You are the CFO of a company called ?Buy Low, Sell High Investments, LLC? The President has asked you to make a presentation to the Board of Directors as to whether or not your company should make a major investment in ?The Printer Company?. Hundreds of thousands of dollars are on the line, based upon your recommendation.

-Should you invest in ?The Printer Company?. Give your reasons along with the ratio analysis and vertical/horizontal analysis supporting your recommendation. Discuss what the ratios are telling you with regards to The Printer Company. -What are their strong points? Support your comments with the ratios you have computed. -Do you have concerns? Support with specifics. -Give your final recommendation: Buy or don?t Buy, with final reasons and references to support your decision.

Your paper should be a minimum of 500 words(excluding Title Page), in APA format.

Student Name: Class: Problem 23.01A THE LACAL COMPANY Comparative Income Statement For the Years Ended December 31, 2013 and 2012 Percent of Sales Amounts Revenue: Sales Less Sales Returns and Allowances Net Sales 2013 905,000 15,000 890,000 2012 765,000 9,000 756,000 2013 101.7% 1.7% 100.0% 2012 101.2% 1.2% 100.0% Cost of Goods Sold Merchandise Inventory, January 1 Net Purchases Total Merchandise Available for Sale Less Merchandise Inventory, December 31 Cost of Goods Sold 84,000 306,000 390,000 86,000 304,000 80,000 262,000 342,000 84,000 258,000 9.4% 34.4% 43.8% 9.7% 34.2% 10.6% 34.7% 45.2% 11.1% 34.1% Gross Profit on Sales 586,000 498,000 65.8% 65.9% Operating Expenses Selling Expenses Sales Salary Expenses Payroll Tax-Expense-Selling Other Selling Expenses Total Selling Expenses 87,000 8,700 25,200 120,900 80,000 8,000 15,200 103,200 9.8% 1.0% 2.8% 13.6% 10.6% 1.1% 2.0% 13.7% General and Administrative Expenses Officers Salary Expense Payroll Tax Expense-Administrative Depreciation Expense 130,000 13,000 8,250 110,000 11,000 8,250 14.6% 1.5% 0.9% 14.6% 1.5% 1.1% Other General and Administrative Expenses Total General and Administrative Expenses 9,450 160,700 7,000 136,250 1.1% 18.1% 0.9% 18.0% Total Operating Expenses 281,600 239,450 31.6% 31.7% Net Income Before Income Taxes 304,400 91,320 213,080 258,550 77,565 180,985 34.2% 10.3% 23.9% 34.2% 10.3% 23.9% Net Income After Income Taxes Correct! Correct! Correct! Correct! THE LACAL COMPANY Comparative Balance Sheet December 31, 2013 and 2012 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Prepaid Expenses Supplies Total Current Assets Amounts Percent of Total Assets 2013 2012 26.0% 13.0% 22.2% 24.6% 20.1% 23.6% 2.2% 1.4% 0.3% 0.1% 70.9% 62.7% 2013 111,022 95,000 86,000 9,500 1,200 302,722 2012 46,275 87,500 84,000 5,000 500 223,275 Property, Plant, and Equipment Land Building and Equipment Less Accumulated Depreciation Net-Book Value-Building and Equipment Total Property, Plant, and Equipment 75,000 82,500 (33,000) 49,500 124,500 75,000 82,500 (24,750) 57,750 132,750 17.6% 19.3% -7.7% 11.6% 29.1% 21.1% 23.2% -7.0% 16.2% 37.3% Total Assets 427,222 356,025 100.0% 100.0% Correct! Correct! Correct! Try again! Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Sales Tax Payable Payroll Taxes Available Income Taxes Payable Total Current Liabilities 27,000 1,000 1,142 1,000 30,142 57,000 3,000 1,025 5,000 66,025 6.3% 0.2% 0.3% 0.2% 7.1% 16.0% 0.8% 0.3% 1.4% 18.5% Long-Term Liabilities Mortgage Payable Total Long-Term Liabilities 39,000 39,000 45,000 45,000 9.1% 9.1% 12.6% 12.6% Total Liabilities Stockholders' Equity Common Stock ($1 par, 10,000 shares authorized; 10,000 shares issued and outstanding) Paid-in Captial-Common Stock Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity 69,142 111,025 16.2% 31.2% 10,000 10,000 338,080 358,080 10,000 10,000 225,000 245,000 2.3% 2.3% 79.1% 83.8% 2.8% 2.8% 63.2% 68.8% 427,222 Correct! 356,025 Correct! 100.0% Correct! 100.0% Correct! Increase or Decrease Amount Percent 140,000 18.3% 6,000 66.7% 134,000 17.7% 4,000 44,000 48,000 2,000 46,000 5.0% 16.8% 14.0% 2.4% 17.8% 88,000 17.7% 7,000 700 10,000 17,700 8.8% 8.8% 65.8% 17.2% 20,000 2,000 - 18.2% 18.2% 0.0% 2,450 24,450 35.0% 17.9% 42,150 17.6% 45,850 13,755 32,095 17.7% 17.7% 17.7% Correct! Correct! Increase or Decrease Amount Percent 64,747 139.9% 7,500 8.6% 2,000 2.4% 4,500 90.0% 700 140.0% 79,447 35.6% (8,250) (8,250) (8,250) 0.0% 0.0% 33.3% -14.3% -6.2% Correct! 71,197 Correct! (30,000) (2,000) 117 (4,000) (35,883) -52.6% -66.7% 11.4% -80.0% -54.3% (6,000) (6,000) -13.3% -13.3% (41,883) -37.7% 113,080 113,080 0.0% 0.0% 50.3% 46.2% 71,197 Correct! 20.0% Correct! Given Data P23.01A THE LACAL COMPANY Comparative Income Statement For the Years Ended December 31, 2013 and 2012 Revenue: Sales Less Sales Returns and Allowances Net Sales 2013 905,000 15,000 890,000 2012 765,000 9,000 756,000 Cost of Goods Sold Merchandise Inventory, January 1 Net Purchases Total Merchandise Available for Sale Less Merchandise Inventory, December 31 Cost of Goods Sold Gross Profit on Sales 84,000 306,000 390,000 86,000 304,000 586,000 80,000 262,000 342,000 84,000 258,000 498,000 Operating Expenses Selling Expenses Sales Salaries Expense Payroll Tax Expense-Selling Other Selling Expenses Total Selling Expenses 87,000 8,700 25,200 120,900 80,000 8,000 15,200 103,200 General and Administrative Expenses Officers Salaries Expense Payroll Tax Expense-Administrative Depreciation Expense Other General and Administrative Expenses Total General and Administrative Expenses 130,000 13,000 8,250 9,450 160,700 110,000 11,000 8,250 7,000 136,250 Total Operating Expenses 281,600 239,450 Net Income Before Income Taxes Income Tax Expense Net Income After Income Taxes 304,400 91,320 213,080 258,550 77,565 180,985 THE LACAL COMPANY Comparative Balance Sheet December 31, 2013 and 2012 Assets Current Assets Cash Accounts Receivable Merchandise Inventory 111,022 95,000 86,000 46,275 87,500 84,000 Prepaid Expenses Supplies Total Current Assets 9,500 1,200 302,722 5,000 500 223,275 Property, Plant, and Equipment Land Building and Equipment Less Accumulated Depreciation Net Book Value-Building and Equipment Total Property, Plant, and Equipment 75,000 82,500 (33,000) 49,500 124,500 75,000 82,500 (24,750) 57,750 132,750 Total Assets 427,222 356,025 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Sales Tax Payable Payroll Taxes Payable Income Taxes Payable Total Current Liabilities 27,000 1,000 1,142 1,000 30,142 57,000 3,000 1,025 5,000 66,025 Long-Term Liabilities Mortgage Payable Total Long-Term Liabilities 39,000 39,000 45,000 45,000 Total Liabilities 69,142 111,025 Stockholders' Equity Common Stock ($1 par, 10,000 shares authorized 10,000 shares issued and outstanding) Paid-in-Capital - Common Stock Retained Earnings Total Stockholders' Equity 10,000 10,000 338,080 358,080 10,000 10,000 225,000 245,000 Total Liabilities and Stockholders' Equity 427,222 356,025 Student Name: Class: Problem 23.02A Part I: THE LACAL COMPANY Financial Ratios Current Ratio = Current Assets Current Liabilities = Acid Test Ratio = Cash + Receivables + Marketable Securities Current Liabilities = Inventory Turnover = Cost of Goods Sold Average Merchandise Inventory = Return on Sales = Net Income after Taxes Net Sales = Earnings per share of Common Stock = Net Income after Taxes - Preferred Dividend Requirement Average number of shares of Common Stock = Book Value per Share of Common Stock = Total Stockholders' Equity - Equity of Preferred Stock Number of Common Stock shares outstanding = Return on Total Assets = Net Income before interest and taxes Total Assets = Stockholders' Equity Total Equities = Ratio of Stockholder's Equity to = Total Equities Rate of Net Income on Total Stockholders' Equity = Net Income Stockholders' Equity = Asset Turnover = Net Sales Total Assets = Part II: 1. Rate of return on stockholders' equity Both for 2012 and 2013 ratios are better than average at 73.9% and 59.5%. But at the same time decrease in the return has to 2. Stockholders' equity to total equities During 2013 ratio has become better from 68.8% to 83.8%. 2013's averages are better than the industrial average. 3. Asset turnover Company's average is below than the industrial average of 2.5 to 1. 4. Merchandise inventory turnover Inventory turnover ratio of the company is far below than the industrial average, management has to weigh the inventory cost. Analyze: Expected return on sales if net sales and net income after taxes increase by 5% in 2014 ACAL COMPANY nancial Ratios 2013 302,722 30,142 2012 = 10.0 :1 223,275 66,025 = Correct! 206,022 30,142 = Correct! 6.8 $1.00 133,775 66,025 = Correct! 304,000 85,000 = = 258,000 82,000 3.6 = = 180,985 756,000 23.9% $21.31 = = $35.81 per share 180,985 10,000 = = 71.3% per share 245,000 10,000 = = 83.8% Correct! $24.50 Correct! 258,550 356,025 = Correct! 358,080 427,222 $18.10 per share Correct! Correct! 304,400 427,222 23.9% Correct! Correct! 358,080 10,000 3.1 Correct! Correct! 213,080 10,000 2.0 $1.00 Correct! Correct! 213,080 890,000 3.4 :1 72.6% Correct! 245,000 356,025 = 68.8% Correct! per share 213,080 358,080 = 180,985 245,000 59.5% = Correct! 890,000 427,222 = Correct! 2.1 $1.00 Correct! 73.9% 756,000 356,025 = 2.1 $1.00 Correct! same time decrease in the return has to be monitored. than the industrial average. ement has to weigh the inventory cost. e by 5% in 2014 23.9% Correct! Given Data P23.02A THE LACAL COMPANY Comparative Income Statement For the Years Ended December 31, 2013 and 2012 Revenue: Sales Less Sales Returns and Allowances Net Sales 2013 905,000 15,000 890,000 2012 765,000 9,000 756,000 Cost of Goods Sold Merchandise Inventory, January 1 Net Purchases Total Merchandise Available for Sale Less Merchandise Inventory, December 31 Cost of Goods Sold Gross Profit on Sales 84,000 306,000 390,000 86,000 304,000 586,000 80,000 262,000 342,000 84,000 258,000 498,000 Operating Expenses Selling Expenses Sales Salaries Expense Payroll Tax Expense-Selling Other Selling Expenses Total Selling Expenses 87,000 8,700 25,200 120,900 80,000 8,000 15,200 103,200 General and Administrative Expenses Officers Salaries Expense Payroll Tax Expense-Administrative Depreciation Expense Other General and Administrative Expenses Total General and Administrative Expenses 130,000 13,000 8,250 9,450 160,700 110,000 11,000 8,250 7,000 136,250 Total Operating Expenses 281,600 239,450 Net Income Before Income Taxes Income Tax Expense Net Income After Income Taxes 304,400 91,320 213,080 258,550 77,565 180,985 THE LACAL COMPANY Comparative Balance Sheet December 31, 2013 and 2012 Assets Current Assets Cash Accounts Receivable Merchandise Inventory 111,022 95,000 86,000 46,275 87,500 84,000 Prepaid Expenses Supplies Total Current Assets 9,500 1,200 302,722 5,000 500 223,275 Property, Plant, and Equipment Land Building and Equipment Less Accumulated Depreciation Net Book Value-Building and Equipment Total Property, Plant, and Equipment 75,000 82,500 (33,000) 49,500 124,500 75,000 82,500 (24,750) 57,750 132,750 Total Assets 427,222 356,025 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable Sales Tax Payable Payroll Taxes Payable Income Taxes Payable Total Current Liabilities 27,000 1,000 1,142 1,000 30,142 57,000 3,000 1,025 5,000 66,025 Long-Term Liabilities Mortgage Payable Total Long-Term Liabilities 39,000 39,000 45,000 45,000 Total Liabilities 69,142 111,025 Stockholders' Equity Common Stock ($1 par, 10,000 shares authorized 10,000 shares issued and outstanding) Paid-in-Capital - Common Stock Retained Earnings Total Stockholders' Equity 10,000 10,000 338,080 358,080 10,000 10,000 225,000 245,000 Total Liabilities and Stockholders' Equity 427,222 356,025 Additional Information: Selected ratios for other common-size companies in the same industry: 1. Rate of return on stockholders' equity 45% 2. Stockholders' equity to total equities 0.6 to 1 3. Asset turnover 2.5 to 1 4. Merchandise inventory turnover 4.5 times Student Name: Class: Problem 23.03A FIVE, INC. and SIX, INC. Financial Ratios Five, Inc. a. b. c. d. e. f. g. h. Rate of Return on Net Sale = Rate of Return on Total Assets = Net income after taxes Sales = $82,875 $795,000 = Net income before taxes and interest Total assets = $120,500 $350,000 = Rate of Return on Stockholders' Equity = Net income after taxes Stakeholder's equity = $82,875 $151,500 = Earnings per share = Net income after taxes Number of shares of common stocks = $82,875 2,000 = Shareholder's equity Total equities = $151,500 $350,000 = Stockholder's Equity to Total = Equities Current Ratio = Current Assets Current Liabilities = $125,000 $98,500 = Asset Turnover = Net Sales Total Assets = $795,000 $350,000 = Book Value per Share of Common Stock = Stockholder's Equity Number of shares of common stocks = $151,500 2,000 = 2. Comment on similarities or differences in the two companies' ratios. Six inc has overall better return on sales and balance sheet because of lack of some long-term debt. Both these companies Both asset turnover ratio and current ratio are also similar. 3. From the investors' point of view, is one company more at risk than the other? Five inc, has negative long-term debt according to investor on the other hand, Six inc has earned more net income from the of sales. 4. Would you grant a five-year loan to either company? Explain. From the current performance of both these companies it is clear that they can probably handle the amount of debt better. A $100,000 in bonds payable which creates more concern for both bankers and investors if they raise additional amount of de Analyze: Discuss the implications to the rate of return on sales and earnings per share if the company can cut cost of goods b maintaining net sales and operating expenses at 2013 levels. Assume a tax rate of 25%. Sales Cost of Goods Sold Gross Profit Operating Expenses Net Income from Operations Interest Expense Net Income Before Income Taxes Income Tax Net Income After Income Tax $ $ $ $ $ 650,000 332,500 317,500 125,000 192,500 192,500 48,125 144,375 Correct! Reducing COGS by 5% would result in increasing the return on sales by 10% that is from 20.2 to 22.2 and EPS increases f $72.19. It would be beneficial for the investor. SIX, INC. atios Five, Inc. Six, Inc. $131,250 $650,000 10.42% = Correct! Correct! $175,000 $300,900 34.43% = Correct! $131,250 $221,100 = Correct! per share $131,250 2,000 = $221,100 $300,900 = Correct! per share 73.48% Correct! 1.3 $1.00 $104,900 $79,800 = Correct! 1.3 $1.00 Correct! Times $650,000 $300,900 = Correct! Correct! $65.63 Correct! 43.29% $75.75 59.36% Correct! Correct! 2.27 58.16% Correct! 54.70% $41.44 20.19% 2.16 Times Correct! per share $221,100 2,000 = $110.55 Correct! per share -term debt. Both these companies are profitable. earned more net income from the minimum amount handle the amount of debt better. Already Five inc, is they raise additional amount of debt. e company can cut cost of goods by 5% in 2014 while 20.2 to 22.2 and EPS increases from $65.63 to Given Data P23.03A FIVE, INC. and SIX, INC. Condensed Financial Statements Income Statements Year Ended December 31, 2013 Sales (net) Cost of Goods Sold Gross Profit Operating Expenses Net Income From Operations Interest Expense Net Income Before Income Taxes Income Tax Net Income After Income Taxes Five, Inc. $ 795,000 505,000 290,000 169,500 120,500 10,000 110,500 27,625 $ 82,875 Six, Inc. $ 650,000 350,000 300,000 125,000 175,000 175,000 43,750 $ 131,250 Five, Inc. $ 125,000 225,000 $ 350,000 Six, Inc. $ 104,900 196,000 $ 300,900 $ $ Balance Sheets December 31, 2013 Assets Current Assets Property, Plant, and Equipment (net) Total Assets Liabilities and Stockholders' Equity Liabilities Current Liabilities Total Long-Term Liabilities (Bonds Payable) Total Liabilities Stockholders' Equity Common Stock ($10 par value) Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ 98,500 100,000 198,500 20,000 131,500 151,500 350,000 $ 79,800 79,800 20,000 201,100 221,100 300,900