Exhibit 1 STATEMENTS OF EARNINGS for Selected Periods (5000s) YEAR ENDED DEC. 31, 2012 YEAR ENDED DEC. 31, 2011 4 MONTHS TO DEC. 31, 2010 $ $ 1.418 936 $ 1,218 812 400 270 $ 482 $ 406 $ 130 $ $ Sales Cost of goods sold Gross profit Operating expenses Wages and salaries Rent Property Tax Utilities Depreciation Advertising Other Total operating expenses Net earnings before tax and interest Interest expense Income tax Net earnings after tax 192 120 24 16 18 24 18 182 114 20 14 18 22 30 56 36 6 4 6 6 30 $ 412 $ 400 $ 144 $ $ $ 70 22 2 6 26 (14) 8 s 46 120 5 122 Includes manager's salary of 524.000 in 2011 ano 539,000 in 2012 Tax laws allow the company to offset the 548,000 profit of 2012 with the combined $42.000 loss of the previous two years Thus, in 2012 the company only pay tax on the 56.000 difference at the rate of 25 per cent (51.500 but rounded up to 2.000 for reporting purposes) Exhibit 2 BALANCE SHEETS (as at December 31) ($000s) 2012 2011 2010 ASSETS Current assets: Cash Accounts receivable Inventory Total current assets 5 10 32 416 $ 458 $ 12 30 320 $ 362 $ 34 20 294 $ 348 Fixed Assets Leasehold improvements (net) Fixtures (net) Total fixed assets Total Assets $ 66 72 $ 138 $ 72 84 $ 156 $ 78 96 $ 174 $ 596 $ 518 $ 522 $ 110 $ 124 18 16 $ 158 16 $ 126 LIABILITIES AND EQUITY Liabilities Current liabilities: Accounts payable $ 170 Working capital loan 20 Current portion of long-term debt 16 Total current liabilities $ 206 Long-term debt $ 186 Total Liabilities $ 392 Equity Common stock R. Patrick $ 120 L. Harrison 80 Retained earnings 4 Total Equity $.204 Total Liabilities and Equity $ 202 $ 360 $ 218 $ 344 $ 120 80 (42) $ 158 $ 120 80 122) $ 178 $ 596 $ 518 $ 522 The loan was secured by personal assets of the owners Exhibit3 FINANCIAL RATIOS AND SELECTED INDUSTRY RATIOS MAPLE LEAF HARDWARE LTD. RATIOS CANADIAN HARDWARE STORES INDUSTRY RATIOS! 2012 2011 2010 2011 100.0% 66.0% 34.0% 100.0% 66.7% 33.3% 100.0% 67.5% 32.5% 100,0% 74.7% 25.3% PROFITABILITY Vertical analysis Sales Cost of good sold Gross profit Expenses: Wages and salaries Rent Property tax Utilities Depreciation Advertising Other Total expenses Net earnings before tax and interest Interest Income tax Net earnings after tax and interest Return on equity 13.5% 8.5% 1.7% 1.1% 1.3% 1.7% 1.3% 29.1% 14.9% 9.4% 1.6% 1.1% 1.5% 1.8% 2.5% 32.8% 14.0% 9.0% 1.5% 1.0% 1.5% 1.5% 7.5% 360% 4.9% 1.6% 0.1% 3.2 0.5% 2.1% 0.0% (1.6% (3.5%) 20% 0.0% (5.5% 3.0% 25.4% n/a n/a 14.4% 1.4:1 0.3:1 LIQUIDITY Current ratio 2.22.1 2.29:1 2.76:1 Acid test 0.20:1 0.27:1 0.43:1 Working capital (5000s) 252 204 222 EFFICIENCY (Based on 365 days, except 2010 which is based on % of a year) Age of accounts receivable in days sales 8 9 6 Inventory in days C.G.S. 1622 143.8 132.5 Age of accounts payable in days C.G.S. 66.3 55.7 49.3 STABILITY Net worth/Total assets 34.2% 30.5% 34.1% Interest coverage 3.2x 0.23% n/a 15.0 98.6 56.9% 2011-2012 16.4% 2010-2011 204.5% 10.0% - GROWTH (percentages) Sales Net eamings Total assets Equity 15.1% 29.1% Compiled from Dun & Bradstreet Industry Norms and Key Business Ratios Exhibit 4 STATEMENT OF CASH FLOWS for the year ending December 31 (30008) 207 10 OPERATIONS Net income $ 46 (20) Adjustments to Cash Basis Depreciation Accounts receivable Inventory Accounts payable Net cash flow from operations 18 (2) (96) 46 18 (40) (26) 14 $ 12 5 (24) $ FINANCING ACTIVITIES Working capital loan Long term debt Dividends Net cash flow from financing activities 2 (1) D (16) s (14) $ INVESTING ACTIVITIES Fixed assets Net cash flow from investing activities 5 0 $ Net cash flow Beginning cash Ending cash (2) 42 10 4 (22) 34 }} Assumptions The case allows for you to make certain assumptions. However, to create uniform financial statements, please use the following assumptions: - The rent increase took place in 2013. Utilities remained constant at 2012 levels. Property tax remains constant for 2013 & 2014 at 2012 levels. Other expenses will increase to 5% of sales for 2013 and 2014, The loan will be repaid at a constant rate, thus $16,000 per year. Cost of goods sold will remain constant at 60% of sales until 2015. Advertising expenses will increase to 4% of sales for 2013 and 2014. Because of rising interest rates, assume interest will increase to $28,000 per year in 2013 and 2014. The age of accounts receivables will change to 13 days. This will be maintained well into the future. The company uses straight line depreciation, assumes no salvage value and since 2011 there has been no acquisitions of depreciable assets. Assume that inflation in 2013 was 1% and in 2014 inflation was 1.5%. Wages and salaries increased at the rate of inflation for both years. Some of the major suppliers are becoming more concerned about receiving their money, and you aim to reduce the number of days payable to 63 days in 2013 and 60 days in 2014. Until the new inventory system is available, Patrick will only be able to reduce the inventory days on hand to 152 days in 2013 and 142 days in 2014. Patrick is concerned about holding inventory this long as new technologies could leave the hardware store with old merchandise that would have to be sold at a deep discount. The working capital loan amount should be used to balance your books. Additions To calculate the sales figures, you can use the growth rate over the 2011 - 2012 period. Should you have to make your own assumptions to calculate certain numbers in the financial statements, please state the assumption next to the financial statement line item. Suppose the numbers do not align with my calculations due to variations in the assumptions. In that case, I'll continue to work with the values that you calculated when I review the remainder of the assignment. Please do not hesitate to contact me if you have any questions. Instructions Only round your final answer. Do not round intermediate calculations. Maintain the format of the financial statements as presented in the case. The MS Word documents should be in Times New Roman, Ilpt, 1.5 line spacing. Always round numbers to the nearest whole number and in the financial statements to the nearest whole number in S'000. Questions 1. Create forecasted financial statements for the Maple Leaf Hardware Company for the years ended 2013 and 2014 using the assumptions provided in this document. Maintain the headings and layout of the financial statements as presented in the case. Use MS Excel and create the financial statements using separate sheets in the MS Excel Workbook [24]