subject: financial statement analysis (act450)

QUESTION 1) (35 pts) ABC company's Income Statements for 2016-2020 are given below: Sales Revenue COGS (-) Gross Profit Operating Expenses (-) General Admin Expenses (-) Marketing and Sales Expenses (-) Operating Profit Interest Expense (-) Gain on Sale of an unused building Profit Before Tax Tax Expense (-) Net Profit 2020 2019 2018 2017 2016 $7,700 $11,000 $16,500 $17,600 $26,400 5,390 6,050 6,600 8,800 14,520 2,310 4,950 9,900 8,800 11,880 1,617 3,300 3,795 3,344 6,072 1,155 1,980 2,475 2,288 3,960 462 1,320 1,320 1,056 2,112 693 1,650 6,105 5,456 5,808 1,100 1,100 1,100 770 880 880 0 660 0 1,760 473 550 5,665 4,686 6,688 38 44 453 375 535 435 506 5,212 4,311 6,153 a) Show the index-trend percentages for each item for five years taking 2016 as the base year. (Show supportive calculations) (15 pts) b) Indicate whether the trend for COGS and General Administration Expenses are Favorable or Unfavorable? (5 pts) c) Write your conclusion whether the overall trend in Net Profit is Favorable or Unfavorable explaining the reasons (Provide at least three reasons). (5 pts, min 100 w.) d) If there was 5% inflation each year, would you change your conclusion for (c)? (Support your answer by numbers and calculations) (10 pts, min 150 w.) QUESTION 2) (20 pts) a) List four risk factors that may affect the financial success of a company that manufactures and sells cars. (10 pts, min 250 w.) b) Discuss how each of those five factors you provided in (a) may affect the profitability of the dairy business (10 pts, min 150 w.) QUESTION 3) (15 pts) Discuss how financial statements reflect the results of business activities. Note: Don't forget to give references to the balance sheet, income statement, statement of cash flows, and three business activities in your discussion. (15 pts, min 300 w.)