentage
353%
Refer to Asset Management Slide for Data
Net Profit Margin =
Percentage
Net Income
Sales
Net Profit Marg %
Net Income
Sales
53690
494000
11%
Refer to Asset Mgt Slide for Sales Data
Return on Equity =
Net
Average SE Equity
Return on Equity
Net Income
Average Stockholders’ E
53690
271950
20%
This mea
RATION
re
17,000
27,400
30%
$
53,690
180,000
234,390
2
20
7,300
300,000
346,390
argin
This measure indicates how much
of each sales dollar is left after
deducting the cost of goods sold to
of each sales dollar is left after
deducting the cost of goods sold to
cover expenses and provide a profit.
ncome
ales
In addition to cost of goods sold, this
ratio also looks at how selling and
administrative expenses, interest
expense, and income tax expense
influence performance.
Net Income
Stockholders’ Equity
This measure indicates how well the
company used the owners’
investments to earn income.
d, this
and
est
nse
NORTON CORPORATION
This Year
Number of common shares
outstanding
Beginning of year
End of year
Stockholders’ equity
1
2
23
Dividends per share
Dec. 31 market price per share
Earnings per Share
=
Net Income
Average Number of CS OS
EPS
Average Number o
53690
22200
2.418
Net income data on Profitability Tab
Price-Earnings
Ratio
=
Market Price Per Share
Earnings Per Share
Price-Earnings
Ratio
=
Market Price Per Share
Earnings Per Share
Price-Earnings Ratio
Dividend
Yield Ratio
=
Divident Per Share
Market Price Per Share
Dividend Yield Ratio
Market Price Per Share
Earnings Per Share
20
2.418
8.27
Dividends Per Sha
Market Price Per Sha
2
20
0.1
RATION
17,000
27,400
234,390
2
re
20
Net Income
Number of Common Shares
Outstanding
ce Per Share
Per Share
Earnings form the basis for dividend
payments and future increases in the
value of shares of stock.
ce Per Share
Per Share
A higher price-earnings ratio means
that investors are willing to pay a
premium for a company’s stock
because of optimistic future growth
prospects.
ends Per Share
Price Per Share
This ratio identifies the return, in
terms of cash dividends, on the
current market price of the stock.
dividend
es in the
means
pay a
stock
growth
n, in
ock.
Financial Statement Analysis Project
This project is to be used in conjunction with the Brickey Electronics Financial Statements we converted
into excel in class. Completing this assignment in excel is not required, but it is encouraged. Some of
the numbers have been changed in Brickey’s financial statements. The changes are highlighted in red on
the FS Analysis pdf included with the assignment posting. Either use the attached pdf or make the
changes to the Brickey Electronics financial statements you have in Microsoft excel. Refer to chapter 15
for ratios that we may not have covered in class as well as additional information about financial
statement analysis.
Requirement 1
Perform a horizontal analysis of the financial statements, both income statement and balance sheet, for
amount change and percentage change.
Requirement 2
Calculate the following ratios for Brickey Electronics for This Year. Hint: Last year’s ending balance is the
same as this year’s beginning balance when calculating averages.
‐Working capital
‐Current Ratio
‐Accounts receivable turnover
‐Average collection period
‐Inventory turnover
‐Average sale period
‐Operating cycle
‐Total asset turnover
‐Times interest earned
‐Debt‐to‐equity ratio
‐Equity multiplier
‐Net profit margin percentage
‐Return on equity
‐Earnings per share
‐Price‐earnings ratio – Assume a $25 per share market price
‐Dividend yield ratio
Requirement 3
For each Liquidity and Asset Management measure, decide if a higher or lower result is more desirable
and give a brief description of what the measurement represents. Only do this for the Liquidity and
Asset Management measures.
Brickey Electronics
Comparative Balance Sheet …
Purchase answer to see full
attachment
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