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McMaster University CENTRE FOR Foundations of Business Finance, BUS 860 CONTINUING EDUCATION Assignment #2 Financial Ratios and Budgeting 30% of Total Grade Assignment Purpose: to be become familiar with the application of financial ratios along with budgeting within the context of small and large organizations including sole proprietorships. Assignment Objective: to apply your understanding for analyzing and interpreting financial statements while applying a deeper level of financial analysis to gain meaningful insights from financial information to aid management decision making while also helping companies to plan ahead with a budget. Textbook Chapters/Resources for Reference: chapters 4-7 (Bergeron). Deliverable Format: in Microsoft Word or PDF-copy. If you use Microsoft Excel, please copy and paste it into Microsoft Word or PDF. Please submit your assignment only in one file copy and do not submit multiple formats or copies. Instructions: Based on the above exhibit with the cash flow statement, please answer the below questions: (a) Please recommend 3 financial ratios. Using these 3 financial ratios (i) explain why each of these 3 financial ratios are relevant to the income statement provided in the exhibit (3 marks), (ii) apply these financial ratios for fiscal year 2015 and 2014 (6 marks) and (iii) what can be concluded regarding the financial statement provided (how are revenues, profitability and margins treading year-over-year)? (4 marks) (b) Using the fiscal 2015 financial data provided above, please create a budget for fiscal 2016 using an assumed growth rate of 5%. (10 marks). Please state all relevant assumptions. (c) What is the gross profit margin for this company for both the product and service segment? (6 marks). If the breakeven quantity were 5,000 units for the product segment, what would be the breakeven price and what are 3 recommendations that you would make to improve the margins given this breakeven price? (4 marks)Exhibit A: CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share data) 2015 2014 Revenues: 2013 Services 43,894 40 246 Products 37.280 8.571 8.567 7,761 Total revenues 52,465 18 813 15.041 Costs and expenses: Cost of services (exclusive of depreciation and amortization) (23,191) (21,356) (20,090) Cost of products (exclusive of depreciation and amortization) (5,173) (5,064) (4,944) Selling, general, administrative and other (8,523) (8,565) (8,365) Depreciation and amortization (2,354) (2,288) (2,192) Total costs and expenses (39,241) (37,273) (35,591) Restructuring and impairment charges ($3) 140) (214) Other expense, net (31) (69) Interest income/(expense), net (117) 23 (235) Equity in the income of investees 814 854 688 Income before income taxes 13,868 12.246 9.620 Income taxes (5,016) (4,242) (2,984) Net income 8,852 8,004 6.636 Less: Net income attributable to noncontrolling interests (470) (503) (500) Net income attributable to The Walt Disney Company (Disney) 8,382 7,501 6,136