{"id":10480,"date":"2021-10-22T12:05:33","date_gmt":"2021-10-22T12:05:33","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/?p=10480"},"modified":"2021-10-22T12:05:33","modified_gmt":"2021-10-22T12:05:33","slug":"financial-statement-analysis-and-financial-models","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/financial-statement-analysis-and-financial-models\/","title":{"rendered":"Financial Statement Analysis and Financial Models"},"content":{"rendered":"

PART 2. FINANCIAL STATEMENT ANALYSIS AND FINANCIAL MODELS<\/strong><\/p>\n

Ross and Westerfield want to use financial planning models to prepare a projected (pro forma) financial statement to determine the profitability and financial health of the business for next four years if they go public. The income statement ending Dec 31, 2020, and the company\u2019s balance sheet as at Dec 31, 2020, are shown below. Use the financial statement to answer the following questions:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
 <\/p>\n

 <\/p>\n

INCOME STATEMENT<\/strong><\/td>\n

($millions)<\/td>\n<\/tr>\n
Total operating revenues<\/td>\n102<\/td>\n<\/tr>\n
Less expenses<\/td>\n47<\/td>\n<\/tr>\n
Less depreciation<\/td>\n10<\/td>\n<\/tr>\n
Earnings before interest and taxes<\/td>\n45<\/td>\n<\/tr>\n
Less interest<\/td>\n3<\/td>\n<\/tr>\n
Net income before taxes<\/td>\n42<\/td>\n<\/tr>\n
Less taxes @ 24%<\/td>\n10<\/td>\n<\/tr>\n
Net income<\/td>\n32<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/tr>\n
BALANCE SHEET<\/strong><\/td>\n<\/td>\n<\/tr>\n
Assets:<\/strong><\/td>\n<\/td>\n<\/tr>\n
Cash<\/td>\n25<\/td>\n<\/tr>\n
Other current assets<\/td>\n38<\/td>\n<\/tr>\n
Net Fixed Assets<\/td>\n30<\/td>\n<\/tr>\n
Total Assets<\/td>\n93<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/tr>\n
Liabilities and Equities:<\/strong><\/td>\n<\/td>\n<\/tr>\n
Accounts payable<\/td>\n15<\/td>\n<\/tr>\n
Long-term debt<\/td>\n18<\/td>\n<\/tr>\n
Stockholders’ Equity<\/td>\n60<\/td>\n<\/tr>\n
Total Liabilities & Equities<\/td>\n93<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5. What was company\u2019s profitfor 2020?<\/p>\n

6. Compute the following three profitability ratios and explain to Ross and Westerfield whether the business did better or worse in 2020 relative to the performance of the industry.<\/p>\n

i. Profit margin<\/p>\n

ii. Return on assets<\/p>\n

iii. Return on equity, and<\/p>\n

iv). Calculate and explain operating cash flow<\/p>\n

The industry ratios are as follows:<\/p>\n\n\n\n\n\n\n
Industry ratios<\/strong><\/td>\n<\/td>\n<\/tr>\n
Profit margin<\/td>\n30.80%<\/td>\n<\/tr>\n
Return on assets<\/td>\n32.00%<\/td>\n<\/tr>\n
Return on equity<\/td>\n42.50%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Current ratio 3 times<\/p>\n

Total debt ratio 40.0%<\/p>\n

7. The business current assets comprise of cash and other current assets whilst its current liabilities comprise of only accounts payable. Compute and explain the current ratio and total debt ratio for the business in 2020.<\/p>\n

8. Ross believes that if the business goes public large capital can be raised to increase sales and cash flows to maximize the value of the firm. Assuming the business projects a 35% increase in operating revenue (sales) per year what will be the anticipated operating revenue in three years from now (i.e., in 2023)?<\/p>\n

9. If net income is projected to increase by 30% per year, what will be the profit margin in 2023?<\/p>\n

10. What will be the estimated earnings per share (EPS) in 2023 if 5 million shares are issued?<\/p>\n","protected":false},"excerpt":{"rendered":"

PART 2. FINANCIAL STATEMENT ANALYSIS AND FINANCIAL MODELS Ross and Westerfield want to use financial planning models to prepare a projected (pro forma) financial statement to determine the profitability and financial health of the business for next four years if they go public. The income statement ending Dec 31, 2020, and the company\u2019s balance sheet […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-10480","post","type-post","status-publish","format-standard","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/10480","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=10480"}],"version-history":[{"count":3,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/10480\/revisions"}],"predecessor-version":[{"id":10484,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/10480\/revisions\/10484"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=10480"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=10480"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=10480"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}