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 $7,700 $11,000 $16,500 $17,600 5,390 6,050 6,600 8,800 2,310 4,950 9,900 8,800 1,617 3,300 3,795 3,344 1,155 1,980 2,475 2,288 462 1,320 1,320 1,056 693 1,650 6,105 5,456 1,100 1,100 1,100 770 880 0 660 0 473 550 5,665 4,686 38 44 435 506 5,212 4,311 2016 $26,400 14,520 11,880 6,072 3,960 2,112 5,808 880 1,760 6,688 535 6,153 453 375 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.) QUESTION 4) (30 pts) ENRON case is a famous business scandal in modern history. This scandal also changed the way of doing business, the capital market regulations, and accounting and auditing standards all around the world. This scandal is also filmed, "Enron: The Smartest Guy in the Room" which is also a part of AUM library activities this semester. First, read the Earnings Management part from Chapter 2 in your textbook. There is also something in the slides. And you can even read from reliable internet sources (Do not use Wikipedia, Investopedia, etc). Assignment 2- ACT 450 - Financial Statement Analysis Fall 2021 Page 2 of 3 Using AUM library resources and reliable internet sources, answer the following questions: (Please write something professional as a senior student. Please provide references and put in- text citations. Please follow the instructions about the number of words needed for each question item.) Provide your answers for each question item separately. Do not write a large paragraph combining the answers for more than one question. a) Write an introduction for the company. (5 pts, min 100 w.) b) Who made the fraud? (Names and positions) (5 pts, min 50 w.) c) What kind of fraud did they do? (Explain using accounting terminology do not tell only assets increased or profit inflated, etc. Tell how. Which methods did they use to make fraud? What and how it was manipulated?) (5 pts, min 200 w.) d) What were the major incentives to make fraud? (What was their incentive, motivation?) (5 pts, min 50 w.) e) When and who discovered the fraud? (5 pts, min 50 w.) f) What are the consequences of this fraud? (Legal consequences - Fines, imprisonment, etc.) (5 pts, min 50 w.) 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 $7,700 $11,000 $16,500 $17,600 5,390 6,050 6,600 8,800 2,310 4,950 9,900 8,800 1,617 3,300 3,795 3,344 1,155 1,980 2,475 2,288 462 1,320 1,320 1,056 693 1,650 6,105 5,456 1,100 1,100 1,100 770 880 0 660 0 473 550 5,665 4,686 38 44 435 506 5,212 4,311 2016 $26,400 14,520 11,880 6,072 3,960 2,112 5,808 880 1,760 6,688 535 6,153 453 375 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.) QUESTION 4) (30 pts) ENRON case is a famous business scandal in modern history. This scandal also changed the way of doing business, the capital market regulations, and accounting and auditing standards all around the world. This scandal is also filmed, "Enron: The Smartest Guy in the Room" which is also a part of AUM library activities this semester. First, read the Earnings Management part from Chapter 2 in your textbook. There is also something in the slides. And you can even read from reliable internet sources (Do not use Wikipedia, Investopedia, etc). Assignment 2- ACT 450 - Financial Statement Analysis Fall 2021 Page 2 of 3 Using AUM library resources and reliable internet sources, answer the following questions: (Please write something professional as a senior student. Please provide references and put in- text citations. Please follow the instructions about the number of words needed for each question item.) Provide your answers for each question item separately. Do not write a large paragraph combining the answers for more than one question. a) Write an introduction for the company. (5 pts, min 100 w.) b) Who made the fraud? (Names and positions) (5 pts, min 50 w.) c) What kind of fraud did they do? (Explain using accounting terminology do not tell only assets increased or profit inflated, etc. Tell how. Which methods did they use to make fraud? What and how it was manipulated?) (5 pts, min 200 w.) d) What were the major incentives to make fraud? (What was their incentive, motivation?) (5 pts, min 50 w.) e) When and who discovered the fraud? (5 pts, min 50 w.) f) What are the consequences of this fraud? (Legal consequences - Fines, imprisonment, etc.) (5 pts, min 50 w.)