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Apollo Inc. Income Statement Year Ended December 31 2019 2018 Net sales Variable Costs $1,500,000 1,125,000 Contribution Margin Fixed Costs Operating income (EBIT) Interest expense Earnings before taxes (EBT) $ 1,680,000 1,260,000 $ 420,000 187,000 $ 233,000 $ 375,000 114,000 $ 261,000 53,600 $ 207,400 53,600 $ 179,400 Income tax expense 53,820 62,220 $ 125,580 $ 145,180 Earnings after taxes (EAT) Apollo Inc. Statement of Financial Position Year Ended December 31 2019 2018 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Total Current Assets $ 60,580 150,000 112,000 $ 322,580 $ 24,500 105,000 90,000 $ 219,500 Property, Plant and Equipment (at cost) Accumulated Depreciation Property, Plant and Equiment (net) 1,430,000 (495,000) $ 935,000 1,400,000 (320,000) $ 1,080,000 60,000 60,000 Intangible Assets $ 1,317,580 $ 1.359,500 Total Assets Llabies & Shareholder's Equity Current Liabilities Accounts Payable Accrued Liabilities Bank Loan Total Current Liabilities $ 80,000 15,000 20.000 $ 115,000 $ 72,500 20,000 $ 92,500 Mortage Payable Total Liaibilities 650,000 $ 765,000 670,000 $ 762,500 Shareholder's Equity Common Shares (10,000 issued) Retained Earnings Total Shareholder's Equity 100,000 452,580 $ 552,580 100,000 497,000 $ 597,000 Total Liab & Shareholder's Equity $1,317,580 $ 1,359,500 Apollo Inc had a satisfactory year in 2019. Sales were up and are expected to continue to grow in 2020. The company has hired you as their new financial analyst and they want you to finish creating the year-end reporting package for the owner. Specifically, you need to complete the table of ratios your predecessor started and comment on how the company is doing compared to industry averages. You also need to create the Statement of Cash Flows for 2019. Finally, they're a little concerned about the impact their rate of growth may have on the financial stability of the company. They ask you to compare company results to industry results using the three components of the DuPont analysis and look at potential funding issues using the Required New Funding formula. 1. Ratio Analysis (15 marks) Complete the following table of ratios for the 2019 results of Apollo Inc. To complete the table, you will need the following information: All sales are on credit. The income statement is formatted using the Contribution Margin approach. For those calculations that need it, the cost of goods sold is $865,000. The company has traditionally ignored Intangible Assets in the Capital Asset Turnover calculation. (Use only PP&E for that calculation.) Enter all numbers to two (2) decimal places . Be sure to indicate the correct label and how the company is doing against the industry measure for ALL ratios, not just the ones hat you calculate. Calculation for Choose the Industry Better Ratio Name Apollo Inc. correct label Measure or worse? Profit margin 7.475 15.100 Return on assets 17.365 Return on equity 37.500 Receivables turnover 11.200 8.600 Average collection period 42.442 Inventory turnover 9.100 Accounts payable turnover 8.500 Accounts payable period 33.757 42.941 2.400 Capital asset turnover turnover 1.150 Current ratio 2.000 Quick ratio 2.100 Debt to Total Assets 0.410 Times interest earned 3.900 Q2. Statement of Cash Flows (20 marks) . Create the Statement of Cash Flows using the given template. To help you complete the statement, please note the following: Of the fixed costs for 2019, depreciation (the only non-cash item in fixed costs) amounts to $175,000. The Property, Plant and Equipment account reflects the purchase of a new piece of manufacturing machinery, purchased at a cost of $30,000 There were no other purchases or sales of Property, Plant and Equipment. Although Bank Loan shows up in the current liabilities section, it should not be considered a current liability for Statement of Cash Flow purposes. It is a method of financing the balance sheet. Q3. DuPont Analysis (5 marks) Using the three components of the DuPont method, compare the 2019 results of Apollo Inc. to the industry averages for 2019. Discuss the source of any competitive advantage Apollo has, compared to their industry competitors. Q4. Required New Funding (10 marks) Sales are expected to rise 10.0% in the coming year and your investigations indicate that the existing equipment is operating at FULL capacity. The owners are interested to know if they will need bank financing next year to accomodate the increase in sales. They have asked you to use the RNF formula to calculate how much, if any, they will need to borrow from the bank. Any funds needed would come from the bank loan, any surplus funds would be used to reduce the bank loan. Enter the result of the RNF formula (don't forget the negative sign, if appropriate) and indicate, if they will generate surplus funds or need external funds. Apollo Inc. Income Statement Year Ended December 31 2019 2018 Net sales Variable Costs $1,500,000 1,125,000 Contribution Margin Fixed Costs Operating income (EBIT) Interest expense Earnings before taxes (EBT) $ 1,680,000 1,260,000 $ 420,000 187,000 $ 233,000 $ 375,000 114,000 $ 261,000 53,600 $ 207,400 53,600 $ 179,400 Income tax expense 53,820 62,220 $ 125,580 $ 145,180 Earnings after taxes (EAT) Apollo Inc. Statement of Financial Position Year Ended December 31 2019 2018 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Total Current Assets $ 60,580 150,000 112,000 $ 322,580 $ 24,500 105,000 90,000 $ 219,500 Property, Plant and Equipment (at cost) Accumulated Depreciation Property, Plant and Equiment (net) 1,430,000 (495,000) $ 935,000 1,400,000 (320,000) $ 1,080,000 60,000 60,000 Intangible Assets $ 1,317,580 $ 1.359,500 Total Assets Llabies & Shareholder's Equity Current Liabilities Accounts Payable Accrued Liabilities Bank Loan Total Current Liabilities $ 80,000 15,000 20.000 $ 115,000 $ 72,500 20,000 $ 92,500 Mortage Payable Total Liaibilities 650,000 $ 765,000 670,000 $ 762,500 Shareholder's Equity Common Shares (10,000 issued) Retained Earnings Total Shareholder's Equity 100,000 452,580 $ 552,580 100,000 497,000 $ 597,000 Total Liab & Shareholder's Equity $1,317,580 $ 1,359,500 Apollo Inc had a satisfactory year in 2019. Sales were up and are expected to continue to grow in 2020. The company has hired you as their new financial analyst and they want you to finish creating the year-end reporting package for the owner. Specifically, you need to complete the table of ratios your predecessor started and comment on how the company is doing compared to industry averages. You also need to create the Statement of Cash Flows for 2019. Finally, they're a little concerned about the impact their rate of growth may have on the financial stability of the company. They ask you to compare company results to industry results using the three components of the DuPont analysis and look at potential funding issues using the Required New Funding formula. 1. Ratio Analysis (15 marks) Complete the following table of ratios for the 2019 results of Apollo Inc. To complete the table, you will need the following information: All sales are on credit. The income statement is formatted using the Contribution Margin approach. For those calculations that need it, the cost of goods sold is $865,000. The company has traditionally ignored Intangible Assets in the Capital Asset Turnover calculation. (Use only PP&E for that calculation.) Enter all numbers to two (2) decimal places . Be sure to indicate the correct label and how the company is doing against the industry measure for ALL ratios, not just the ones hat you calculate. Calculation for Choose the Industry Better Ratio Name Apollo Inc. correct label Measure or worse? Profit margin 7.475 15.100 Return on assets 17.365 Return on equity 37.500 Receivables turnover 11.200 8.600 Average collection period 42.442 Inventory turnover 9.100 Accounts payable turnover 8.500 Accounts payable period 33.757 42.941 2.400 Capital asset turnover turnover 1.150 Current ratio 2.000 Quick ratio 2.100 Debt to Total Assets 0.410 Times interest earned 3.900 Q2. Statement of Cash Flows (20 marks) . Create the Statement of Cash Flows using the given template. To help you complete the statement, please note the following: Of the fixed costs for 2019, depreciation (the only non-cash item in fixed costs) amounts to $175,000. The Property, Plant and Equipment account reflects the purchase of a new piece of manufacturing machinery, purchased at a cost of $30,000 There were no other purchases or sales of Property, Plant and Equipment. Although Bank Loan shows up in the current liabilities section, it should not be considered a current liability for Statement of Cash Flow purposes. It is a method of financing the balance sheet. Q3. DuPont Analysis (5 marks) Using the three components of the DuPont method, compare the 2019 results of Apollo Inc. to the industry averages for 2019. Discuss the source of any competitive advantage Apollo has, compared to their industry competitors. Q4. Required New Funding (10 marks) Sales are expected to rise 10.0% in the coming year and your investigations indicate that the existing equipment is operating at FULL capacity. The owners are interested to know if they will need bank financing next year to accomodate the increase in sales. They have asked you to use the RNF formula to calculate how much, if any, they will need to borrow from the bank. Any funds needed would come from the bank loan, any surplus funds would be used to reduce the bank loan. Enter the result of the RNF formula (don't forget the negative sign, if appropriate) and indicate, if they will generate surplus funds or need external funds