Question
CBI Incorporated management is concerned about its financial performance over the past few years and has provided the following information (assume all sales are on
CBI Incorporated management is concerned about its financial performance over the past few years and has provided the following information (assume all sales are on credit and a 365 day year).
|
| 2012 | 2011 | 2010 |
| Statement of Financial Position | $ | $ | $ |
| Accounts receivable | 500 | 300 | 197 |
| Inventory | 1,852 | 1,540 | 1,278 |
| Total current assets | 7,113 | 4,938 | 4,112 |
| Total assets | 36,322 | 27,075 | 24,161 |
| Current liabilities | 2,489 | 1,773 | 1,844 |
| Total liabilities | 16,000 | 11,528 | 8,707 |
| Owners Equity | 20,322 | 15,547 | 15,454 |
| Income Statement |
|
|
|
| Net Sales | 12,924 | 8,136 | 7,613 |
| Cost of goods sold | 4,201 | 3,807 | 3,706 |
| Operating expenses | 1,958 | 2,350 | 2,507 |
| Interest Expense | 121 | 57 | 21 |
| Income tax expense | 1,370 | 648 | 594 |
| Profit (loss) | 5,274 | 1,274 | 785 |
|
| Competitor A | Competitor B |
| Gross profit margin | 50% | 45% |
| Debt / equity | 45% | 50% |
| Return on Assets | 5% | 10% |
| Inventory turnover | 2 times | 2.5 times |
| Operating profit margin | 20% | 25% |
| Current ratio | 2.5 | 2.5 |
Required:
Using information in the above tables:
- Conduct a horizontal analysis on any four balance sheet items and any four income statement items for two years (2011 and 2012; 8 calculations). (4 marks)
- Conduct a vertical analysis for two years (2011 and 2012; 8 calculations) on any four balance sheet items and four income statement items. (4 marks)
- Calculate any four ratios below and comment on the companys financial performance/position versus either Competitor A or Competitor B. (8 marks)
Note: No extra marks are given for completion of all ratios.
| Ratio | Formula |
| Current Ratio | Current Assets/Current Liabilities |
| Quick Ratio | Cash, Marketable Securities and Accounts Receievable/Current Liabilities |
| Receivable Turnover | Net Sales/Average Trade receivables |
| Inventory Turnover | Cost of Goods Sold/Average Inventory |
| Asset Turnover | Net Sales/Average total assets |
| Gross Profit Margin | Gross Profit/Net Sales |
| Profit Margin on Sales | Net Income/Net Sales |
| Rate of Return on Assets | Net Income/Average Total Assets |
| Debt to Total Assets Ratio | Total Debt/Total Assets |
| Debt to Equity | Total Liabilities/Shareholder Equity |
| Times Interest Earned | Income before interest and Taxes/Interest Charges |
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