GENERAL INSTRUCTIONS Cument Year is the most recent year in the financial statements provided in the FRAP content folder. Please review that Use the truncated numbers (that match the statement presentation) in the answer boxes. If those are correct and your answer is wrong, check your math. If that is fine, then it is a format issue, so see the directions Note that this setup is different than most OWL setups. After you initially "check answer", your can just change the answers that are incorrect and choose "Resubmit". (You do not have to retype the correct answers each time) However, if you leave OWL or choose to redo the question, you will need to retype ALL of the answers for that question. You can submit as many times as you like up until the due date r provide the answer key right after the due date. If you want a record of the correct answers sooner, please copy and paste from OWL after you get them correct or just jot the answers down on the blank worksheet I provided Part B. BALANCE SHEET ANALYSIS (LIQUIDITY AND SOLVENCY) You have seen these ratios previously in the lectures and textbook. See Appendix C pg 728-730 for the "Summary of Financial Ratios." Liquidity refers to the ability of a company to meet its short-term obligations. There are many different ways to measure liquidity. Solvency refers to the ability of a company to meet its long-term obligations. Again, there are many different ways to measure this. I have you compute a Debt/Asset ratio as discussed in lecture. This tells you the % of assets financed by debt as opposed to equity Round all of the computations to 3 decimal places -Show The Current Ratio as a decimal (ie. If your answer is 3465, round then format it as 347 (that is standard presentation.) -Show the Debt/Asset % as a percentage (ie if your answer is 3472. round then format it as 34.7 (OWL has the % sign, so do not enter that) GPS Current Ratio Debt/Asset% AEO Current Ratio DebtAsset% Current Year 10363/13679-75.8% Total liabilities Prior Year Compute as 'cument + nonument or Total assets less total equity Current Year Prior Year 1047930/751756 1.394 % If you look these ratios up in a financial database or at one of the many online resources you may find that the answers are not identical to your computations. There are many variations of most of the ratios (definition-wise) and the Time-frames may not always match up exactly Please review the general directions in Part B. of this assignment Part C. INCOME STATEMENT ANALYSIS (PROFITABILITY) There are also many, many ways to analyze profitability. See Appendix C pg 728-730 for the "Summary of Financial Ratios" One useful approach is to do "vertical analysis" of the income statement. Basically, every line of the income statement is stated as a % of sales revenue. Many "standard" profitability ratios, are just key income statement lines restated as a % in this fashion. Gross margin % (gross profitsales) and Profit % (net income/sales) are common examples of these. I have you compute the Gross Margin % below as it is often an important indicator. Note that gross margin is a number, while gross margin ratio or gross margin percentage is the computation gross marginales There are many other common profitability ratios. Return on equity and Return on assets are probably the most commonly used indicators. I have you compute a simplified version of retum on equity below. Compute it as net income/total equity. Just use end of year equity in the denominator(usually you compute an average equity). The numerator is often adjusted for interest expense and we will ignore that variation as wel Round all of the computations to 3 decimal places. Show all of these as a percentage (Le your answer is 3475 round then format it as 34.8 (OWL has the % sign so do not add that) GPS Gross margin Percentage Return on Equity Enter a loss with a negative sign. AEO Gross Margin Percentage Return on Equity Enter a loss with a negative sign. Current Year Current Year 6133/16383-37.4% Prior Year f gross margin is not provided on the income statement just compute it as sales-cost of goods sold Prior Year 191257/1247853-15.3% These ratios are also readily available at financial sites. However, please note that you really need to scan the income statement detail before making decisions based on just the ratios. There may be unusual items in the income statement that can distort the ratios and the comparsons. Some analysts use income before discontinued operations to compute the ratios. If other unusual items are in the body of the income statement, net income could be adjusted for that, as well. Do not try to do that here, however, Just be aware of the possible benefit of that type of analysis Please review the general directions in Part B. of this assignment Part D. INCOME STATEMENT ANALYSIS (TREND-HORIZONTAL) Another useful technique is called horizontal analysis (or trend analysis). Basically you compare the same line item of an income statement and compute % changes across time. Again, there are various approaches. You can choose a base year and show all other years as a % of that base. Alteratively, you can compute the change from the prior year- and that is what you will do below for just two lines of the income statement -Compute % change in net sales as (current sales-prior year sales/prior year sales -Compute % change in net income as (current net income-prior year net income)prior year net income Round all of the computations to 3 decimal places. Show all of these as a percentage (e. if your answer is 3475 round then format it as 34 8 (OWL has the % sign so do not add that If there is a decline in income, use a negative sign for your final answer. I have done a comparison of the prior year to the year before that in the right hand column GPS Change in net sales % Change in net income AEO % Change in net sales Change in net income Current Year Current Year Prior Year -197/16580--1.2% 16383-16580 % 652/1003 45% Prior Year 272492/4035720-6.8% 70645/261902-27% 191257-261902 CHECK ANSWER Current Year is the most recent year in the financial statements provided in the FRAP content folder. Please review that. Use the truncated numbers (that match the statement presentation) in the answer boxes. If those are comect and your answer is wrong, check your math. If that is fine, then it is a format issue, so see the directions. Note that this setup is different than most OWL setups. After you initially "check answer", your can just change the answers that are incorrect and choose "Resubmit". (You do not have to retype the correct answers each time. However, if you leave OWL or choose to redo the question, you will need to retype ALL of the answers for that question. You can submit as many times as you like up until the due date I provide the answer key right after the due date. If you want a record of the correct answers sooner, please copy and paste from OWL after you get them correct or just jot the answers down on the blank worksheet I provides Part B. BALANCE SHEET ANALYSIS (LIQUIDITY AND SOLVENCY) You have seen these ratios previously in the lectures and textbook. See Appendix C pg 728-730 for the "Summary of Financial Ratios." Liquidity refers to the ability of a company to meet its short-term obligations. There are many different ways to measure liquidity. Solvency refers to the ability of a company to meet its long-term obligations. Again, there are many different ways to measure this. I have you compute a Debt Asset ratio as discussed in lecture. This tells you the % of assets financed by debt as opposed to equity Round all of the computations to 3 decimal places Show The Current Ratio as a decimal. (e. If your answer is 3465, round then format it as 347 (that is standard presentation) -Show the Debt/Asset % as a percentage. e. if your answer is 3472, round then format it as 34.7 (OWL has the % sign, so do not enter tha GPS Current Ratio Debs/Assat % Current Year 10363/13679 75.8% Total liabilities Prior Year Compute as 'burrent + nonument or Total assets less total equity AEO Cument Ratin DebAsset% Current Year % Prior Year 1047930/751756 1.394 If you look these ratios up in a financial database or at one of the many online resources you may find that the answers are not identical to your computations. There are many vanations of most of the ratios (definition-wise) and the time frames may not always match up exactly Question Status: ??? 6:02 PM Please review the general directions in Part B. of this assignment Part C. INCOME STATEMENT ANALYSIS (PROFITABILITY) There are also many, many ways to analyze profitability. See Appendix C pg 728-730 for the "Summary of Financial Ratios" One useful approach is to do "vertical analysis of the income statement. Basically, every line of the income statement is stated as a % of sales revenue. Many "standard" profitability ratios, are just key income statement lines restated as a % in this fashion. Gross margin % (gross profit/sales) and Profit % (net income/sales) are common examples of these. I have you compute the Gross Margin % below as it is often an important indicator. Note that gross margin is a number, while gross margin ratio or gross margin percentage is the computation gross margin/sales. There are many other common profitability ratios. Return on equity and Retum on assets are probably the most commonly used indicators. I have you compute a simplified version of return on equity below. Compute it as net Incometotal equity. Just use end of year equity in the denominatorfusually you compute an average equity). The numerator is often adjusted for interest expense and we will ignore that variation as well Round all of the computations to 3 decimal places. Show all of these as a percentage (ie. If your answer is 3475 round then format it as 34.8 (OWL has the % sign so do not add that). GPS Gross margin Percentage Return on Equity Enter a loss with a negative sign. Current Year 6133/16383 37.4% Prior Year if gross margin is not provided on the income statement Just compute it as sales-cost of goods sold AEO Gross Margin Percentag Meturn on Equity Enter a loss with a negative sign Current Year Prior Year 191257/1247853-15.3% These ratios are also readily available at financial shes. However, please note that you really need to scan the income statement detail before making decisions based on just the ratios. There may be unusual tems in the income statement that can distort the ratios and the comparisons. Some analysts use income before discontinued operations to compute the retics. If other unusual tems are in the body of the income statement, net income could be adjusted for that, as well. Do not try to do that here, however Just be aware of the possible benefit of that type of analysis Part D. INCOME STATEMENT ANALYSIS (TREND-HORIZONTAL) Another useful technique is called horizontal analysis (or trend analysis). Basically you compare the same line item of an income statement and compute % changes across time. Again, there are various approaches. You can choose a base year and show all other years as a % of that base. Alternatively, you can compute the change from the prior year- and that is what you will do below for just two lines of the income statement. -Compute % change in net sales as (current sales-prior year sales)prior year sales -Compute % change in net income as (current net income-prior year net income)prior year net income Round all of the computations to 3 decimal places. Show all of these as a percentage.(.e. If your answer is 3475 round then format it as 34.8 (OWL has the % sign so do not add that). If there is a decline in income, use a negative sign for your final answer. I have done a companson of the prior year to the year before that in the right hand column GPS % Change in net sales % Change in net income AEO % Change in net sales % Change in net income Current Year Current Year Prior Year -197/16540 -1.2 % 16383-16500 652/1003 65% Prior Year 272402/4035720-6.8% -70645/261902-27 % 191257-261902 CHECK