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BradburnCorporation was formed 5 years ago through a public subscription ofcommon stock. Daniel Brown, | |||||||
who owns | 15% | owns 15% of the common stock, was one of theorganizers of Bradburn and is its | |||||
current president. The companyhas been successful, but it currently is experiencing a shortage offunds. On | |||||||
June 10, Daniel Brownapproached the Topeka National Bank, asking for a 24-monthextension on two | $35,000 | ||||||
notes, which are due on June30, 2013, and September 30, 2013. Another note of | $6,000 | is due | |||||
on March 31, 2014, but heexpects no difficulty in paying this note on its due date. Brownexplained that | |||||||
Bradburn’s cash flow problemsare due primarily to the company’s desire to finance a | $300,000 | plant | |||||
expansion over the next 2fiscal years through internally generated funds. | |||||||
The commercialloan officer of Topeka National Bank requested financial reportsfor the last 2 fiscal years. | |||||||
BRADBURN CORPORATION | |||||||
Statement of FinancialPosition | |||||||
March 31 | |||||||
Assets | 2013 | 2012 | |||||
Cash | $18,200 | $12,500 | |||||
Notes receivable | 148,000 | 132,000 | |||||
Accounts receivable (net) | 131,800 | 125,500 | |||||
Inventories (at cost) | 105,000 | 50,000 | |||||
Plant & equipment (net ofdepreciation) | 1,449,000 | 1,420,500 | |||||
Total assets | $1,852,000 | $1,740,500 | |||||
Liabilities and Owners'Equity | |||||||
Accounts payable | $79,000 | $91,000 | |||||
Notes payable | 76,000 | 61,500 | |||||
Accrued liabilities | 9,000 | 6,000 | |||||
Common stock (130,000 shares,$10 par) | 1,300,000 | 1,300,000 | |||||
Retainedearningsa | 388,000 | 282,000 | |||||
Total liabilities and owners'equity | $1,852,000 | $1,740,500 | |||||
aCash dividends were paid at the rate of $1.00 per sharein fiscal year 2012 and $2.00 per share in fiscal year 2013. | |||||||
SANDBURG CORPORATION | |||||||
Income Statement | |||||||
For The Fiscal Year EndedMarch 31 | |||||||
2013 | 2012 | ||||||
Sales | $3,000,000 | $2,700,000 | |||||
Cost of goods sold | 1,530,000 | 1,425,000 | |||||
Gross margin | 1,470,000 | 1,275,000 | |||||
Operating expenses | 860,000 | 780,000 | |||||
Income before incometaxes | 610,000 | 495,000 | |||||
Income taxes | 244,000 | 198,000 | |||||
Net income after incometaxes | $366,000 | $297,000 | |||||
Depreciation charges on theplant and equipment of | $100,000 | and | $102,500 | ||||
for the fiscal years endedMarch 31, 2012 and 2013, respectively, are included in cost ofgoods sold. | |||||||
Instructions: | |||||||
Fill in the provided matrixand utilize it as the matrix for "VLOOKUP" formulas within thecells below. | |||||||
Column 4 | Column 5 | ||||||
2013 | 2012 | ||||||
Average inventory - 2011 | Formula | ||||||
Average total assets | Formula | 1,714,500 | |||||
Total Assets = Mar 31, 2009 | 1,688,500 | ||||||
Total Assets = Mar 31, 2010 | 1,740,500 | ||||||
Total Assets = Mar 31, 2011 | Amount | ||||||
Cost of goods sold | Amount | 1,425,000 | |||||
Current assets | Amount | Amount | |||||
Current liabilities | Amount | Amount | |||||
Dividends | Amount | Amount | |||||
Depreciation | Amount | Amount | |||||
Gross margin | Amount | Amount | |||||
Income before taxes | Amount | Amount | |||||
Income taxes (40%) | 244,000 | Amount | |||||
Inventories = EOY 2010 | Amount | ||||||
Inventories = EOY 2011 | Amount | ||||||
Net income after taxes | Amount | Amount | |||||
Operating expenses | 860,000 | Amount | |||||
Sales | 3,000,000 | 2,700,000 | |||||
(a) Compute the followingitems for Bradburn Corporation: | |||||||
(1) Current ratio for fiscalyears 2012 and 2013. | |||||||
Note: The formulas in somecell formulas are "live" and need values placed in their sourcecells. | |||||||
2012 Current ratio = | Currentassets ----------------------- = Current liabilities | Amount | |||||
---------------- = | Formula | to 1 | |||||
Amount | |||||||
2013 Current ratio = | Currentassets ----------------------- = Current liabilities | Formula | |||||
---------------- = | Formula | to 1 | |||||
Formula | |||||||
(2) Acid-test (quick) ratiofor fiscal years 2012 and 2013. | |||||||
2012 Quick ratio = | Current assets -Inventories ----------------------- = Current liabilities | Formula | |||||
---------------- = | Formula | ||||||
Formula | to 1 | ||||||
2013 Quick ratio = | Current assets -Inventories ----------------------- = Current liabilities | Formula | |||||
---------------- = | Formula | ||||||
Formula | to 1 | ||||||
(3) Inventory turnover forfiscal year 2013. | |||||||
2013 Inventory Turnover = | Cost of goodssold ------------------------------------ = Average inventory | Amount | |||||
---------------- = | Formula | ||||||
#N/A | to 1 | ||||||
(4) Return on assets forfiscal years 2012 and 2013. (Assume total assets were | $1,688,500 | ||||||
at March 31, 2011.) | |||||||
2012 Return on assets = | Net income ----------------------- = Average total assets | Formula | |||||
---------------- = | Formula | ||||||
Formula | |||||||
2013 Return on assets = | Net income ----------------------- = Average total assets | Formula | |||||
---------------- = | Formula | ||||||
Formula | |||||||
(5)Percentage change in sales, cost of goods sold, gross margin, andnet income after taxes from fiscal year 2012 to 2013. Omit "000" from thevalues. | |||||||
2012 | 2013 | Change | Percent Change | ||||
Sales | $3,000 | $2,700 | $300 | 11.11% | |||
Cost of goods sold | #VALUE! | Formula | Formula | Formula | |||
Gross margin | #VALUE! | Formula | Formula | Formula | |||
Net income after taxes | #VALUE! | Formula | Formula | Formula | |||
Note: The formulas in somecell formulas are "live" and need values placed in their sourcecells. | |||||||
(b)Identify and explain what other financial reports and/or financialanalyses might be helpful to the commercial loan officer of Topeka NationalBank in evaluating Daniel Brown’s request for a timeextension on Bradburn’s notes. | |||||||
Otherfinancial reports and financial analyses which might be helpful tothe commercial loan officer of Spokane National Bank include: | |||||||
1 | Enter text answeras appropriate. | ||||||
2 | Enter text answeras appropriate. | ||||||
3 | Enter text answeras appropriate. | ||||||
4 | Enter text answeras appropriate. | ||||||
(c)Assume that the percentage changes experienced in fiscal year 2013as compared with fiscal year 2012 for sales and cost of goods sold will berepeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion frominternally generated funds realistic? Discuss. | |||||||
Entertext answer as appropriate. | |||||||
2013 | 2014 | 2015 | |||||
Sales | $3,000.0 | $3,000.0 | $3,000.0 | ||||
Cost of goods sold | Formula | Formula | Formula | ||||
Gross margin | Formula | Formula | Formula | ||||
Operating expenses | Formula | Formula | Formula | ||||
Income before taxes | Formula | Formula | Formula | ||||
Income taxes (40%) | Formula | Formula | Formula | ||||
Net income | Formula | Formula | Formula | ||||
Add: Depreciation | Amount | Amount | |||||
Deduct: Dividends | Amount | Amount | |||||
Note repayment | Amount | ||||||
Funds available for plant expansion | Formula | Formula | |||||
Plant expansion | Amount | Amount | |||||
Excess funds | Formula | Formula | |||||
Assumptions: Complete as appropriate. | |||||||
Sales increase at a rate of | |||||||
Cost of goods sold increases at rate of | |||||||
despite depreciation remaining constant. | |||||||
Other operating expenses increase at the same rateexperienced from 2012 to 2013; | |||||||
i.e., at | |||||||
Depreciation remains constant at | |||||||
Dividends remain at | per share. | ||||||
Plant expansion is financed equally over the twoyears( | each year). | ||||||
Loan extension is granted. | |||||||
(d)Should Topeka National Bank grant the extension on Bradburn’s notesconsidering Daniel Brown’s statement about financing the plant expansionthrough internally generated funds? Discuss. | |||||||
Enter text answer as appropriate. |
Case 2.3 Walgreens Co. and Subsidiaries
The following excerpts are from the 2013 Walgreen Co. Form 10-K:
CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Walgreens Co. and Subsidiaries at August 31,2013 and 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions, except shares and per share amounts) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Assests | $2,106 | $1,297 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $2,632 | $2,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Rec, net | $6,852 | $7,036 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | $284 | $260 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other current assets | $11,874 | $10,760 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Current Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncurrent Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property & equipment, at cost,less accumulated deprec & amortization | $12,138 | $12,038 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity investment in Alliance Boots | $2,410 | $2,161 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Alliance Boots call option | $6,261 | $6,140 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | $839 | $866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent assets | $1,959 | $1,497 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Assets | $23,607 | $22,702 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$35,481 | $33,462 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term borrowings | $570 | $1,319 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trade accounts payable | $4,635 | $4,384 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses and other liabilities | $3,577 | $3,019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | $101 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Current Liabilites | $8,883 | $8,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Noncurrent liabilites | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt | $4,477 | $4,073 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred income taxes | $600 | $545 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other noncurrent liabilities | $2,067 | $1,866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total noncurrent liabilites | $7,144 | $6,504 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and contingencies(see note) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock, $.0625 per value; authorized 32 million shares; | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
issued 1,028,180,150 shares in 2013 and 2012 | $80 | $80 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paid-in capital | $1,074 | $936 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock loan recievable | ($11) | ($19) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retained Earnings | $21,523 | $20,156 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive (loss) income | ($98) | $68 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Treasury Stock at cost, 81,584,572 shares in 2013 and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
84,124,816 shares in 2012 | ($3,114) | ($2,985) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Shareholders' Equity | $19,454 | $18,236 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Liabilites and Shareholder's Equity | $35,481 | $33,462 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are integral parts of these statments. Notes to Consolidated financial Statements 1.Summary of Major Accounting Policies Description of Business The company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31,2013 there was 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011. Allowance for Doubtful Accounts The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):
Inventories Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense. 3.Leases The company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the company becomes legally obligated to make rent payments or the date the Company has to right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in Millions):
|
The capital lease amoutn includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.
The Company remains secondarily liable on 26 assigned leases. The maiximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.
WALGREEN CO. INFORMATION FROM CONSOLIDATED | ||||||||
STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
For the Years Ended August 31,2013 and 2012 (in millions) | ||||||||
2013 | 2012 | |||||||
Sales | $72,217 | $71,633 | ||||||
Net Income | $2,450 | $2,127 |
Required:
a. Using the consolidated balance sheets for Walgreen Co. for August 31,2013 and 2012, prepare a common-size balance sheet.
b. Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?
c. Analyze accounts recievable and allowance for doubtful accounts.
d. What inventory is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to net income reported.
e. Assess the level of debt and risk that Walgreen has by looking only at the balnce sheet.
f. Estimate the dollar amount of dividends Walgreens paid in 2013.
g. Does Walgreen use off-balance sheet fiancing? Explain your answer.
h. Evaluate the creidtworthiness of Walgreen based on the Balance sheet and the excerpts from the notes.