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Consider the following simplified Statement of Comprehensive Income and Statement of Financial Position from Smith Corporations 2018 Annual Report to Shareholders. Smith Corporation Statement of

Consider the following simplified Statement of Comprehensive Income and Statement of

Financial Position from Smith Corporations 2018 Annual Report to Shareholders.

Smith Corporation Statement of Comprehensive Income ($ millions)

Net sales

$8,324

Cost of goods sold

$4,988

Depreciation

$1,190

Earnings before interest and taxes

$2,146

Interest paid

$320

Taxable income

$1,826

Taxes

$621

Net income

$1,205

Smith Corporation Statement of Financial Position 2017 & 2018 ($ millions)

2017

2018

2017

2018

Cash

$5,415

$3,341

Accounts Payable

1,110

1,650

Accounts rec.

$2,460

$979

Notes Payable

2,500

1,900

Inventory

$2,405

$2,885

Total

3,610

3,550

Total

10,280

7,205

Long-Term debt

4,800

4,600

Net fixed assets

12,300

16,720

Common Stock

5,100

5,900

Retained earnings

9,070

9,875

Total assets

22,580

23,925

Total liabilities and Owners equity

22,580

23,925

  1. Generate the common-size income statement for 2018. (4 marks)
  2. For the asset side of the balance sheet create the common-size statement for 2017 and 2018. (4 marks)
  3. Generate the 2018 cash-flow statement for Smith Corporation. (12 marks, one per entry)
  4. Calculate cash-flow from assets, cash-flow to debtholders, and cash-flow to equity holders. Does the cash-flow identity hold? (13 marks)
  5. Calculate the following financial ratios for Smith Corporation for 2018 only (9 marks - 1 each)
  1. Current ratio
  2. Quick ratio
  3. Return on assets
  4. Debt-to-equity ratio
  5. Equity multiplier
  6. Total Asset Turnover
  7. Profit Margin
  8. Times interest earned ratio
  9. ROE use DuPont Identity
  1. If Smith Corporation pays its suppliers timelier in 2019, what will happen to its current ratio? Briefly explain! (2 marks)
  2. If, in 2019, Smith Corporation implements a new inventory management system, which reduces the time goods stay in inventory, what will happen to its quick ratio? Briefly explain! (2 marks)
  3. If Smith Corporation takes on more debt, what will happen to its times interest earned ratio? Explain (2 marks)

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