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Preparing Comparative Financial Statements is the most used technique for analyzing financial statements. This technique determines a business's profitability and financial position by comparing financial

Preparing Comparative Financial Statements is the most used technique for analyzing financial statements. This technique determines a business's profitability and financial position by comparing financial statements for two or more periods. The income statements and balance sheets are typically prepared comparatively for such an analysis.
Jenny Chang, a finance student at California Polytechnic State University, received an internship in the finance management training program with Smart Electric Parts Company.
Jenny was asked to prepare the companys financial statements and provide a comparative analysis. These statements primarily include income, balance sheets, and cash flow statements.
Financial information as of December 2022 Financial information as of December 2023
Cost of goods sold $1,261,038 Cost of goods sold $1,592,143
Cash $182,187 Cash $272,478
Depreciation $355,810 Depreciation $402,170
Interest expense $53,211 Interest expense $55,098
Selling & Administrative $243,787 Selling & Administrative $323,352
Accounts payable $320,143 Accounts payable $361,404
Net fixed assets $1,569,750 Net fixed assets $1,912,500
Sales $2,472,590 Sales $3,012,392
Accounts receivable $121,887 Accounts receivable $161,717
Current portion of Long-term debt $146,510 Current portion of Long-term debt $209,703
Long-term debt $591,235 Long-term debt $612,195
Equity in 12/312021570667 Equity raised in 202345735
Inventory $27,119 Inventory $37,216
Cost of Debt 9% Cost of Debt 9%
Unlevered Cost of Equity 12% Unlevered Cost of Equity 12%
Outstanding Shares 1,000,000 Outstanding Shares 1,000,000
Tax rate 35% Tax rate 35%
Dividend percentage 25% Dividend percentage 25%
1. Prepare income and balance sheet statements for 2022 and 2023.
2. Prepare cash flow from assets and cash flow to creditors and equity holders.
3. What are the capital spending and changes in net working capital for 2023?
4. What is the DuPont Identity for 2022 and 2023? Explain the firms condition and performance changes, whether they indicate improvement, deterioration, or some combination.
5. What are the internal and sustainable growth rates for 2022 and 2023? Define and discuss the implication of these two growth rates in the companys long-term planning.
Part II
After submitting the financial statements, she was asked to provide a pro forma financial statement for 2024. Jenney remembered from her finance classes that she could set up the pro forma financial statement based on the percentage of sales method. Using the sustainable growth rate 2023, answer the following questions for Jenny?
a. What are the pro forma financial statements for 2024?
b. What is the operating cash flow for 2024?
c. What is the free cash flow for 2024?
d. What is external financing needed (EFN), if any, for 2024?

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