Refer to the following financial statements and answer the questions: Answer the following questions: Determine which items
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Question:
Refer to the following financial statements and answer the questions:
Answer the following questions:
- Determine which items varied in constant proportion to sales between 20x6 and 20x7.
- Determine the rate of growth in sales that was achieved from year 20x6 to 20x7.
- What was the firm’s return on equity for 20x7? Can you calculate for 20x6?
- What was the firm’s external (additional) funding requirement determined to be for 20x? How was the funding obtained? (hint: compare the changes in debts and equities).
Income statement | ||||
20x6 | 20x7 | |||
Sales | $1,200,000 | $1,500,000 | ||
Cost of goods sold | $750,000 | $937,500 | ||
Gross margin | $450,000 | $562,500 | ||
Operating expense | ||||
Advertising expense | $50,000 | $62,500 | ||
Rent expense | $72,000 | $90,000 | ||
Sales commission | $48,000 | $60,000 | ||
Utilities | $15,000 | $18,750 | ||
EBIT | $265,000 | $331,250 | ||
Interest expense | $106,000 | $113,000 | ||
Taxable income | $159,000 | $218,250 | ||
Tax (35%) | $55,650 | $76,388 | ||
Net Income | $103,350 | $141,863 | ||
Dividend (40% payout) | $41,340 | $56,745 | ||
Change in return earnings | $62,010 | $85,118 |
Balance sheet | ||||
20x6 | 20x7 | |||
Assets | ||||
Cash | $300,000 | $375,000 | ||
Receivables | $200,000 | $250,000 | ||
Inventory | $700,000 | $875,000 | ||
Property, plant and equipment | $1,800,000 | $2,250,000 | ||
Total assets | $3,000,000 | $3,750,000 | ||
Liabilities | ||||
Payables | $300,000 | $375,000 | ||
Short-term debt (10 % interest) | $500,000 | $989,882 | ||
Long-term debt (7% interest) | $800,000 | $900,000 | ||
Shareholders' equity | ||||
Common stock | $1,100,000 | $1,100,000 | ||
Retained earnings | $300,000 | $385,118 | ||
Total liabilities and equity | $3,000,000 | $3,750,000 |
Related Book For
Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
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