ACCT 2220 Lecture Notes - Lecture 2: Financial Statement, Book Value, Retained Earnings

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29 Sep 2016

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Identify the sections of a classified statement of a financial position. 1: identify and calculate ratios for analyzing a company"s liquidity, solvency, and profitability, describe the framework for the preparation and presentation of financial statements. A classified statement of financial position generally contains the following standard classifications: Depreciation/amortization: allocation of the cost of property, plant and equipment over their estimated useful lives. Companies systematically assign a portion of the cost of an asset to expense each year. Under ifrs, this allocation is referred to as depreciation for property, plant, and equipment, and amortization for intangible assets. Under aspe, amortization is often used instead of depreciation. The cost of long-lived assets with indefinite lives is not depreciated (e. g land) Accumulated depreciation depreciation taken to date account shows the total amount of. The difference between the cost of the asset and its accumulated depreciation is referred to as the carrying amount of the asset.

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Materials, Inc.

Consolidated Statements of Income

For the Last Four Fiscal Years of Operations (000âs $)

20x3 20x2 20x1 20x0

NetSales $93,000 $89,460 $83,200 $72,410

Cost ofSales 70,600 68,440 64,480 55,760

GrossProfit 22,400 21,020 18,720 16,650

Selling, G&A Expenses 9,300 9,390 8,320 7,600

Operating Profit 13,100 11,630 10,400 9,050

Interest Expense (470) (450) (420) (150)

InterestIncome 90 90 80 70

G(L) on Sale of Assets 2,450 2,710 2,420 370

Income Before Taxes 15,170 13,980 12,480 9,340

Provision for Taxes 5,110 4,920 4,160 3,260

NetIncome $10,060 $ 9,060 $8,320 $ 6,080

EOC Quiz Requirements:

Based upon the Income Statement and Balance Sheet data, completethe requested liquidity, solvency and profitability ratios.

Southwest Materials, Inc.

Consolidated Balance Sheets

For the Last Four Fiscal Years of Operations (000âs $)

20x3 20x2 20x1 20x0

Assets

Current Assets

Cash & Cash Equivalents $4,270 $ 3,640 $ 420 $ 470

Accounts Receivable, Net 12,000 11,31010,470 9,420

Inventories 4,000 3,840 3,870 2,950

PrepaidExpense 900 750 660 520

Total CurrentAssets 21,17019,540 15,420 13,360

Property, Plant & Equipment

Land 21,770 20,110 18,910 17,460

Plant &Equipment 101,390 94,750 89,560 76,190

Gross P. P. &E. 123,160 114,860 108,470 93,650

Less: Accum Depreciation 56,010 51,22047,650 41,160

Net Property, Plant & Equip 67,150 63,64060,820 52,490

Goodwill 7,000 6,830 6,140 5,870

OtherAssets 5,000 4,380 3,880 3,800

TotalAssets $100,320 $ 94,390 $86,260 $ 75,520

Liabilities & Equity

Current Liabilities

Accounts Payable $ 5,400 $ 5,320 $5,260 $ 5,200

AccruedLiabilities 4,300 4,320 4,360 7,960

Current Portion L-T-Debt 950 1,140 470 290

Total Current Liabilities 10,650 10,78010,090 13,450

Long-Term Liabilities

Long-TermDebt 11,500 15,120 18,950 11,560

Deferred IncomeTaxes 7,500 6,910 4,820 3,990

Accrued Employee Benefits 3,500 3,610 3,410 3,680

Total Long-Term Liabilities 22,500 25,64027,180 19,230

TotalLiabilities 33,150 36,420 37,270 32,680

Stockholdersâ Equity

Common Stock, $0.10 Par Val 240 240 240 240

Capital in Excess of Par 2,350 2,350 2,350 2,350

RetainedEarnings 64,880 56,020 48,120 40,730

Less Cost of Treasury Stock (300) (640) (1,720) (480)

Total Stockholdersâ Equity 67,170 57,97048,990 42,840

Total Liabilities & Equity $100,320 $94,390 $ 86,260 $ 75,520

Southwest Materials, Inc. â Requested Ratios

20x2 20x1 20x0

Liquidity Ratios:

CurrentRatio __________ __________ __________

Acid-TestRatio __________ __________ __________

Accounts Rec Turnover Ratio __________ __________ __________

Inventory Turnover Ratio __________ __________ __________

Daysâ Sales Uncollected __________ __________ __________

Daysâ Sales in Inventory __________ __________ __________

Cash-to-Cash Operating Cycle __________ __________ __________

Note: Use the Alternate Equations Presented in the PowerPointsfor

Daysâ Sales Uncollected, DaysâSales in Inventory,

and Cash-to-Cash OperatingCycle

Total AssetTurnover __________ __________ __________

Solvency Ratios:

DebtRatio __________ __________ __________

EquityRatio __________ __________ __________

Debt-to-EquityRatio __________ __________ __________

Times Interest Earned Ratio __________ __________ __________

Profitability Ratios:

Gross MarginRatio __________ __________ __________

Operating Income Margin Ratio __________ __________ __________

Profit MarginRatio __________ __________ __________

Note: Use the Equation Presented in the PowerPoints for the

Operating Income Margin Ratio

Return on Total Assets __________ __________ __________

Return onEquity __________ __________ __________

ultramarinedog650

Common Size Income statement
	2017		2016
	$M	Percentage	$M	Percentage
Operating revenue	2319	100%	2375	100%
Operating expenses	-1666	-71.84%	-1725	-72.63%
Earnings before interest, tax, depreciation, amortisation,changes in fair value of hedges and other signifcant items(EBITDAF)	653	28.16%	650	27.37%
Depreciation and amortisation	-264	-11.38%	-236	-9.94%
Impairment of assets	-10	-0.43%	-4	-0.17%
Loss on sale of assets	-4	-0.17%	-1	-0.04%
Net change in fair value of electricity and other hedges	-76	-3.28%	-15	-0.63%
Operating profit	299	12.89%	402	16.93%
Finance Cost	79	3.41%	80	3.37%
Interest Income	2	0.09%	2	0.08%
Net change in fair value of treasury instruments	55	2.37%	-68	-2.86%
Net profit before tax	277	11.94%	256	10.78%
Income tax expense	-80	-3.45%	-71	-2.99%
Net proft after tax attributed to the shareholders of the parentcompany	197	8.50%	185	7.79%
Earnings per share (EPS) attributed to ordinary equityholders of the parent	cents		cents
Basic and diluted earnings per share	7.7	0.33%	7.2	0.30%

COMPREHENSIVE INCOME STATEMENT

2017

2016

Percentage

Net profit after tax

197

8.50%

185

7.79%

Other comprehensive income

Intems that will not be reclassifed to profit or loss

Asset revaluation

428

18.46%

889

37.43%

Defferred tax on the above item

-120

-5.17%

-248

-10.44%

Items that may be reclassified to profit or loss

308

641

Net gain on cash flow hedges

0.09%

Exchange differences arising from translation of foreignoperation

0.04%

-23

-0.97%

Income tax on the above items

0.13%

-23

-0.97%

Other comprehensive income for the year, net of tax

311

13.41%

618

26.02%

Total comprehensice income for the year, net of tax attributedto shareholders of parent company

508

21.91%

803

33.81%

BALANCE SHEET

	2017		2016
	$M	Percentage	$M	Percentage
Current Assets
Cash and cash equivalents	80	0.92%	118	1.38%
Trade receivables	260	3.00%	194	2.27%
Financial Instruments	59	0.68%	71	0.83%
Other assets	32	0.37%	23	0.27%
Total Current Assets	432	5.00%	406	5.00%
Non-current assets
Property, plant and equipment	7961	91.88%	7771	91.02%
Intangible assets	58	0.67%	47	0.55%
Deferred tax	43	0.50%	40	0.47%
Financial Instruments	172	1.98%	274	3.21%
Total non-current assets	8234	95.00%	8132	95.00%
Total assets	8665	100.00%	8538	100.00%
Current Liabilities
Payables and accuals	296	3.42%	205	2.40%
Employee entitlements	15	0.17%	15	0.18%
Current portion of termborrowings	170	1.96%	214	2.51%
Finance lease payable	1	0.01%	1	0.01%
Financial Instruments	67	0.77%	48	0.56%
Current tax payable	30	0.35%	30	0.35%
Total current Liabilities	579	6.68%	513	6.01%
Non-current liabilities
Term borrowings	1022	11.79%	1000	11.71%
Deferred tax	1710	19.73%	1617	18.94%
Provisions	9	0.10%	8	0.09%
Finance lease payable	46	0.53%	47	0.55%
Financial Instruments	124	1.43%	203	2.38%
Term payables	93	1.07%	100	1.17%
Total non-current liabilities	3004	34.67%	2975	34.84%
Total liabilities	3583	41.35%	3488	40.85%
Net assets	5082	58.65%	5050	59.15%
Shareholders' equity
Share capital	1598	18.44%	1597	18.70%
Reserves	3484	40.21%	3453	40.44%
Total shareholders' equity	5082	58.65%	5050	59.15%

Using the following financial ratiosfor 2016 and 2017 periods, and other associated

information available in the publicdomain, assess the financial health of MEL from the

view of an investor.

Liquidity ratios

b) Asset management efficiencyratios

c) Profitability ratios

d) Market ratios

Assume you are a banker evaluating aloan request from Meridian Energy Limited

(MEL) for $220 million. ConsideringMELâs recent earnings announcements and

earnings forecast updates, what wouldbe your concerns in deciding on approval or

denial of the loan request? Use thecompanyâs capital structure ratios for 2016 and 2017

in your explanation.

apricotwallaby871

Off centered a little bit, sorry.

Comparative Statements of Income & Balance Sheets

For Southwest Materials, Inc., are as follows:

Southwest Materials, Inc.

Consolidated Statements of Income

For the Last Four Fiscal Years of Operations (000âs $)

20x3 20x2 20x1 20x0

Net Sales $93,000 $89,460 $83,200 $72,410

Cost of Sales 70,600 68,440 64,480 55,760

Gross Profit 22,400 21,020 18,720 16,650

Selling, G&A Expenses 9,300 9,390 8,320 7,600

Operating Profit 13,100 11,630 10,400 9,050

Interest Expense (470) (450) (420) (150)

Interest Income 90 90 80 70

G(L) on Sale of Assets 2,450 2,710 2,420 370

Income Before Taxes 15,170 13,980 12,480 9,340

Provision for Taxes 5,110 4,920 4,160 3,260

Net Income $10,060 $ 9,060 $ 8,320 $ 6,080

Requirements:

Based upon the Income Statement and Balance Sheet data, complete the requested liquidity, solvency and profitability ratios.

Southwest Materials, Inc.

Consolidated Balance Sheets

For the Last Four Fiscal Years of Operations (000âs $)

20x3 20x2 20x1 20x0

Assets

Current Assets

Cash & Cash Equivalents $ 4,270 $ 3,640 $ 420 $ 470

Accounts Receivable, Net 12,000 11,310 10,470 9,420

Inventories 4,000 3,840 3,870 2,950

Prepaid Expense 900 750 660 520

Total Current Assets 21,170 19,540 15,420 13,360

Property, Plant & Equipment

Land 21,770 20,110 18,910 17,460

Plant & Equipment 101,390 94,750 89,560 76,190

Gross P. P. & E. 123,160 114,860 108,470 93,650

Less: Accum Depreciation 56,010 51,220 47,650 41,160

Net Property, Plant & Equip 67,150 63,640 60,820 52,490

Goodwill 7,000 6,830 6,140 5,870

Other Assets 5,000 4,380 3,880 3,800

Total Assets $100,320 $ 94,390 $ 86,260 $ 75,520

Liabilities & Equity

Current Liabilities

Accounts Payable $ 5,400 $ 5,320 $ 5,260 $ 5,200

Accrued Liabilities 4,300 4,320 4,360 7,960

Current Portion L-T-Debt 950 1,140 470 290

Total Current Liabilities 10,650 10,780 10,090 13,450

Long-Term Liabilities

Long-Term Debt 11,500 15,120 18,950 11,560

Deferred Income Taxes 7,500 6,910 4,820 3,990

Accrued Employee Benefits 3,500 3,610 3,410 3,680

Total Long-Term Liabilities 22,500 25,640 27,180 19,230

Total Liabilities 33,150 36,420 37,270 32,680

Stockholdersâ Equity

Common Stock, $0.10 Par Val 240 240 240 240

Capital in Excess of Par 2,350 2,350 2,350 2,350

Retained Earnings 64,880 56,020 48,120 40,730

Less Cost of Treasury Stock (300) (640) (1,720) (480)

Total Stockholdersâ Equity 67,170 57,970 48,990 42,840

Total Liabilities & Equity $100,320 $ 94,390 $ 86,260 $ 75,520

Southwest Materials, Inc. â Requested Ratios

20x3 20x2 20x1

Liquidity Ratios:

Current Ratio __________ __________ __________

Acid-Test Ratio __________ __________ __________

Accounts Rec Turnover Ratio __________ __________ __________

Inventory Turnover Ratio __________ __________ __________

Daysâ Sales Uncollected __________ __________ __________

Daysâ Sales in Inventory __________ __________ __________

Cash-to-Cash Operating Cycle __________ __________ __________

Note: Use the Alternate Equations Presented in the PowerPoints for

Daysâ Sales Uncollected, Daysâ Sales in Inventory,

and Cash-to-Cash Operating Cycle

Total Asset Turnover __________ __________ __________

Solvency Ratios:

Debt Ratio __________ __________ __________

Equity Ratio __________ __________ __________

Debt-to-Equity Ratio __________ __________ __________

Times Interest Earned Ratio __________ __________ __________

Profitability Ratios:

Gross Margin Ratio __________ __________ __________

Operating Income Margin Ratio __________ __________ __________

Profit Margin Ratio __________ __________ __________

Note: Use the Equation Presented in the PowerPoints for the

Operating Income Margin Ratio

Return on Total Assets __________ __________ __________

Return on Equity __________ __________ __________

coppercattle818

ACCT 2220 Lecture Notes - Lecture 2: Financial Statement, Book Value, Retained Earnings

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