Problem #1 (48 marks)

Consider the following simplified Statement of Comprehensive Income and Statement of Financial Position from Smith Corporations 2018 Annual Report to Shareholders.

Smith Corporation Statement of Comprehensive Income ($ millions)

Net sales	$8,324
Cost of goods sold	$4,988
Depreciation	$1,190
Earnings Before interest and taxes	$2,146
Interest paid	$320
Taxable income	$1,826
Taxes	$621
Net income	$1,205

Smith Corporation Statement of Financial Position 2017 & 2018 ($ millions)

	2017	2018		2017	2018
Cash	$5,415	$3,341	Accounts payable	1,110	1,650
Accounts rec.	$2,460	$979	Notes payable	2,500	1,900
Inventory	2,405	2,885	Total	3,610	3,550
Total	10,280	7,205	Long-term debt	4,800	4,600
Net fixed assets	12,300	16,720	Common stock	5,100	5,900
			Retained earnings	9,070	9,875
Total assets	22,580	23,925	Total liabilities and Owners equity	22,580	23,925

1. Generate the common-size income statement for 2018. (4 marks)
2. For the asset side of the balance sheet create the common-size statement for 2017 and 2018. (4 marks)
3. Generate the 2018 cash-flow statement for Smith Corporation. (12 marks, one per entry)
4. Calculate cash-flow from assets, cash-flow to debtholders, and cash-flow to equity holders. Does the cash-flow identity hold? (13 marks)
5. Calculate the following financial ratios for Smith Corporation for 2018 only (9 marks - 1 each)

1. Current ratio
2. Quick ratio
3. Return on assets
4. Debt-to-equity ratio
5. Equity multiplier
6. Total Asset Turnover
7. Profit Margin
8. Times interest earned ratio
9. ROE use DuPont Identity

6. If Smith Corporation pays its suppliers timelier in 2019, what will happen to its current ratio? Briefly explain! (2 marks)
7. If, in 2019, Smith Corporation implements a new inventory management system, which reduces the time goods stay in inventory, what will happen to its quick ratio? Briefly explain! (2 marks)
8. If Smith Corporation takes on more debt, what will happen to its times interest earned ratio? Explain (2 marks)