Option #2: Financial Statement AnalysisProblems

Complete the following problems:

1. For this problem, use the following randomly generated listof accounts, placing them in appropriate order to prepare an incomestatement.

Accounts	($000,000)
Depreciation	25
General and administrative expenses	22
Sales	345
Sales expenses	18
Cost of goods sold	255
Lease expense	4
Interest expense	3

1. The following randomly constructed table requires that as partof your Critical Thinking Assignment you arrange the accounts intoa well-labeled income statement. Make sure you label and solve forgross profit, operating profit, and net profit before taxes.
2. Using a 35% tax rate, calculate taxes paid and net profit aftertaxes.
3. Assuming a dividend of $1.10 per share with 4.25 million sharesoutstanding, calculate EPS and additions to retained earnings.

2. Explain why the income statement can also be called a“profit-and-loss statement.” What exactly does the word balancemean in the title of the balance sheet? Why do we balance the twohalves?

3. CS Industries, Inc. began 2016 with retained earnings of$25.32 million. During the year, it paid four quarterly dividendsof $0.35 per share to 2.75 million common stockholders. Preferredstockholders, holding 500,000 shares, were paid two semiannualdividends of $0.75 per share. The firm had a net profit after taxesof $5.15 million. Prepare the statement of retained earnings forthe year ended December 31, 2016.

4. Sky Metals, Inc. is a metal fabrication firm thatmanufactures prefabricated metal parts for customers in a varietyof industries. The firm’s motto is “If you need it, we can makeit.” The CEO of Sky Metals recently held a board meeting duringwhich he extolled the virtues of the corporation. The company, hestated confidently, had the capability to build any product andcould do so using a lean manufacturing model. The firm would soonbe profitable, claimed the CEO, because the company usedstate-of-the-art technology to build a variety of products whilekeeping inventory levels low. As a business press reporter, youhave calculated some ratios to analyze the financial health of thefirm. Sky Metals' current ratios and quick ratios for the past 6years are shown in the following table:

	2010	2011	2012	2013	2014       2015	2015
Current ratio	1.2	1.4	1.3	1.6	1.8          2.2	2.2
Quick ratio	1.1	1.3	1.2	0.8	0.6         0.4	0.4

What do you think of the CEO’s claim that the firm is lean andsoon to be profitable?

5. If we know that a firm has a net profit margin of 4.5%, totalasset turnover of 0.72, and a financial leverage multiplier of1.43, what is its ROE? What is the advantage to using the DuPontsystem to calculate ROE over the direct calculation of earningsavailable for common stockholders divided by common stockequity?