ATGC is in the business of developing new video games.

John has just started to work as an assistant to the financial manager of ATGC. His boss ask

him to prepare the financial statements of the company for the years 2009 and 2010, and analyze

and compare the performance of the company over time. To prepare these financial statements,

John obtained the information on all the accounts that appear either in the Balance Sheet or

the Income Statement from the accountant of the company. Since the accountant was in a hurry,

he provided the information on company accounts in an alphabetical order. The information

provided by the accountant of the company to John is available in the table below:

Account Name 2010 2009

Accounts payable 1,600 1,000

Accounts receivable 1,800 2,300

Cash 1,500 1,700

Common stock 30,000 30,000

Cost of goods sold 18,400 17,300

Depreciation 930 710

Fixed assets, net 38,200 30,800

Inventory 6,700 5,500

Long-term debt 8,519 2,000

Net sales 25,980 24,400

Notes payable 2,400 2,600

Retained earnings 5,681 4,700

Selling, general and administrative expenses 2,233 1,968

a) Johns first job is to prepare a proper Balance Sheet and Income Statement

for 2009 and 2010. John learns that ATGM is in 40% tax bracket from the accountant

of the company. His manager also tells John that the company pays 6% interest on its

notes payable and, and it pays 11% interest on its long-term debt. Also, John is told that

the company distributes 51% of its net income as dividends to its common stockholders in

2010. Help John prepare a proper Balance Sheet and Income Statement for 2009 and

2010.

b) Johns boss asks him to calculate the ratios presented in the table below for

2019 and 2020.

Ratios 2010 2009

Current ratio

Quick ratio

Total debt ratio

Cash coverage ratio

Inventory turnover

Days' sales in receivables

Total asset turnover

Profit margin

ROA

c)His boss is also interested in seeing the common size financial statements of the

company. Help John prepare the common size income statement for 2009 and 2010

and compare the profitability of the company from 2009 to 2010. Briefly discuss any

difference in the profitability of the company from 2009 to 2010 and reasons for that

difference.

d)After seeing Johns evaluation of company profitability from 2009 to 2010

using the common size income statement, his boss asks him to analyze the profitability of

the company relative to an average firm operating in its industry as well. John can find

the industry averages for the ratios listed in the table below.

Industry Averages for 2010

Current ratio 1.943 times

Acid-test ratio 0.969 times

Average collection period 40.3 days

Inventory turnover 3.877 times

Total debt ratio 38.8753%

Total asset turnover 0.826 times

ROA 3.75%

Help John obtain the relevant profitability ratios for the industry from the ones provided

in the table above. After having information on profitability ratios of the firm and the

industry, compare the performance of ATGC in terms of profitability against the industry

averages. Identify, if any, potential problem areas for the ATGCs profitability using Du

Pont analysis.

e) The company is going to have its shareholders meeting in mid-April and the

Johns boss wants to show the shareholders the growth potential of the company. His

boss wants to know the maximum growth the company can achieve without changing the

percentage of debt and equity used in financing investments in company assets and payout

policy of the company. Please help John calculate this growth rate for the company.

f) Being little bit disappointed with the growth rate calculated by John, his

boss is wondering if it is at all possible for the company to grow at 7.5% per year while

keeping the percentage of debt and equity used in financing investments in company assets

constant and changing payout policy of the company. Please help John determine this.