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Faculty of Business and Economics Finance and Banking Department Principles of Financial Management (FINN1300) Project Spring 2020-2021 Suppose you are interested in evaluating Leeds and

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Faculty of Business and Economics Finance and Banking Department Principles of Financial Management (FINN1300) Project Spring 2020-2021 Suppose you are interested in evaluating Leeds and Creative companies' financial performance during 2020; both companies operate in the technological sector. Given the income statement and the balance sheet of each company, answer the following questions: 1. Compile the Proforma Income statement for Leeds and Creative companies for the year 2020 using percent of sales method. Use the information provided on the excel sheets. (3 marks) 2. Fill in the missing amounts in Leeds and Creative companies' balance sheets. (3 marks) Given that: Leeds market price per share in 2020 = $8. Leeds dividends in 2020 = $22,000. Creative market price per share in 2020 =$10. Creative dividends in 2020 = $34,000. 3. Calculate the financial ratios for both companies in 2020. (3 marks) Note: Purchases were %70 of the cost of goods sold for both companies in 2020. Leeds company Creative company Financial Ratios Current ratio Quick ratio Inventory turnover Average age of inventory Average collection period Average payment period Asset turnover Debt ratio Debt to equity ratio Times interest earned ratio Gross profit margin Operating profit margin Net profit margin ROA ROE 4. Analyze the overall financial situation from a cross-sectional viewpoint. Compare each company's ratios with the industry average. What are the strengths and weaknesses of each company? Which company is best to invest in and why? (3 marks) 42 days Financial ratio Industry Average Current ratio 2 Quick ratio 1.91 Inventory turnover 8.12 times Average age of inventory Average collection period 30 days Average payment period 50 days Asset turnover 0.85 Debt ratio 50% Debt to equity ratio 90% Times interest earned ratio 5 Times Gross profit margin Operating profit margin 14% Net profit margin 8% ROA 7% ROE 32% 12% 5. Prepare the cash flow statement for both companies for the year ended December 31st, 2020, using the indirect method. (3 marks) D LLI 2020 Leeds company Balance Sheet December 31, 2019 and 2020 2019 Assets Cash and Cash equivalents 200,000 Accounts receivable 50,000 Inventory 150,000 Prepaid expenses 18,000 Short term derivative assets 30,000 230,000 50,500 Missing amount 25.000 40,000 Total current assets 448,000 505,500 Property, plant, and equipment Accumulated depreciation Net property, plant, and equipment Goodwill Total Assets Liabilities Accounts payable SAI-- 5 Balance Sheet Leeds Income statement Creative Balance Sheet 515,000 5,000 510,000 62,000 1,020,000 700.000 5,500 Missing amount 150.000 Missing amount $ 30.000 22.000 On Creative Income Statement 12 E 01 E 510,000 62,000 1,020,000 Missing amount 150,000 Missing amount $ B Net property, plant, and equipment Goodwill Total Assets Liabilities Accounts payable Wages payable Current portion of long-term debt Accrued expenses Total Current Liabilities Long-term debt Total Liabilities Owner's Equity Common stock: $2.5 par, shares issued and outstanding in 2019: 60,000; in 2020: 75,000 Paid in capital in excess of par Retained earnings Total Owner's Equity 22,000 6,000 15,000 7,000 50,000 150,000 200,000 $ 30.000 6,000 21,000 Missing amount 60,000 90,000 150,000 $ Missing amount 270,000 400.000 Missing amount Missing amount Missing amount Missing amount Missing amount Leeds Balance Sheet Leeds Income statement Creative Balance Sheet Creative Income Statement BE E AR ToTVTS/-E E15 A D B Leeds company Income statement December 31, 2019 and 2020 2019 2020 Sales $1,200,000 $1,500,000 Cost of goods sold 760,000 Gross Profit 440,000 Operating Expense: Selling, general and administrative expenses 120,800 Research and development expenses 600 Utilities expense 20,000 Advertisement expenses 12,000 Depreciation expense 1,000 500 Sundry expenses 35,000 Total operating expenses 189,400 Operating Income 250.600 Interest expense 18,000 18,000 Leeds Balance Sheet Leeds Income statement Creative Balance Sheet Creative Income Statement ADO A T-TVT/E 500 Research and development expenses Utilities expense Advertisement expenses Depreciation expense Sundry expenses Total operating expenses Operating Income Interest expense Income before Income Taxes Income taxes (25%) Net Income 600 20,000 12,000 1,000 35,000 189,400 250,600 18,000 232,600 58,150 $174,450 18,000 Leeds Balance Sheet Creative Income Statement Leeds Income statement Creative Balance Sheet . ::: TVT E ASUS N CHINA F7F8 $ 388,000 1,000,000 286,500 Missing amount Net Property, machinery and equipment Total Assets Liabilities Accounts payable Notes and loans payable Accrued expenses Total Current Liabilities Long-term debt Total Liabilities Owner's Equity Common stock: $1.75 par, shares issued and outstanding in 2019: 20000; in 2020:25 Paid in capital in excess of par Retained earnings Total Owner's Equity 70,000 120,000 20,000 210,000 500,000 710,000 $ 50,000 95,000 15,000 160,000 370,000 530,000 $ Missing amount 85,000 170,000 290,000 Missing amount Missing amount Missing amount Missing amount $ Balance Sheet Leeds Income statement Creative Balance Sheet Creative Income Statement E SUS B Creative company income statement December 31, 2019 and 2020 2019 2020 $900,000 $800,000 520,000 280,000 Sales Cost of goods sold Gross Profit Operating Expense: Selling, general and administrative expenses Utilities expense Advertisement expenses Depreciation expense Sundry expenses Total operating expenses Operating Income Interest expense lincama bofora Income Tavne 2,000 80,000 23111.11 22222.2222 500 22222.22 148,056 131,944 25,000 106.944 35,000 Sheet Leeds income statement Creative Balance Sheet Creative Income Statement A 2,000 Operating Expense: Selling, general and administrative expenses Utilities expense Advertisement expenses Depreciation expense Sundry expenses Total operating expenses Operating Income Interest expense Income before Income Taxes Income taxes (25%) Net Income 80,000 23111.11 22222.2222 500 22222.22 148,056 131.944 25,000 106,944 26,736 $80,208 35,000 ce Sheet Creative Income Statement Leeds Income statement Creative Babance Sheet

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