This assignment is based on the financial statements and notes for Alpha Corporation presented in the accompanying excel sheet and additional information as follows:

Alphas competitors use FIFO for inventory costing.

The market value of Alpha Corporation at December 31, 2019 was $3,000,000.

Rental revenues were derived from a short-term lease of an unused portion of the Building which will be put back to use after the end of the lease.

Using the financial statements, accounting policies and notes, and the additional information above, provide the following as a basis for a future comparison of Alpha Corporation to competitor ratios and industry benchmarks:

1. A decomposition of ROE using a 5-way DuPont Analysis showing all the components (e.g., interest burden, tax burden, etc.) (10 points)

2. A decomposition of ROE into operating return and nonoperating return and the components comprising each (e.g., NOPM, NOAT, FLEV etc.) (10 points)

3. Compute cash conversion cycle. What will be the change in cash if the company reduced its the cash conversion cycle by 1 day? (5 points)

4. Compute PPE turnover and percentage of PPE used up. Comment briefly. (5 points)

5. A summary of specific results from your analysis that you would be especially interested in comparing Alpha Corporation to its competitors in a future analysis. (5 points)

6. What is Alphas bad debt expense for 2019. Would you consider this significant? Explain briefly. (5 points)

Be sure to show your work in good (i.e., legible) form and be sure to document the basis for your approach where judgement is necessary in doing your analysis. Also, be sure your summary is supported by your analysis.

C D E $ 2019 $ 2018 278,000 141,000 1,509,600 1,525,315 32,000 3,485,915 240,000 125,000 1,431,200 1,257,261 28,000 3,081,461 A B 1 2 Alpha Corporation 3 Balance sheet as at Dec 31 4. ASSETS 5 Current Assets 6 Cash 7 Marketable securities (Note 1) 8 Accounts receivable - Net (Note 2) 9 Inventories (Note 3) 10 Prepayments 11 Total current assets 12 Investments (Equity Method) 13 Investment in Thayer Corporation 14 Investment in Hitchcock Corporation 15 Investment in Davis Corporation 16 Total Investments 17 Property, Plant, and Equipment (Note 4) 18 Land 19 Building 20 Equipment 21 Leasehold 22 Total Plant Assets at Cost 23 Less Accumulated Depreciation and Amortization 24 Total Plants Assets - Net 25 Intangibles 26 Goodwill - Net 27 Total Assets 28 LIABILITIES AND SHAREHOLDERS' EQUITY 29 Current Liabilities 30 Note Payable (Note 5) 31 Accounts Payable Financial Statements Accounting policies and notes 87,000 135,000 298,000 520,000 92,000 120,000 215,000 427,000 82,000 843,000 1,848,418 106,036 2,879,454 (420,854) 2,458,600 82,000 843,000 497,818 106,036 1,528,854 (383,854) 1,145,000 36,000 6,500,515 36,000 4,689,461 200,000 723,700 100,000 666,100 B D 200,000 723,700 58,000 78,600 2,000 30,000 160,000 37,383 10,000 1,299,683 100,000 666,100 46,000 75,200 1,500 25,000 140,000 37,383 10,000 1,101,183 A B 29 Current Liabilities 30 Note Payable (Note 5) 31 Accounts Payable 32 Rental Fees Received in Advance 33 Estimated Warranty Liability 34 Interest Payable on Notes 35 Dividends Payable 36 Income Taxes Payable - Current 37 Mortgage Payable - Current Position 38 Capitalized Lease Obligation - Current Portion 39 Total Current Liabilities 40 Noncurrent Liabilities 41 Bonds Payable 42 Mortgage Payable (Note 6) 43 Capitalized Lease Obligation (Note 7) 44 Deferred Tax Liability 45 Total Noncurrent Liabilities 46 Total Liabilities 47 Shareholders' Equity 48 Common Stock, $10 par Value 49 Additional Paid-In Capital - Common 50 Accumulated Other Comprehensive Income: 51 Unleaized Loss on Marketable Securities 52 Unrealized Loss on Investments in Securities 53 Retained Earnings 54 Total 55 Less Treasury Stock 56 Total Shareholders' Equity 57 Total Liabilities and Shareholders' Equity 58 59 Financial Statements Accounting policies and notes 1,931,143 243,560 46,229 145,000 2,365,932 3,665,615 1,104,650 262,564 52,064 130,000 1,549,278 2,650,461 1,650,000 783,600 1,000,000 830,000 (21,000) (21,000) 457,500 2,849,100 (14,200) 2,834,900 6,500,515 (25,000) (16,000) 277,000 2,066,000 (27,000) 2,039,000 4,689,461 $ $ Sb 2,834,900 6,500,515 2,039,000 4,689,461 $ 2019 Equity 57 Total Liabilities and Shareholders' Equity 58 59 60 Income Statement for the Year ended Dec 31 61 REVENUES AND GAINS 62 Sales 63 Gain on Sale of Equipment 64 Rental Revenue 65 Dividend Revenue 66 Total Revenues and Gains 67 68 EXPENSES, LOSSES, AND DEDUCTIONS Cost of Goods Sold (Including Depreciation and 69 Amortization) 4,102,000 3,000 240,000 8,000 4,353,000 2,580,000 Selling and Administration Expenses (Including 70 Depreciation and Amortization and Bad Debt Expense) 71 Warranty Expense 72 Interest Expense 73 Loss on Sale of Marketable Equity Securities 74 Income Tax Expense 75 Total Expenses, Losses, and Deductions 76 Consolidated Net Income 77 Less Dividends Declared 78 Increase in Retained Earnings for 2019 79 Retained Earnings, December 31, 2018 80 Retained Earnings, December 31, 2019 81 82 83 Financial Statements Accounting policies and notes 1,102,205 46,800 165,995 8,000 150,000 4,053,000 300,000 (119,500) 180,500 277,000 457,500 4 5 6 B D E G . K L M N 1 Accounting Folicies: 2 ** Basis of Consolidation: Consolidated its statements with those of Harvard Corporation (100% owned subsidiary, acquired January 2, 2017) 3 ** Marketable Securities: The firm classifies marketable securities as avaialble for sale and measures them at fair value ** Accounts Receivable: Accounts for uncollectible accounts using the allowance method ** Inventories: The firm uses LIFO assumption for inventories ** Investments: Investments of less than 20% of the outstanding common stock of other companies as avaialable for sale and measures them at fair value 7 Investments of 20-50% of the outstanding common stock of affiliates are accounted for using the equity method 8 ** Property Plant and Equipment: Depreciation for buildings, equipment, and leaseholds is calculated using the straight-line method and accelerated method for income tax reporting 9 ** Measure interest expense on long-term debt using the effective interest method 10 ** Provides for deferred income taxes arising from temporary differences between book and taxable income 11 12 Notes: 13 14 15 ** the balance sheet presents marketable equity securities, all classified as available for sale, at fair 16 value, which is less than acquisition cost by $25,000 on December 31, 2018, and $21,000 on December 17 31, 2019. Alpha Corporation sold marketable equity securities costing $35,000 during 2019. [NOTE 1] 18 19 ** the balance sheet presents accounts receivable net of an allowance for uncollectibles of $128,800 on 20 December 31, 2018, and $210,400 on December 31, 2019. Alpha Corporation wrote off a total of $63,000 21 of accounts receivable as uncollectible during 2019. [NOTE 2] 22 23 ** the valuation of inventories on a FIFO basis exceed the amounts on a LIFO basis by $430,000 on 24 December 31, 2018, and $410,000 on Decemer 31, 2019. [NOTE 3] 25 26 ** Alpha Corporation sold equipment with a cost of $23,000 and a carrying value of $4,000 during 2019. 27 This was the only disposition of property, plant, and equipment during the year. [NOTE 4] 28 29 30 ** Alpha Corporation paid at maturity a 90-day, 9% note with a face amount of $100,000 with interest on January 30, 2019. On December 1, 2019 Alpha Corporation borrowed $200,000 from its local bank, 31 promising to repay the principal plus interest at 12% in six months. [NOTE 5] 32 33 ** Mortgage payable represents a building mortgage requiring equal installment payments of $40,000 34 on December 31 of each year. The loan underlying the mortgage bears interest of 7%, compounded 35 annually. (NOTE 6) 36 37 ** The capitalized lease obligation represents a 20-year, non-cancelable lease on certain equipment. 38 The lease requires annual payments, in advance of $10,000 on January 2 of each year. Alpha Corporation will make the last lease payment on January 2, 2026. Alpha Corporation capitalizes the 39 lease at its borrowing rate of 8%. (NOTE 7) 40 41 C D E $ 2019 $ 2018 278,000 141,000 1,509,600 1,525,315 32,000 3,485,915 240,000 125,000 1,431,200 1,257,261 28,000 3,081,461 A B 1 2 Alpha Corporation 3 Balance sheet as at Dec 31 4. ASSETS 5 Current Assets 6 Cash 7 Marketable securities (Note 1) 8 Accounts receivable - Net (Note 2) 9 Inventories (Note 3) 10 Prepayments 11 Total current assets 12 Investments (Equity Method) 13 Investment in Thayer Corporation 14 Investment in Hitchcock Corporation 15 Investment in Davis Corporation 16 Total Investments 17 Property, Plant, and Equipment (Note 4) 18 Land 19 Building 20 Equipment 21 Leasehold 22 Total Plant Assets at Cost 23 Less Accumulated Depreciation and Amortization 24 Total Plants Assets - Net 25 Intangibles 26 Goodwill - Net 27 Total Assets 28 LIABILITIES AND SHAREHOLDERS' EQUITY 29 Current Liabilities 30 Note Payable (Note 5) 31 Accounts Payable Financial Statements Accounting policies and notes 87,000 135,000 298,000 520,000 92,000 120,000 215,000 427,000 82,000 843,000 1,848,418 106,036 2,879,454 (420,854) 2,458,600 82,000 843,000 497,818 106,036 1,528,854 (383,854) 1,145,000 36,000 6,500,515 36,000 4,689,461 200,000 723,700 100,000 666,100 B D 200,000 723,700 58,000 78,600 2,000 30,000 160,000 37,383 10,000 1,299,683 100,000 666,100 46,000 75,200 1,500 25,000 140,000 37,383 10,000 1,101,183 A B 29 Current Liabilities 30 Note Payable (Note 5) 31 Accounts Payable 32 Rental Fees Received in Advance 33 Estimated Warranty Liability 34 Interest Payable on Notes 35 Dividends Payable 36 Income Taxes Payable - Current 37 Mortgage Payable - Current Position 38 Capitalized Lease Obligation - Current Portion 39 Total Current Liabilities 40 Noncurrent Liabilities 41 Bonds Payable 42 Mortgage Payable (Note 6) 43 Capitalized Lease Obligation (Note 7) 44 Deferred Tax Liability 45 Total Noncurrent Liabilities 46 Total Liabilities 47 Shareholders' Equity 48 Common Stock, $10 par Value 49 Additional Paid-In Capital - Common 50 Accumulated Other Comprehensive Income: 51 Unleaized Loss on Marketable Securities 52 Unrealized Loss on Investments in Securities 53 Retained Earnings 54 Total 55 Less Treasury Stock 56 Total Shareholders' Equity 57 Total Liabilities and Shareholders' Equity 58 59 Financial Statements Accounting policies and notes 1,931,143 243,560 46,229 145,000 2,365,932 3,665,615 1,104,650 262,564 52,064 130,000 1,549,278 2,650,461 1,650,000 783,600 1,000,000 830,000 (21,000) (21,000) 457,500 2,849,100 (14,200) 2,834,900 6,500,515 (25,000) (16,000) 277,000 2,066,000 (27,000) 2,039,000 4,689,461 $ $ Sb 2,834,900 6,500,515 2,039,000 4,689,461 $ 2019 Equity 57 Total Liabilities and Shareholders' Equity 58 59 60 Income Statement for the Year ended Dec 31 61 REVENUES AND GAINS 62 Sales 63 Gain on Sale of Equipment 64 Rental Revenue 65 Dividend Revenue 66 Total Revenues and Gains 67 68 EXPENSES, LOSSES, AND DEDUCTIONS Cost of Goods Sold (Including Depreciation and 69 Amortization) 4,102,000 3,000 240,000 8,000 4,353,000 2,580,000 Selling and Administration Expenses (Including 70 Depreciation and Amortization and Bad Debt Expense) 71 Warranty Expense 72 Interest Expense 73 Loss on Sale of Marketable Equity Securities 74 Income Tax Expense 75 Total Expenses, Losses, and Deductions 76 Consolidated Net Income 77 Less Dividends Declared 78 Increase in Retained Earnings for 2019 79 Retained Earnings, December 31, 2018 80 Retained Earnings, December 31, 2019 81 82 83 Financial Statements Accounting policies and notes 1,102,205 46,800 165,995 8,000 150,000 4,053,000 300,000 (119,500) 180,500 277,000 457,500 4 5 6 B D E G . K L M N 1 Accounting Folicies: 2 ** Basis of Consolidation: Consolidated its statements with those of Harvard Corporation (100% owned subsidiary, acquired January 2, 2017) 3 ** Marketable Securities: The firm classifies marketable securities as avaialble for sale and measures them at fair value ** Accounts Receivable: Accounts for uncollectible accounts using the allowance method ** Inventories: The firm uses LIFO assumption for inventories ** Investments: Investments of less than 20% of the outstanding common stock of other companies as avaialable for sale and measures them at fair value 7 Investments of 20-50% of the outstanding common stock of affiliates are accounted for using the equity method 8 ** Property Plant and Equipment: Depreciation for buildings, equipment, and leaseholds is calculated using the straight-line method and accelerated method for income tax reporting 9 ** Measure interest expense on long-term debt using the effective interest method 10 ** Provides for deferred income taxes arising from temporary differences between book and taxable income 11 12 Notes: 13 14 15 ** the balance sheet presents marketable equity securities, all classified as available for sale, at fair 16 value, which is less than acquisition cost by $25,000 on December 31, 2018, and $21,000 on December 17 31, 2019. Alpha Corporation sold marketable equity securities costing $35,000 during 2019. [NOTE 1] 18 19 ** the balance sheet presents accounts receivable net of an allowance for uncollectibles of $128,800 on 20 December 31, 2018, and $210,400 on December 31, 2019. Alpha Corporation wrote off a total of $63,000 21 of accounts receivable as uncollectible during 2019. [NOTE 2] 22 23 ** the valuation of inventories on a FIFO basis exceed the amounts on a LIFO basis by $430,000 on 24 December 31, 2018, and $410,000 on Decemer 31, 2019. [NOTE 3] 25 26 ** Alpha Corporation sold equipment with a cost of $23,000 and a carrying value of $4,000 during 2019. 27 This was the only disposition of property, plant, and equipment during the year. [NOTE 4] 28 29 30 ** Alpha Corporation paid at maturity a 90-day, 9% note with a face amount of $100,000 with interest on January 30, 2019. On December 1, 2019 Alpha Corporation borrowed $200,000 from its local bank, 31 promising to repay the principal plus interest at 12% in six months. [NOTE 5] 32 33 ** Mortgage payable represents a building mortgage requiring equal installment payments of $40,000 34 on December 31 of each year. The loan underlying the mortgage bears interest of 7%, compounded 35 annually. (NOTE 6) 36 37 ** The capitalized lease obligation represents a 20-year, non-cancelable lease on certain equipment. 38 The lease requires annual payments, in advance of $10,000 on January 2 of each year. Alpha Corporation will make the last lease payment on January 2, 2026. Alpha Corporation capitalizes the 39 lease at its borrowing rate of 8%. (NOTE 7) 40 41