Question
Golden cup case study You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31 st , 2018.
Golden cup case study
You were provided with the following balance sheet for Golden Cup firm for the year ended Dec 31st, 2018.
Consolidated Balance sheet Golden Cup. As of Dec 31st, 2018 | |||
Assets | Liabilities + Owners Equity | ||
Current Assets |
| Current Liabilities |
|
Cash | 40,000 | Accounts Payable | 12,000 |
Accounts Receivables | 4,000 | Notes Payable | 6,000 |
Inventory | 14,000 | Accrue Wages | 1000 |
Total Current Assets | 58,000 | Total Current Liabilities | 19,000 |
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|
|
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Fixed Assets |
| Long term debt | 40,000 |
Property, Plant, and Equipment | 56,000 |
Owners equity |
|
Goodwill | 24,000 | Common Shares | 40,000 |
Total Fixed Assets | 80,000 | Retained Earnings | 39,000 |
|
| Total Owners equity | 79,000 |
Total Assets | 138,000 | Liabilities + O.E | 138,000 |
In addition to that, you know the following facts about firms operations throughout the year:
- Golden Cup revenues for the year includes the following: Domestic revenues $160,000. International revenues $80,000. Out of Golden Cups sales, cost of sales and direct labor is 50% of annual revenues.
- Because of the strong competition that it faces, Golden Cup has a generous marketing plan. Golden Cup signed a contract with the marketing planet Inc. by which the marketing agency will be responsible for Golden Cup marketing for five years period started this year. The contract costs Golden Cup $100,000 that were paid up front, however the company thinks this plan will affect its sales evenly over the five years period. Golden Cup also spends $30,000 in the form of general and administrative expenses per year. Golden Cup depreciable assets historical value is $40,000 and is depreciated on a straight line basis over 10 years.
- Golden Cup pays interest rate of 10% on its Long-term debt outstanding.
- Out of the years net income, Golden Cup is planning to repay $30,000 to its shareholders in the form of cash dividends. The company currently has 60,000 shares outstanding
income statement for Golden Cup:
Consolidated Income Statement Golden Cup. As of Dec 31st, 2018 |
| |
| Show your workings here | Final answer here in $ |
Revenues | 160000+80000 | 240,000 |
(-) Cost of goods sold | 50% of 240,000 | (120,000) |
Gross margin | Revenue CGS | 120,000 |
(-) Marketing expenses | 100,000/5 | (20,000) |
(-) General and administrative expenses | Given | (30,000) |
(-) Depreciation | 40,000/10 Years | (4,000) |
EBIT | GM- Marketing Expenses General and Admin Expenses- Depreciation | 66,000 |
(-) Interest expenses | 40,000* 10% | (4,000) |
EBT | EBIT Interest | 62,000 |
(-) Tax expenses | Tax Rate 21%, EBT* (0.21) | (13,020) |
Net income | EBT- Tax Expenses | 48,980 |
Dividends | Given | 30,000 |
Additions to Retained Earnings | Net income- Dividends | 18,980 |
6- If you are given the following information about the year ended 2017 (previous year).
Total assets = $120,000, Total Equity = $70,000, Sales = 150,000, Net income = $35,000
a- Calculate Golden Cups profitability for year ended 2017.
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b- Calculate Golden Cups profitability for year ended 2018.
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c- Based on your knowledge of determinants of corporate profitability (DuPont identity), did any significant change happen to Golden Cups profitability? Did it increase or decrease? What is the underlying reason behind the change, if any?
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