Financial Statements & Performance Measures

Objectives: This assignment brings together our discussion of the structure of a corporate income statement, financial performance measures, and prerequisite knowledge from your accounting courses. Upon completion of the assignment, you will be able to:

1. See the relationship between key financial performance measures.

2. Use financial performance measures to prepare an analytical income statement.

Deliverable: An Excel or Google Sheets file uploaded to Canvas by Sunday, October 4, 2020 at 11:59 p.m. The filename must consist of the last names of each partner plus the text hwk2 (e.g. LoneLevi_Hwk2.xls). (1 point)

Protocols: The assignment must be completed in Excel or Google Sheets. You may work with one partner in the same course section and you will upload one copy of the completed spreadsheet to Canvas. The two of you will decide which partner is responsible for uploading the spreadsheet for the team. Report all dollar values to the nearest whole number and report all percentages with two decimal places (e.g., 1.14%, not 0.01). Make sure the uploaded file contains: (6 points)

• A descriptive assignment title, the date of creation, and both partners names at the top of the spreadsheet.

• A descriptive title for each part of the assignment.

• Consistent numerical formatting throughout the spreadsheet.

  Scenario: Backpacking USA Inc. manufactures a top-of-the-line camping tent. You are starting an internship as an assistant to the chief financial officer (CFO) of the company, and the owner (Tom Dickinson) wants a current picture of the business and the financial risks with which his company must deal. The CFO has asked you to prepare an analysis for his meeting with Tom Dickinson in two days. Note: I must be able to click on a cell containing a computed value and see the formula/function used to determine its value. If the cell contains only a typed value, no credit will be earned.

  The previous intern, who left unexpectedly, put together the following data regarding the structure of the company:

Output level 130,000 units Assets $7,500,000 Asset turnover 9 times Operating return on assets 45% Degree of operating leverage = Gross profits / EBIT Interest expense 8 times

Interest expense $670,000

Marginal tax rate 28%

The CFO has instructed you to prepare the income statement but you only have the information from the previous intern and there is not enough time to collect additional information. However, using your knowledge of financial analysis, you devise a sequence of calculations that will

determine the values needed to prepare the income statement (follow the sequence below). The CFO requires that you show the supporting calculations to demonstrate how you constructed the income statement and so he may review your work before the meeting.

A. Calculate the values for the items below, ensuring that you proceed step-by-step. (8 points 1 point each)

1. Compute operating profit margin.

2. Compute sales revenue.

3. Compute EBIT.

4. Compute revenue before fixed costs (gross profits).

5. Compute total variable costs.

6. Compute total fixed costs.

7. Compute the selling price per unit.

8. Compute the variable cost per unit.

2. Calculate the break-even number of units for the company. (1 point)

3. Prepare the income statement for the company. (9 points 1 point for each line item)

PLEASE USE THIS INCOME STATEMENT TEMPLATE:

Sales revenue - COGS Gross profits - Operating expenses Operating earnings (EBIT) - Interest expense

Taxable earnings (EBT) - Taxes Net income