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