ACC 100 Study Guide - Final Guide: Income Statement, Deferral, Current Asset

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lavendermole636

13 Apr 2016

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Verical analysis shows the relaionship between diferent items on the same inancial statement. For instance, you might calculate current assets as a percentage of total assets for the balance sheet. This shows the contribuion that current assets made to the overall asset posiion of the business. If you compare this percentage between two years you can then see if the business has increased or decreased their current asset posiion. This is also seen as trend analysis because you are comparing diferent years to see if there is a trend (improving or declining). Verical analysis can also be performed between two diferent businesses within the same industry. Even if the businesses are diferent sizes the use of percentages will allow you to compare them because it removes the factor of size. When verical analysis is used to compare two businesses it is called common-size analysis. Let"s see an example to make this clear.

Related Questions

Choose a publicly traded company and perform an expandedanalysis on the financial statements (AMAZON.COM INC) . Use theannual statements in Yahoo Finance (http://finance.yahoo.com/quote/AMZN?p=AMZN ). Complete thefollowing for your chosen firm in an Excel spreadsheet:

1. Horizontal and vertical analysis of the income statements forthe past three years (all yearly balances set as a percentage oftotal revenues for that year).

2. Horizontal and vertical analysis of the balance sheets forthe past three years (all yearly balances set as a percentage oftotal assets for that year).

3. Ratio analysis (nine ratios of your choosing) for the pastthree years PLUS a measurement for the creditworthiness of yourfirm as measured by Altmanâs Z-score. You MUST also present currentyear competitor ratios for your ratio analysis Ebay; (http://finance.yahoo.com/quote/EBAY/?p=EBAY ). Comparing yourfirmâs ratios to a close competitor or an industry-average ratiomakes your analysis much more meaningful.

**Financial ratios are mathematical comparisons of financialstatement accounts or categories; 1. The current ratio iscalculated by dividing current assets by current liabilities. 2.The working capital ratio is calculated by dividing current assetsby current liabilities. 3. The times interest earned ratio iscalculated by dividing income before interest and income taxes bythe interest expense. 4. Accounts receivable turnover is calculatedby dividing net credit sales by the average accounts receivable forthat period. 5. The inventory turnover ratio is calculated bydividing the cost of goods sold for a period by the averageinventory for that period. 6. The asset turnover ratio iscalculated by dividing net sales by average total assets 7. Thereturn on equity ratio formula is calculated by dividing net incomeby shareholder's equity. 8. The profit margin ratio formula can becalculated by dividing net income by net sales. 9. The return onassets ratio formula is calculated by dividing net income byaverage total assets.**

Much of this course has concentrated on learning the financialstatements, primarily because there was not an accountingprerequisite. Because of this concentration, you may find thisassignment challenging. However, if you understand the financialstatements, then the horizontal and vertical analysis should berather intuitive. For example, if you see sales rise by 20%, thenshouldnât you also see net income rise by 20% or more if themanagers are effective at controlling costs? If you see sales riseby 20% and assets rise by 40%, you have to ask why this ishappening. It would appear that assets have risen too far given thesales that are generated from those assetsâwhy did this occur? Youmay have to research that type of question and discuss it in youranalysis.

Amazon's financial statements:

http://finance.yahoo.com/quote/AMZN?p=AMZN

sangriabee917

1. Apply to actual companies the basic knowledge and analytical techniques learned from our course.

2. Prepare common-size financial statements, comparative financial statements, and various profitability and risk ratios.

3. Compare the calculated results with competitors and across different years.

4. Summarize the analyses and make investment recommendations.

You will be analyzing the following firms:

Williams-Sonoma, Inc.

Pier 1 Imports, Inc.

For these firms, download the most recent annual report (10-K report) to begin your work. In 10-K reports, you can find companiesâ basic information, financial statements, footnotes to the financials, and the management discussions and analyses. Please download the 10-K reports from the following web links:

10-K reports (fiscal year 2016) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312517104341/d265187d10k.htm

10-K reports (fiscal year 2015) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312516525847/d120289d10k.htm

10-K reports (fiscal year 2014) for Williams-Sonoma, Inc.

https://www.sec.gov/Archives/edgar/data/719955/000119312515118009/d851953d10k.htm#tx851953_13

10-K reports (fiscal year 2016) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312517136345/d343458d10k.htm

10-K reports (fiscal year 2015) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312516556025/d133529d10k.htm

10-K reports (fiscal year 2014) for Pier 1 Imports, Inc.

https://www.sec.gov/Archives/edgar/data/278130/000119312515153179/d881010d10k.htm#toc881010_13

For your convenience, I also provided the balance sheet and income statement of each company for the most recent years at the end (page 5-8; Table 1-4). Please use them to prepare common-size financial statements and comparative financial statements.

Guidance

The required tasks are detailed below:

(1) Prepare common-size balance sheets and income statements for both companies. Note: Compute for the most recent THREE years.

(2) Prepare comparative analysis (i.e., change of percentage analysis) on income statement and balance sheet for both companies. You should compute for the most recent THREE years.

(3) Prepare ratio analyses (for the same THREE year time period) for both companies. At least, you should include the following ratios in your computations: (1) current ratio, (2) acid-test ratio, (3) receivables turnover, (4) inventory turnover, (5) asset turnover, (6) profit margin on sales, (7) rate of return on assets, (8) rate of return on common stock equity, (9) earnings per share, (10) payout ratio, (11) debt to total assets ratio, (12) times interest earned, (13) cash debt coverage ratio, and (14) book value per share.

(4) Comment on the analytical results of the two companies. Your comments should concentrate on the trends across the companies. In addition to contrasting the ratios between the companies, you should interpret the numbers and make suggestions as to why the ratio of one company might be higher/lower than the other.

(5) Write a conclusive summary on the firms you have studied. Based upon your conclusions, recommend the better performing firm for potential investment. Your conclusions should be based upon, and specifically reference, the analyses prepared in this report.

(6) Read sample project to get some ideas.

Report Format Requirements:

A. Report body requirements:

Cover page. List the title of the project, your names, and semester/year.

Abstract or Executive Summary. This is a separate page. It should cover the purpose of the project, the major findings, and the conclusions/recommendations, in summary form.

Table of Contents.

Main body. Use the following sequence for report content:

Introduction to the two companies and to the purpose of the report

Analytical section. This should include all your numerical analyses. This is where you will discuss the results of, comments on, and conclusions about the vertical and horizontal common-size statements, comparative analysis (i.e., change of percentage analysis), and the ratio analyses for both companies.

Comparisons of companies and all other analysis (observations and/or interpretations). (You may combine b and c if you wish, as long as both are well covered.)

Conclusions and recommendation for investment.

References. List all major reference sources.

Appendices. Include tables and graphs of your numerical analyses. For reference convenience, assign a title to each separate item, such as Table 1, Exhibit 1, etc.

B. Typesetting requirements:

Use size 12 font. Times New Roman is preferred.

Double space between lines.

Number pages in accordance with the APA style guide.

One inch on all sides.

Do not right justify text. Use left justify.

Minimum length: 8 pages. (Note: You can easily meet the minimum length requirement since you will have a lot of tables in the paper.)

The submitted work should be in ONE file with a word or pdf format. An Excel spreadsheet file is NOT acceptable.

Plagiarism

Plagiarism will not be tolerated. Evidence of plagiarism will result in a grade of âFâ to the course and be subject to appropriate disciplines.

NOTES:

A portion of your grade will be assessed based on the overall report quality, clarity, format, and cohesiveness.

A FREE RIDER in the group will not be tolerated. However, to report an alleged free rider, you should send me a formal written complaint. You should carefully manage your group over the semester to ensure that no teammate will take the chance of turning into a free rider. Try to contact/manage your teammates frequently and inform me if any member is not willing to participate the group work so we can address this issue ASAP. A free rider will receive his/her group project grades solely based on what he/she has contributed to the projects. If there is a free-rider in your group or a member drops the class, the rest of the group members are still expected to submit a COMPLETE paper.

Again, the balance sheet and income statements are provided at the end. Please use them to prepare common-size and comparative financial statements.

Table 1. Williams-Sonoma, Inc ----Balance Sheet

Williams-Sonoma, Inc.
BALANCE SHEET
Fiscal Years 2016, 2015, 2014, 2013
(In thousands)	FY 2016	FY 2015	FY 2014	FY 2013
ASSETS
Current assets
Cash and cash equivalents	$ 213,713	$ 193,647	$ 222,927	330121
Restricted cash	â	â	â	14289
Accounts receivable, net	88,803	79,304	67,465	60,330
Merchandise inventories, net	977,505	978,138	887,701	813,160
Prepaid catalog expenses	23,625	28,919	33,942	33,556
Prepaid expenses	52,882	44,654	36,265	35,309
Deferred income taxes, net	â	â	130,618	121,486
Other assets	10,652	11,438	13,005	10,852
Total current assets	1,367,180	1,336,100	1,391,923	1,419,103
Property and equipment, net	923,283	886,813	883,012	849,293
Deferred income taxes, net	135,238	141,784	4,265	13,824
Other assets, net	51,178	52,730	51,077	54,514
Total assets	$ 2,476,879	$ 2,417,427	$ 2,330,277	2,336,734
LIABILITIES AND STOCKHOLDERSâ EQUITY
Current liabilities
Accounts payable	$ 453,710	$ 447,412	$ 397,037	404791
Accrued salaries, benefits and other liabilities	130,187	127,122	136,012	138,181
Customer deposits	294,276	296,827	261,679	228,193
Income taxes payable	23,245	67,052	32,488	49,365
Current portion of long-term debt	â	â	1,968	1,785
Other liabilities	59,838	58,014	46,764	38,781
Total current liabilities	961,256	996,427	875,948	861,096
Deferred rent and lease incentives	196,188	173,061	166,925	157,856
Long-term debt				1,968
Other long-term obligations	71,215	49,713	62,698	59,812
Total liabilities	1,228,659	1,219,201	1,105,571	1,080,732
Stockholdersâ equity
Preferred stock: $.01 par value; 7,500 shares authorized; none issued	â	â	â	0
Common stock: $.01 par value; 253,125 shares authorized;
87,325 and 89,563 shares issued and outstanding at	873	896	919	941
January 29, 2017 and January 31, 2016, respectively	873	896	919	941
Additional paid-in capital	556,928	541,307	527,261	522,595
Retained earnings	701,702	668,545	701,214	729,043
Accumulated other comprehensive loss	(9,903)	(10,616)	(2,548)	6524
Treasury stock â at cost: 20 and 29 shares as of January 29, 2017 and January 31, 2016, respectively	(1,380)	(1,906)	(2,140)	(3,101)
Total stockholdersâ equity	1,248,220	1,198,226	1,224,706	1,256,002
Total liabilities and stockholdersâ equity	$ 2,476,879	$ 2,417,427	$ 2,330,277	2,336,734

Table 2. Williams-Sonoma, Inc --- Statement of Income

Williams-Sonoma, Inc.
STATEMENT OF INCOME
Fiscal Years 2016, 2015, 2014,2013
(In thousands)	FY 2016	FY 2015	FY 2014	FY 2013
E-commerce net revenues	$ 2,633,602	$ 2,522,580	$ 2,370,694	$ 2,115,022
Retail net revenues	2,450,210	2,453,510	2,328,025	2,272,867
Net revenues	5,083,812	4,976,090	4,698,719	4,387,889
Cost of goods sold	3,200,502	3,131,876	2,898,215	2,683,673
Gross profit	1,883,310	1,844,214	1,800,504	1,704,216
Selling, general and administrative expenses	1,410,711	1,355,580	1,298,239	1,252,118
Operating income	472,599	488,634	502,265	452,098
Interest (income) expense, net	688	627	62	(584)
Earnings before income taxes	471,911	488,007	502,203	452,682
Income taxes	166,524	177,939	193,349	173,780
Net earnings	$ 305,387	$ 310,068	$ 308,854	$ 278,902

jadegoat246

Small business management class.

Please answer the two questions from the article belowplease.

Q1)Which one of the techniques to increase cash inflows is bestillustrated in the article? Explain how you know. ?

Q2)Which one of the techniques to decrease cash outflows is bestillustrated in the article? Explain how you know. ?

The article:

The financial crisis on Wall Street is quickly spiraling down tosmall businesses, making it extremely difficult for them to securefrom large banks the credit they need to start and maintain theiroperations.

Some businesses that currently have good relationships withbanks are getting more scrutiny and higher interest rates -- suchas 15% or more. Riskier borrowers are being denied creditaltogether.

Aside from falling back on friends or family -- or charging upyet another credit card -- here's a look at five alternatives forgetting extra cash to run a business in this economy.

-- Peer-to-Peer Lending Sites

Several Web sites now facilitate loans between individuals whodon't know each other. Typically, the prospective borrowers createprofiles that include how much they need to borrow, what the moneywill be used for and some credit history.

Other individuals can browse the loan requests and make offersthat include payment terms and interest rates. Prospective lendersalso get a risk assessment of the borrower generated by the Website based on the borrower's credit history.

Some "peer-to-peer" lending sites include LendingClub.com,Prosper.com, RaiseCapital.com and Zopa.com.

On Prosper.com, for instance, 25% of borrowers are individualsrunning or looking to start businesses, says Chief Executive ChrisLarsen. The site facilitates loans between individuals from $1,000to $25,000, and interest rates on those loans right now range from6% for those with the strongest credit ratings to about 30%.

Prosper, which has 800,000 registered users, is seeing moreentrepreneurs with good credit scores signing up. "We're certainlyseeing a steady increase of the quality of borrower coming to oursite," Mr. Larsen says. About 55% of the loans being funded are forborrowers with credit scores above 720, he adds, while only about5% are for those categorized as "subprime" borrowers.

-- Community Banks, Credit Unions

While big banks are being battered by all the financial turmoilon Wall Street, many local banks and credit unions are far morestable.

In fact, community banks continue to expand, although some havesuffered losses on securities issued by troubled mortgage giantsFannie Mae and Freddie Mac, says Camden Fine, chief executive ofthe Independent Community Bankers of America, an industryassociation in Washington.

Still, he says, even the community banks are more hesitant tolend to companies that lack rock-solid balance sheets.

-- Factoring, Asset-Based Loans

Though certainly not a cheap route to capital, some banks andnon- bank financing companies offer financing that is backed by abusiness's assets or accounts receivable.

So-called factoring, where a lender might, say, outright give aborrower 80 cents on the dollar for the company's accountsreceivable, can be a good option for businesses like manufacturersthat are owed a lot of money by customers and that have no betterlending option right now, says Raphael Amit, an entrepreneurshipprofessor at the University of Pennsylvania's Wharton School.

Interest rates on such financing can sometimes run 15% orhigher, so it's best to only resort to this approach when there'sno lower-cost option.

So-called asset-based loans -- loans in which assets such asinventory, equipment or real estate are used as collateral -- canbe good options for companies with lots of assets. But again, ratestend to run much higher than on traditional bank loans. The loanamounts are often capped at a percentage of the assessed value ofthe assets, such as 65%.

Also, even loans backed by assets can be difficult to get forcompanies with less-than-stellar credit ratings. Mark Sunshine,president of First Capital, a West Palm Beach, Fla., financecompany, says he's seeing more demand for loans based on accountsreceivable or assets, but isn't necessarily doing much morebusiness. "There's a reason local banks won't lend them money," hesays of riskier small companies. He says he's sticking to companieswith lots of assets to use as collateral.

-- Negotiating With Customers or Suppliers

Another smart strategy for helping cash flow -- perhaps even ifyou do have access to loans -- is striking better payment termswith customers and suppliers, Prof. Amit says. Especially whenbusiness relationships are strong and long-lasting, many companiesare willing to help each other out in tough economies.

A business that usually gives customers 30 to 60 days to pay thebills, for instance, might require customers to pay upon receipt ofgoods. A supplier, on the other hand, might be willing to extendlengthier payment terms to a business customer if it feels thecustomer is trustworthy and vital to its own business. Somesuppliers also will lend money to their longstanding, most valuedcustomers.

-- Changing Behaviors

Hard times call for small businesses to be nimble andentrepreneurial. Many businesses are using the tough economy toscrutinize their business practices and find creative ways tocreate better cash flow.

Some turn to leasing instead of buying equipment they need.

Others are identifying areas of the business that will tend tobe more lucrative in today's economy and shifting their resourcesin those directions.

ACC 100 Study Guide - Final Guide: Income Statement, Deferral, Current Asset

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