Refer to all the necessary information to support your analysis based on the attached documents.

1. Suppose you are a financial analyst, and your boss is interested in buying some shares in this company, and they want you to write a report on this company. Given the two statements, please write a summary report highlighting this purchase's pros and cons.
2. Based on the Allied Food Products income statements and balance sheets, please add the companys statement of cash flows into your analysis. What are the points of concern in the cash flow? How will this change the report that you previously submitted to your boss?

A financial statement shows the balance sheet data for Allied Food Products for 2021 and 2020. The data from the financial statement, presented in the format, financial data, 2021 value, 2020 value, are as follows: Assets Current assets: Cash and equivalents, $10, $80. Accounts receivable, 375,315 . Inventories, 615 , 415. Total current assets, $1,000, $810. Net fixed assets: Net plant and equipment (cost minus depreciation), 1,000, 870. Other assets expected to last more than a year, 0, 0. Total assets, $2,000, $1,680. Liabilities and Equity Current liabilities: Accounts payable, $60, $30. Accruals, 140, 130. Notes payable, 110, 60. Total current liabilities, $310, $220. Long-term bonds, 750 , 580. Total liabilities, $1,060, $800. Common equity: Common stock (75,000,000 shares), $130, $130. Retained earnings, 810,750 . Total common equity, $940, $880. Total liabilities and equity, $2,000, $1,680. Text under the table reads, 'Notes: 1 . Inventories can be valued by several different methods, and the method chosen can affect both the balance sheet value and the cost of goods sold, and thus net income, as reported on the income statement. Similarly, companies can use different depreciation methods for financial reporting. The methods used must be reported in the notes to the financial statements, and security analysts can make adjustments when they compare companies if they think the differences are material. 2. Book value per share: Total common equity/Shares outstanding =$940/75=$12.53. 3. A relatively few firms use preferred stock, which we discuss in Chapter 9. Preferred stock can take several different forms, but it is generally like debt because it pays a fixed amount each year. However, it is like common stock because a failure to pay the preferred dividend does not expose the firm to bankruptcy. If a firm does use preferred stock, it is shown on the balance sheet between total debt and common stock. There is no set rule on how preferred stock should be treated when financial ratios are calculated-it stockholders think of it as debt because it is a fixed charge. In truth, preferred stock is a hybrid, somewhere between debt and common equity." Notes: 1. Inventories can be valued by several different methods, and the method chosen can affect both the balance sheet value and the cost of goods sold, and thus net income, as reported on the income statement. Similarly, companies can use different depreciation methods for financial reporting. The methods used must be reported in the notes to the financial statements, and security analysts can make adjustments when they compare companies if they think the differences are material. 2. Book value per share: Total common equity / Shares outstanding =$940/75=$12.53. 3. A relatively few firms use preferred stock, which we discuss in Chapter 9. Preferred stock can take several different forms, but it is generally like debt because it pays a fixed amount each year. However, it is like common stock because a failure to pay the preferred dividend does not expose the firm to bankruptcy. If a firm does use preferred stock, it is shown on the balance sheet between total debt and common stock. There is no set rule on how preferred stock should be treated when financial ratios are calculated-it could be considered as debt or as equity. Bondholders often think of it as equity, while Table 3.1 Allied Food Products: December 31 Balance Sheets (Millions of Dollars) Table 3.3 Allied Food Products: Statement of Cash Flows for 2021 (Millions of Dollars) Details Note: Here and throughout the book, parentheses are sometimes used to denote negative numbers. b. Net income. The first operating activity is net income, which is the first source of cash. If all sales were for cash, if all costs required immediate cash payments, and if the firm were in a static situation, net income would equal cash from operations. However, these conditions don't hold, so net income is not equal to cash from operations. Adjustments shown in the remainder of the statement must be made. c. Depreciation and amortization. The first adjustment relates to depreciation and amortization. Allied's accountants subtracted depreciation (it has no amortization expense), which is a noncash charge, when they calculated net income. Therefore, depreciation must be added back to net income when cash flow is determined. d. Increase in inventories. To make or buy inventory items, the firm must use cash. It may receive some of this cash as loans from its suppliers and workers (payables and accruals), but ultimately, any increase in inventories requires cash. Allied increased its inventories by $200 million in 2021. That amount is shown in parentheses on line d because it is negative (i.e., a use of cash). If Allied had reduced its inventories, it would have generated positive cash. e. Increase in accounts receivable. If Allied chooses to sell on credit when it makes a sale, it will not immediately get the cash that it would have received had it not extended credit. To stay in business, it must replace the inventory that it sold on credit, but it won't yet have received cash from the credit sale. So if the firm's accounts receivable increase, this will amount to a use of cash. Allied's receivables rose by $60 million in 2021, and that use of cash is shown as a negative number on line e. If Allied had reduced its receivables, this would be shown as a positive cash flow. (Once cash is received for the sale, the accompanying accounts receivable will be eliminated.) f. Increase in accounts payable. Accounts payable represent a loan from suppliers. Allied bought goods on credit, and its payables increased by $30 million this year. That is treated as a $30 million increase in cash on line f. If Allied had reduced its payables, that would have required, or used, cash. Note that as Allied grows, it will purchase more inventories. That will give rise to additional payables, which will reduce the amount of new outside funds required to finance inventory growth. g. Increase in accrued wages and taxes. The same logic applies to accruals as to accounts payable. Allied's accruals increased by $10 million this year, which means that in 2021, it borrowed an additional $10 million from its workers and taxing authorities. So this represents a $10 million cash inflow. h. Net cash provided by operating activities. All of the previous items are part of normal operations-they arise as a result of doing business. When we sum them, we obtain the net cash flow from operations. Allied had positive flows from net income, depreciation, and increases in payables and accruals, but it used cash to increase inventories and to carry receivables. The net result was that operations led to a $26.3 million net cash inflow. i. Investing activities. All activities involving long-term assets are covered in this section. It also includes the purchase and sale of short-term investments, other than trading securities, and lending and collecting on notes receivables. Allied had only one investment activity-the acquisition of some fixed assets, as shown on line j. If Allied had sold some fixed assets, its accountants would have reported it in this section as a positive amount (i.e., as a cash inflow). j. Additions to property, plant, and equipment. Allied spent $230 million on fixed assets during the current year. This is an outflow; therefore, it is shown in parentheses. If Allied had sold some of its fixed assets, this would have been a cash inflow. k. Net cash used in investing activities. Because Allied had only one investment activity, the total on this line is the same as that on the previous line. 1. Financing activities. Allied's financing activities are shown in this section. m. Increase in notes payable. Allied borrowed an additional $50 million from its bank this year, which was a cash inflow. When Allied repays the loan, this will be an outflow. n. Increase in bonds (long-term debt). Allied borrowed an additional $170 million from longterm investors this year, issuing bonds in exchange for cash. This is shown as an inflow. When the bonds are repaid by the firm some years hence, this will be an outflow. o. Payment of dividends to stockholders. Dividends are paid in cash, and the $86.3 million that Allied paid to stockholders is shown as a negative amount. a positive $133.8 million , is shown here. These funds, along with the small positive operating cash flow, were used to help pay for the $230 million of new plant and equipment. q. Summary. This section summarizes the change in cash and cash equivalents over the year. r. Net decrease in cash. The net sum of the operating activities, investing activities, and financing activities is shown here. These activities resulted in a $70 million net decrease is cash during 2021, mainly due to expenditures on new fixed assets. s. Cash and equivalents at the beginning of the year. Allied began the year with $80 million of cash, which is shown here. t. Cash and equivalents at the end of the year. Allied ended the year with $10m the $80 million it started with minus the $70 million net decrease that occurred during the year. Clearly, Allied's cash position is weaker than it was at the beginning of the year. Allied's statement of cash flows should be of concern to its managers and investors. The ompany had a small positive operating cash flow that didn't begin to cover its fixed assets nvestment requirements. So the large investment in fixed assets was covered by borrowing ind reducing its beginning balances of cash and equivalents. However, the firm can't continu o do this indefinitely. In the long run, Section I needs to show larger positive operating cash lows. In addition, we would expect Section II to show expenditures on fixed assets that are bout equal to (1) its depreciation charges (to replace worn out fixed assets), along with (2) some additional expenditures to provide for growth. Section III would normally show some net borrowing in addition to a "reasonable" amount of dividends. Finally, Section IV should show a reasonably stable year-to-year cash balance. These conditions don't hold for Allied, so some actions should be taken to correct the situation. We will consider corrective actions in Chapter 4 , when we analyze the firm's financial statements. Table 3.2 shows Allied's 2020 and 2021 income statements. Net sales are shown at the top of the statement; then operating costs, interest, and taxes are subtracted to obtain the net incom available to common shareholders. We also show earnings and dividends per share, in addition to some other data, at the bottom of Table 3.2. Earnings per share (EPS) is often calle "the bottom line," denoting that of all items on the income statement, EPS is the one that is most important to stockholders. Allied earned $1.95 per share in 2021, down from $2.03 in 2020. In spite of the decline in earnings, the firm still increased the dividend from $1.06 to $1.15. Table 3.2 Allied Food Products: Income Statements for Years Ending December 31 (Millions of Dollars, Except for Per-Share Data) Note: Operating costs include cost of goods sold, operating expenses, and overhead expenses. Allied's cost of goods sold is 70% of sales, or $2,100 million. bAllied has 75 million shares of common stock outstanding. Note that EPS is based on net income available to common stockholders. Calculations of EPS, DPS, and BVPS for 2021 are as follows: Earningspershare=EPS=CommonsharesoutstandingNetincome=75,000,000$146,300,000=$1.95 Earningspershare=EPS=CommonsharesoutstandingNetincome=75,000,000$146,300,000=$1.95Dividendspershare=DPS=CommonsharesoutstandingDividendspaidtocommonstockholders=75,000,000$86,300,000=$1.15Bookvaluepershare=BVPS=CommonsharesoutstandingTotalcommonequity=75,000,000$940,000,000=$12.53 When a firm has options or convertibles outstanding or it recently has issued new common stock, a more comprehensive EPS, "diluted EPS," is calculated. Its calculation is a bit more complicated, but you may refer to any financial accounting text for a discussion. Details An income statement shows data for Allied Food Products for the years 2021 and 2020. The data from the statement, presented in the format, financial data, 2021 value, 2020 value, are as follows: Net sales, $3,000.0,$2,850.0. Operating costs except depreciation and amortization, superscript a, 2,622.0, 2,497.0. Depreciation and amortization, 100.0, 90.0. Total operating costs, $2,722.0, $2,587.0. Operating income, or earnings before interest and taxes (EBIT), $278.0, \$263.0. Less interest, 83.0, 60.0. Earnings before taxes (EBT), $195.0,$203.0. Taxes (25 percent), 48.8, 50.8. Net income, $146.3, $152.3. Here are some related items: Total dividends, $86.3, $79.5. Addition to retained earnings = Net income minus Total dividends, $60.0, $72.8. Per-share data: Common stock price, $23.06, $26.00. Earnings per share (E P S) superscript b, \$1.95, \$2.03. Dividends per share (D P S) superscript b, $1.15, $1.06. Book value per share (B V P S) superscript b, $12.53,$11.73. Text under the table reads, a. Operating costs include cost of goods sold, operating expenses, and overhead expenses. Allied's cost of goods sold is 70% of sales, or $2,100 million. b. Allied has 75 million shares of common stock outstanding. Note that EPS is based on net income available to common stockholders. Calculations of EPS, DPS, and BVPS for 2021 are as follows: Earnings per share = EPS = Net income over common shares outstanding =$146,300,000 over 75,000,000=$1.95. Dividends per share = DPS = Dividends paid to common stockholders =$86,300.000 over 75.000.000=$1.15. Book value value, are as follows: Net sales, $3,000.0,$2,850.0. Operating costs except depreciation and amortization, superscript a, 2,622.0, 2,497.0. Depreciation and amortization, 100.0, 90.0. Total operating costs, $2,722.0, $2,587.0. Operating income, or earnings before interest and taxes (EBIT), $278.0, \$263.0. Less interest, 83.0, 60.0. Earnings before taxes (EBT), $195.0, \$203.0. Taxes (25 percent), 48.8, 50.8. Net income, $146.3, $152.3. Here are some related items: Total dividends, $86.3, $79.5. Addition to retained earnings = Net income minus Total dividends, $60.0, $72.8. Per-share data: Common stock price, $23.06, $26.00. Earnings per share (E P S) superscript b, $1.95, \$2.03. Dividends per share (D P S) superscript b, $1.15, $1.06. Book value per share (B V P S) superscript b, $12.53,$11.73. Text under the table reads, a. Operating costs include cost of goods sold, operating expenses, and overhead expenses. Allied's cost of goods sold is 70% of sales, or $2,100 million. b. Allied has 75 million shares of common stock outstanding. Note that EPS is based on net income available to common stockholders. Calculations of EPS, DPS, and BVPS for 2021 are as follows: Earnings per share = EPS = Net income over common shares outstanding =$146,300,000 over 75,000,000=$1.95. Dividends per share = DPS = Dividends paid to common stockholders =$86,300,000 over 75,000,000=$1.15. Book value pr share = BVPS = Total common equity over common shares outstanding =$940,000,000 over 75,000,000=$12.53. When a firm has options or convertibles outstanding or it recently has issued new common stock, a more comprehensive EPS, 'diluted EPS," is calculated. Its calculation is a bit more complicated, but you may refer to any financial accounting text for a discussion. Table 3.4 Allied Food Products: Statement of Stockholders' Equity, December 31, 2021 (Millions of Dollars) Details Note that "retained earnings" represents a claim against assets, not assets per se. Stockholders allow management to retain earnings and reinvest them in the business, use retained earnings for additions to plant and equipment, add to inventories, and the like. Companies do not just pile up cash in a bank account. Thus, retained earnings as reported on the balance sheet do not represent cash and are not "available" for dividends or anything else