Preferred Apartment Communities, Inc. is a publicly traded REIT (Real Estate Investment Trust.) The Company was formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As a secondary strategy, the Company also may acquire or originate senior mortgage loans, subordinate loans or real estate loan investments secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of its assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loan investments secured by interests in other income-producing property types. The Company uses a variety of sources of long-term capital including common stock, redeemable preferred stock units and limited partnership interests. The preferred stock is sold as units consisting of a share of the preferred stock and a warrant to purchase 20 shares of the Company's common shares exercisable over a four year period. There is no secondary market for the preferred stock units. As a Financial Analyst, you need to determine whether the preferred units are an attractive investment by analyzing the financial health of Preferred Apartment Communities. Your analysis should include an examination of the financial statements and the business environment in which the Company operates. Additionally, through a comprehensive analysis of the various financial and other ratios you should decide if the preferred units are an attractive investment. Support for your analysis should be no more than 8 double-spaced pages and include outside references using AP-style in-text and end-text citations (references.) In particular, your analysis should include the following items: Calculate and analyze the following categories of the financial ratios for the past three years using the attached financial statements: A-Profitability Analysis 1. Return on Assets (ROA) 2. Return on Common Equity (ROCE) 3. Return on Net Operating Assets (RNOA) B. Risk Analysis 1. Coverage Analysis Times Interest Earned Ratio, EBITDA Ratio, and Cash from Operations to Total Debt 2. Short-term Liquidity Current ratio, Quick ratio, and Working Capital 3. Longer-term Solvency Liabilities-to-Equity, Total Debt-to-Equity, and Financial Leverage 4- Calculate Z Score, a Bankruptcy Prediction Indicator for the most recent year. Show your Calculations to indicate the formulas and calculations. Offer your Analysis to identify the underlying trend and changes, compare with the prior years (horizontally) and the industry benchmarks (horizontally and vertically.) See the attached financial statements in Excel. All numbers provided are hypothetical. Pease only use what is provided for your calculations. The statutory tax rate is 37%. The current market prices per share for the preferred stock is $1000 and common stock is $1. Income Statement (in millions) 2014 56.63 2015 8 0.82 2016 198.47 2017 297.34 2018 403.18 4.28 9.5 19.3 36.64 51.39 Fiscal year is January-December. All values USD millions. Sales/Revenue Total Investment Income Sundry Revenue/Income Trading Account Income Trust Income, Commissions & Fees Commission & Fee Income Total Expense Total Interest Expense Depreciation & Amortization Expense Other Operating Expense 5 54. 10.19 16.09 8.19 2014 -28.06 8 3.24 2 1.32 9.61 12.43 2015 36.28 112.58 44.28 76.49 20.53 2016 -36.11 4.27 205.42 67.47 120.11 16.76 2017 -75.78 37.64 228.34 95.56 177.04 19.15 2018 -65.52 69.713 Operating Income Non-Operating Income (Expense) Non-Operating Interest Income Miscellaneous Non Operating Expense Equity in Affiliates (Pretax) Unusual Expense Pretax Income 4.27 37.64 69.71 888 -1039.06 -28.06 -36.28 -44.65 -204.94 .... .............7 22.2..120303..................133333 ..............1993 2. DEILDI..............: 1939 0 0 -2.45 25 -58.83 -9.86 60 -94.79 28.65 99 -1166.71 44.52 100 -349.46 Income Tax - Current - Domestic Income Tax - Current - Foreign Income Tax - Deferred - Domestic Income Tax - Deferred - Foreign Income Tax Credits Equity in Affiliates Other After Tax Income (Expense) Consolidated Net Income Minority Interest Expense Net Income Extraordinaries & Discontinued Operations Extra Items & Gain/Loss Sale Of Assets ecole sale of assets Cumulative Effect - Accounting Che Discontinued Operations Net Income After Extraordinaries Preferred Dividends Net Income Available to Common Common Dividends EPS (Basic, in dollars) Basic Shares Outstanding EPS (Diluted, in dollars) Diluted Shares Outstanding -63.16 7.38 -70.54 18.75 -77.58 41.08 -135.87 63.65 -1230.36 86.74 -436.20 -4.05 17.4 -4.05 17.4 -3.50 22.18 -3.50 22.18 -5.67 23.97 -5.67 23.97 -38.53 31.93 -38.53 31.93 -10.90 40.03 -10.90 40.03 Summary of Cash Flow Statements |2014 -28.06 9.25 36.74 2015 -36.28 -8.51 -26.81 2016 -36.11 36.48 4.04 2017 -75.78 37.37 -45.37 2018 -65.52 -76.94 48.52 Operating Activities (in millions unless other wise noted Fiscal year is January-December. All values USD millions. Funds from Operations Changes in Working Capital Receivables Inventories Accounts Payable Other Assets/Liabilities Net Operating Cash Flow Investing Activities 2.09 20.02 25.3 -46. 3 73.67 7 8.08 0 156.28 72.5 517 325.53 2014 -680 2015 -580 2016 -1300 2017 -1950 2018 -450 Net Investing Cash Flow Financing Activities 2014 2015 2016 2017 -63.65 0 -7.38 110.03 0 -18.75 155.03 0 -41.08 138.91 2018 -86.74 0 -86.74 370.40 -63.65 300.32 250 200 350 550 100 Cash Dividends Paid - Total Common Dividends Preferred Dividends Change in Common Stock Repurchase of Common & Preferred Stk. Sale of Preferred Stock Issuance/Reduction of Debt, Net Change in Long-Term Debt Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash 307.5 795. 9 1 138.691 -252.341 1925.36 131.3195 44.27 17.48 21.81 47.86 6 .85 Balance Sheets 2014 44.27 2015 61.75 2016 83.56 2017 131.42 2018 138.27 36.74 63.55 59.51 104.88 153.40 Assets Fiscal year is January-December. All values USD millions. Cash Only Total Short-Term Investments Short-Term Receivables Investment Securities Securities in Custody Other Investments Plant & Equipment Goodwill Long Term Investments Intangible Assets Total Assets 558.34 28.53 15.83 12.70 696.41 1123.30 25.70 9.98 15.72 1300.00 2078.58 99.17 20.02 79.16 2420.00 1906.52 1 25.10 22.35 102.74 2393.01 269.95 3518.30 165.04 29.08 135.96 4410.00 2016 1545 90 2014 386.91 35.31 32.49 2.82 351.6 300 51.6 2015 736.89 77.79 34.5 43.29 659.1 550 109.1 40 50 1455 1200 255 2017 1,840.00 103.3 45.5 57.8 1736.70 1550 186.7 2018 2585 243.44 62.5 180.94 2341.35 1650 691.35 17.92 404.83 250 33.19 770.08 450 7 0.48 1615.48 800 128.17 1968.17 1,350 439.77 3024.56 1,450 Liabilities & Shareholders' Equity Total Debt ST Debt & Current Portion LT Debt Short Term Debt Current Portion of Long Term Debt Long-Term Debt LT Debt excl. Capitalized Leases Capitalized Lease Obligations Deferred Taxes Other Liabilities Total Liabilities Redeemable Preferred Stock (Par $1000) Non-Redeemable Preferred Stock Common Stock (Par $0.01) Additional Paid-In Capital/Capital Surplus Retained Earnings ESOP Debt Guarantee Cumulative Translation Adjustment/Unrealized For. Exch. Gain Unrealized Gain/Loss Marketable Securities Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Treasury Stock Accumulated Minority Interest Total Equity Liabilities & Shareholders' Equity 0.17 109.86 -70.54 0.22 154.81 -77.58 0.24 138.67 - 135.87 0.32 300 1230.36 0.40 370 436.20 2.09 291.58 696.41 2.47 529.92 1,300.00 1.48 804.52 2,420.00 4.88 424.84 2,393.01 1.24 1,385.44 4.410.00 Preferred Apartment Communities, Inc. is a publicly traded REIT (Real Estate Investment Trust.) The Company was formed primarily to acquire and operate multifamily properties in select targeted markets throughout the United States. As a secondary strategy, the Company also may acquire or originate senior mortgage loans, subordinate loans or real estate loan investments secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets and invest a lesser portion of its assets in other real estate related investments, including other income-producing property types, senior mortgage loans, subordinate loans or real estate loan investments secured by interests in other income-producing property types. The Company uses a variety of sources of long-term capital including common stock, redeemable preferred stock units and limited partnership interests. The preferred stock is sold as units consisting of a share of the preferred stock and a warrant to purchase 20 shares of the Company's common shares exercisable over a four year period. There is no secondary market for the preferred stock units. As a Financial Analyst, you need to determine whether the preferred units are an attractive investment by analyzing the financial health of Preferred Apartment Communities. Your analysis should include an examination of the financial statements and the business environment in which the Company operates. Additionally, through a comprehensive analysis of the various financial and other ratios you should decide if the preferred units are an attractive investment. Support for your analysis should be no more than 8 double-spaced pages and include outside references using AP-style in-text and end-text citations (references.) In particular, your analysis should include the following items: Calculate and analyze the following categories of the financial ratios for the past three years using the attached financial statements: A-Profitability Analysis 1. Return on Assets (ROA) 2. Return on Common Equity (ROCE) 3. Return on Net Operating Assets (RNOA) B. Risk Analysis 1. Coverage Analysis Times Interest Earned Ratio, EBITDA Ratio, and Cash from Operations to Total Debt 2. Short-term Liquidity Current ratio, Quick ratio, and Working Capital 3. Longer-term Solvency Liabilities-to-Equity, Total Debt-to-Equity, and Financial Leverage 4- Calculate Z Score, a Bankruptcy Prediction Indicator for the most recent year. Show your Calculations to indicate the formulas and calculations. Offer your Analysis to identify the underlying trend and changes, compare with the prior years (horizontally) and the industry benchmarks (horizontally and vertically.) See the attached financial statements in Excel. All numbers provided are hypothetical. Pease only use what is provided for your calculations. The statutory tax rate is 37%. The current market prices per share for the preferred stock is $1000 and common stock is $1. Income Statement (in millions) 2014 56.63 2015 8 0.82 2016 198.47 2017 297.34 2018 403.18 4.28 9.5 19.3 36.64 51.39 Fiscal year is January-December. All values USD millions. Sales/Revenue Total Investment Income Sundry Revenue/Income Trading Account Income Trust Income, Commissions & Fees Commission & Fee Income Total Expense Total Interest Expense Depreciation & Amortization Expense Other Operating Expense 5 54. 10.19 16.09 8.19 2014 -28.06 8 3.24 2 1.32 9.61 12.43 2015 36.28 112.58 44.28 76.49 20.53 2016 -36.11 4.27 205.42 67.47 120.11 16.76 2017 -75.78 37.64 228.34 95.56 177.04 19.15 2018 -65.52 69.713 Operating Income Non-Operating Income (Expense) Non-Operating Interest Income Miscellaneous Non Operating Expense Equity in Affiliates (Pretax) Unusual Expense Pretax Income 4.27 37.64 69.71 888 -1039.06 -28.06 -36.28 -44.65 -204.94 .... .............7 22.2..120303..................133333 ..............1993 2. DEILDI..............: 1939 0 0 -2.45 25 -58.83 -9.86 60 -94.79 28.65 99 -1166.71 44.52 100 -349.46 Income Tax - Current - Domestic Income Tax - Current - Foreign Income Tax - Deferred - Domestic Income Tax - Deferred - Foreign Income Tax Credits Equity in Affiliates Other After Tax Income (Expense) Consolidated Net Income Minority Interest Expense Net Income Extraordinaries & Discontinued Operations Extra Items & Gain/Loss Sale Of Assets ecole sale of assets Cumulative Effect - Accounting Che Discontinued Operations Net Income After Extraordinaries Preferred Dividends Net Income Available to Common Common Dividends EPS (Basic, in dollars) Basic Shares Outstanding EPS (Diluted, in dollars) Diluted Shares Outstanding -63.16 7.38 -70.54 18.75 -77.58 41.08 -135.87 63.65 -1230.36 86.74 -436.20 -4.05 17.4 -4.05 17.4 -3.50 22.18 -3.50 22.18 -5.67 23.97 -5.67 23.97 -38.53 31.93 -38.53 31.93 -10.90 40.03 -10.90 40.03 Summary of Cash Flow Statements |2014 -28.06 9.25 36.74 2015 -36.28 -8.51 -26.81 2016 -36.11 36.48 4.04 2017 -75.78 37.37 -45.37 2018 -65.52 -76.94 48.52 Operating Activities (in millions unless other wise noted Fiscal year is January-December. All values USD millions. Funds from Operations Changes in Working Capital Receivables Inventories Accounts Payable Other Assets/Liabilities Net Operating Cash Flow Investing Activities 2.09 20.02 25.3 -46. 3 73.67 7 8.08 0 156.28 72.5 517 325.53 2014 -680 2015 -580 2016 -1300 2017 -1950 2018 -450 Net Investing Cash Flow Financing Activities 2014 2015 2016 2017 -63.65 0 -7.38 110.03 0 -18.75 155.03 0 -41.08 138.91 2018 -86.74 0 -86.74 370.40 -63.65 300.32 250 200 350 550 100 Cash Dividends Paid - Total Common Dividends Preferred Dividends Change in Common Stock Repurchase of Common & Preferred Stk. Sale of Preferred Stock Issuance/Reduction of Debt, Net Change in Long-Term Debt Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash 307.5 795. 9 1 138.691 -252.341 1925.36 131.3195 44.27 17.48 21.81 47.86 6 .85 Balance Sheets 2014 44.27 2015 61.75 2016 83.56 2017 131.42 2018 138.27 36.74 63.55 59.51 104.88 153.40 Assets Fiscal year is January-December. All values USD millions. Cash Only Total Short-Term Investments Short-Term Receivables Investment Securities Securities in Custody Other Investments Plant & Equipment Goodwill Long Term Investments Intangible Assets Total Assets 558.34 28.53 15.83 12.70 696.41 1123.30 25.70 9.98 15.72 1300.00 2078.58 99.17 20.02 79.16 2420.00 1906.52 1 25.10 22.35 102.74 2393.01 269.95 3518.30 165.04 29.08 135.96 4410.00 2016 1545 90 2014 386.91 35.31 32.49 2.82 351.6 300 51.6 2015 736.89 77.79 34.5 43.29 659.1 550 109.1 40 50 1455 1200 255 2017 1,840.00 103.3 45.5 57.8 1736.70 1550 186.7 2018 2585 243.44 62.5 180.94 2341.35 1650 691.35 17.92 404.83 250 33.19 770.08 450 7 0.48 1615.48 800 128.17 1968.17 1,350 439.77 3024.56 1,450 Liabilities & Shareholders' Equity Total Debt ST Debt & Current Portion LT Debt Short Term Debt Current Portion of Long Term Debt Long-Term Debt LT Debt excl. Capitalized Leases Capitalized Lease Obligations Deferred Taxes Other Liabilities Total Liabilities Redeemable Preferred Stock (Par $1000) Non-Redeemable Preferred Stock Common Stock (Par $0.01) Additional Paid-In Capital/Capital Surplus Retained Earnings ESOP Debt Guarantee Cumulative Translation Adjustment/Unrealized For. Exch. Gain Unrealized Gain/Loss Marketable Securities Revaluation Reserves Other Appropriated Reserves Unappropriated Reserves Treasury Stock Accumulated Minority Interest Total Equity Liabilities & Shareholders' Equity 0.17 109.86 -70.54 0.22 154.81 -77.58 0.24 138.67 - 135.87 0.32 300 1230.36 0.40 370 436.20 2.09 291.58 696.41 2.47 529.92 1,300.00 1.48 804.52 2,420.00 4.88 424.84 2,393.01 1.24 1,385.44 4.410.00