The credit manager at Bank of New York has just received the income statement and balance sheet for Cosmo. Inc. the year ended December 31,2019. The bank requires the firm to report its earnings performance and financial position quarterly as a condition of a loan agreement. The bank's credit manager must prepare two key financial statements based on the information sent by Cosmo, Inc. This will be passed on to the commercial loan officer assigned to this account, so that he may review the financial condition of the firm. Given the following financial statements and historical ratios. 1. Prepare a statement of retained earnings for the year ended December 31, 2019. (5 points) 2. Calculate Operating Cash Flow (OCF) and Free Cash Flow (FCF) for year 2019 and make your interpretations. (15 points) 3. Prepare a statement of cash flows for the year ended December 31, 2019, organized by cash flow from operating activities, cash flow from investment activities, and cash flow from financing activities. Make your interpretations. (20 points) 4. Calculate the Cosmo, Inc. financial ratios for the most recent year (2019). Analyze its overall financial situation from time-series viewpoint. And also break your analysis into an evaluation of the firm's liquidity, activity, debt, and profitability. Make your interpretations. (30 points) 5. Construct the DuPont system of analysis from 2015 to 2019. Make your comparison. Interpret your results. (10 points) 6. Using the firm's 2018, and 2019 financial statements, develop the common-size income statements and common-size balance sheets for 2018 and 2019. Make a comparation. Which areas require further analysis and investigation? (20 points) Income Statements 2018 2019 $873,600 $1,013,376 742,560 861,370 $131,040 $152,006 Sales Revenue Less: COGS Gross Profit Less: Operating Expenses Selling and Adm. Expenses Depreciation Miscellaneous Exp. Total Operating Expenses $43.680 50,000 17,472 $111.152 $40,535 50,000 15,201 $105.736 Operating Profit Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes Less: Dividends Add to Retained Earnings EPS (100,000 shares) $19,888 47,280 ($27,392) (10,957) ($16,435) 0 ($16,435) (0.16) $46,270 46,440 ($170) (68) ($102) 0 ($102) ByteFer Balance Sheets 2018 2019 ASSETS Cash and Marketable Securities $28.826 $18,425 Accounts Receivable 77.654 90,078 Inventory 520,000 560,000 Total Current Assets $626,480 $668,503 Gross Fixed Assets $500,000 $500,000 Less: Accumulated Depreciation 150,000 200,000 Net Fixed Assets $350,000 $300,000 Total Assets $976,480 $968,503 LIABILITIES AND EQUITIES Notes Payables $148,000 $148,000 Accounts Payable 15.995 16,795 Accruals 9,301 11,626 Total Current Liabilities $173,296 $176,421 Long-term Liabilities $458,000 $447,000 Total Liabilities $631,296 $623.421 Common Stock (100,000 shares) $320,000 $320,000 Retained Earnings $25,184 $25,082 Total Equity $345,184 $345,082 Total Liabilities and Equity $976,480 $968,503 Historical and Industry Average Ratios Cosmo, Inc. 2015 2016 2017 2018 2019 0.57 Current Ratio Quick Ratio Total Debt Ratio Equity Multiplier Times Interest Earned Ratio Inventory Turnover ratio Average Age of Inventory 6.38 3.68 3.56 3.62 2.54 2.00 0.61 0.47 0.55 0.64 0.65 1.90 2.20 2.75 2.83 1.79 2.06 1.07 0.42 1.92 1.99 1.31 1.43 190.10 183.49278.54 255.60 Receivables Turnover Average Collection Period Total Asset Turnover Net Profit Margin ROA ROE 60.00 54.58 39.00 11.25 6.08 6.69 9.36 32.44 0.94 0.83 0.78 0.89 2.77% 3.49% 0.27% -1.88% 2.60% 2.89% 0.21% -1.68% 4.94% 6.36% 0.59% -4.76%
