I need help with situation 3. than business needs. Abrahams has asked you to examine thethere never seems to be much cash available for purposes otherits she does not have any discretionary cash for personal needs.S10.000 a year available for personal living expenses. However,statements, what would you tell Abrahams? (As part of yourHowever, that doesn't seem to be the case. What's happening?"Question 1 Given the information provided by the financialfinancial statements and explain why, although they show prof-back depreciation to find out how much cash I was generating.Question 2 How would you describe the cash flow pattern forSituation 3Philip Spencer, the owner of Wholesome Foods, has hired you toevaluate his firm's financial performance. The firm's financial datais provided below, along with an average for the financial ratiosthat Spencer collected on several competing peer firms.Question 1 Compute the financial ratios discussed in thechapter for Wholesome Foods for 2014 and 2015.Question 2 Prepare a cash flow statement for the firm for2014 and 2015.Question 3 Interpret your findings, both for the firm's financialratios compared to those of the peer group and for the cash flowstatement.answer, calculate the firm's cash flows)the Maitz Company?Assets201320142015Cash$ 21,000$ 20,20025,000Accounts receivable42,00033,00046,000Inventory51,00084,00096,000Prepaid rent2,0001,2001,100Total current assets$ 115,200$ 138,300$ 169,000Gross property, plant, and equipment664,000740,000650,000Accumulated depreciation(364,000)(394,000)(434,000)Net property, plant, and equipment$ 286,000$ 270,000$ 306,000TOTAL ASSETS$ 401,200$ 408,300$ 475,000Debt (Liabilities) and Equity201320142015Accounts payable$ 48,000$ 57,000$ 52,400Accrued expenses9,5009,00012,000Short-term notes11,5009,00020,000Total current liabilities$ 69,000$ 75,000$ 84,400Long-term debt160,000150,000185,000Common stock$ 22,200$ 22,200$ 34,500Retained earnings150,000161,100171,100Total owners' equity$ 172,200$ 183,300$ 205,600TOTAL DEBT AND EQUITY$ 401,200$ 408,300$ 475,000Income Statement20142015Sales$ 600,000$ 650,000Cost of goods sold(460,000)(487,500)Gross profits$ 140,000$ 162,500Operating expenses:General and administrative expenses$ 30,000$ 37,500Depreciation expense30,00040,000Total operating expenses$ 60,000$ 77,500Chapter 10 Understanding a Firm's Financial Statements293 20142015$ 80,000$ 85,000Income Statement(10,000)(12,000)Operating profits$ 70,000$ 73,000Interest expense(27,100)(30,000)Profits before taxes$ 42,900$ 42,900$ 43,000$ 43,000ТаxesNet profitsNet profits(31,800)(33,000)Dividends paid$ 11,100$ 10,000Addition to retained earningsPeer CompaniesFinancial Ratios (Averages)1.80Current ratio16.8%Return on assets14.0%Operating profit margin1.20Total asset turnover0.50Debt ratio18.0%Return on equityCase 10Harper & Reiman, LLC (P. 662)Haprer & Reiman, LLC caters to non-profit organizations.The company has experienced significant growth, with salesapproaching $29 million in 2014-far beyond anything Harper& Reiman could have imagined. For one thing, the firm distin-guished itself in the industry by designing a payment systemthat serves non-profits by allowing them to make paymentsin seasons when donations are the highest. This case allostudents to evaluate the firm's financial performance. This cwas prepared by Lauren Houser, April 2013.Alternative Case for Chapter 10Video Case 10, B2B CFO [website only]Endnotes

By examining a company's financial documents, such as the balance sheet and income statement, ratio…

The firm has been profitable, but Abrahams has been disap- Situation 3 pointed by the lack of cash flows. She had hoped to have about s10.000 a year available for personal living expenses. However, there never seems to be much cash available for purposes other Philip Spencer, the owner of Wholesome Foods, has hired you to evaluate his firm's financial performance. The firm's financial data Is provided below, along with an average for the financial ratios that Spencer collected on several competing peer firms. than business needs. Abrahams has asked you to examine the financial statements and explain why, although they show prof- its she does not have any discretionary cash for personal needs. She observed, "7 thought that I could take the profits and add back depreciation to find out how much cash I was generating. However, that doesn't seem to be the case. What's happening?" Question 1 Given the information provided by the financial statements, what would you tell Abrahams? (As part of your answer, calculate the firm's cash flows) Question 2 How would you describe the cash flow pattern for Question 1 Compute the financial ratios discussed in the chapter for Wholesome Foods for 2014 and 2015. Question 2 Prepare a cash flow statement for the firm for 2014 and 2015. Question 3 Interpret your findings, both for the firm's financial ratios compared to those of the peer group and for the cash flow statement. the Maitz Company? 2013 2014 2015 Assets Cash $ 21,000 $ 20,200 25,000 Accounts receivable 42,000 33,000 46,000 Inventory 51,000 84,000 96,000 Prepaid rent 1,200 1,100 2,000 Total current assets $ 115,200 $ 138,300 $ 169,000 Gross property, plant, and equipment 740,000 650,000 664,000 Accumulated depreciation (434,000) (364,000) $ 286,000 (394,000) Net property, plant, and equipment $ 270,000 $ 306,000 TOTAL ASSETS $ 401,200 $ 408,300 $ 475,000 Debt (Liabilities) and Equity 2013 2015 2014 Accounts payable $ 48,000 $ 57,000 $ 52,400 Accrued expenses 9,500 9,000 12,000 Short-term notes 11,500 9,000 20,000 Total current liabilities $ 69,000 $ 75,000 $ 84,400 Long-term debt 160,000 150,000 185,000 Common stock $ 22,200 $ 22,200 $ 34,500 Retained earnings 150,000 161,100 171,100 Total owners' equity $ 172,200 $ 183,300 $ 205,600 TOTAL DEBT AND EQUITY $ 401,200 $ 408,300 $ 475,000 Income Statement 2014 2015 Sales ১600,000 $ 650,000 Cost of goods sold (460,000) (487,500) $ 162,500 Gross profits $ 140,000 Operating expenses: General and administrative expenses $ 30,000 $ 37,500 Depreciation expense 30,000 40,000 Total operating expenses $ 60,000 $ 77,500 Chapter 10 Understanding a Firm's Financial Statements 29

The firm has been profitable, but Abrahams has been disap- Situation 3 pointed by the lack of cash flows. She had hoped to have about s10.000 a year available for personal living expenses. However, there never seems to be much cash available for purposes other Philip Spencer, the owner of Wholesome Foods, has hired you to evaluate his firm's financial performance. The firm's financial data Is provided below, along with an average for the financial ratios that Spencer collected on several competing peer firms. than business needs. Abrahams has asked you to examine the financial statements and explain why, although they show prof- its she does not have any discretionary cash for personal needs. She observed, "7 thought that I could take the profits and add back depreciation to find out how much cash I was generating. However, that doesn't seem to be the case. What's happening?" Question 1 Given the information provided by the financial statements, what would you tell Abrahams? (As part of your answer, calculate the firm's cash flows) Question 2 How would you describe the cash flow pattern for Question 1 Compute the financial ratios discussed in the chapter for Wholesome Foods for 2014 and 2015. Question 2 Prepare a cash flow statement for the firm for 2014 and 2015. Question 3 Interpret your findings, both for the firm's financial ratios compared to those of the peer group and for the cash flow statement. the Maitz Company? 2013 2014 2015 Assets Cash $ 21,000 $ 20,200 25,000 Accounts receivable 42,000 33,000 46,000 Inventory 51,000 84,000 96,000 Prepaid rent 1,200 1,100 2,000 Total current assets $ 115,200 $ 138,300 $ 169,000 Gross property, plant, and equipment 740,000 650,000 664,000 Accumulated depreciation (434,000) (364,000) $ 286,000 (394,000) Net property, plant, and equipment $ 270,000 $ 306,000 TOTAL ASSETS $ 401,200 $ 408,300 $ 475,000 Debt (Liabilities) and Equity 2013 2015 2014 Accounts payable $ 48,000 $ 57,000 $ 52,400 Accrued expenses 9,500 9,000 12,000 Short-term notes 11,500 9,000 20,000 Total current liabilities $ 69,000 $ 75,000 $ 84,400 Long-term debt 160,000 150,000 185,000 Common stock $ 22,200 $ 22,200 $ 34,500 Retained earnings 150,000 161,100 171,100 Total owners' equity $ 172,200 $ 183,300 $ 205,600 TOTAL DEBT AND EQUITY $ 401,200 $ 408,300 $ 475,000 Income Statement 2014 2015 Sales ১600,000 $ 650,000 Cost of goods sold (460,000) (487,500) $ 162,500 Gross profits $ 140,000 Operating expenses: General and administrative expenses $ 30,000 $ 37,500 Depreciation expense 30,000 40,000 Total operating expenses $ 60,000 $ 77,500 Chapter 10 Understanding a Firm's Financial Statements 29

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 1cM

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