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BUS 300 Financial Analysis

Fall
Dr. Luvnica Verma
Classwork 1

Student Name:

Time 40 minutes Total Marks: 50

Your Marks: Your Score


%:
Your Grade: A B+ B C+ C D+D
F

CLOs Mapping
Questions Marks CLO Covered Grade Remarks

Questions 1 25 CLO2

Questions 2 25 CLO2

Total /50

Faculty Signature:___________________

Q1. Below is a comparative income statement for Elky Co.: [25 Marks]

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Elky Co.
Income Statement
For the years ended December 31
2017 2016
Sales $168,000 $151,000
Cost of goods sold 90,000 78,000
Gross profit 78,000 73,000
Operating expenses 32,000 30,000
Operating income 46,000 43,000
Interest expense 2,000 3,000
Income before taxes 44,000 40,000
Income taxes 11,000 10,000
Net income $33,000 $30,000

Required:

a.) Prepare a horizontal analysis for the company calculating the change
and percentage change of each line item from one year to the next.
(Round your answers to the nearest tenth of a percent, ie 0.13578
13.6%)

Which item/items in your analysis would you wish to investigate? Why?

Solution:

2017 2016 Change * % Change


**
Sales $168,000 $151,000
Cost of goods 90,000 78,000
sold
Gross profit 78,000 73,000
Operating 32,000 30,000
expenses
Operating 46,000 43,000
income
Interest expense 2,000 3,000
Income before 44,000 40,000
taxes
Income taxes 11,000 10,000
Net income $33,000 $30,000

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Q2. Harpreet Gill is concerned about his companys financial performance


and financial position. He has obtained the financial statements of his

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largest competitor, Hossain Inc. and notes that the company is over ten
times larger than his, so it is making the numbers difficult to compare. [25
Marks]

Below is condensed financial information from Hossain Inc. and Gill Inc.:

Hossain Inc. and Gill Inc.


Income Statements
For the years ended August 31, 2017
Hossain Gill
Sales $5,600,00 $450,000
0
Cost of goods sold 2,300,000 160,000
Gross profit 3,300,000 290,000
Operating expenses 2,200,000 125,000
Operating income 1,100,000 165,000
Interest expense 60,000 5,000
Income before taxes 1,040,000 160,000
Income taxes 300,000 48,000
Net income $740,000 $112,000

Hossain Inc. and Gill Inc.


Balance Sheets
As at August 31, 2017
Hossain Gill
Current assets $1,450,00 $85,000
0
Long-term assets 3,000,000 250,000
Total assets $4,450,00 $335,000
0

Current liabilities $500,000 $68,000


Long-term liabilities 1,500,000 120,000
Total liabilities 2,000,000 188,000
Shareholders equity 2,450,000 147,000
Total liabilities and $4,450,00 $335,000
shareholders equity 0

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Required:

a.) Prepare a vertical analysis for the companies calculating the relative
percentages of each item in the financial statements. (Round your
answers to the nearest tenth of a percent, ie 0.13578 13.6%)
b.) Comment on the common-sized income statements of the
companies (prepared in part a.).
c.)Comment on the common-sized balance sheets of the companies
(prepared in part a.).

Solution:

Hossain Hossain V.A. * Gill Gill V.A.


Sales $5,600,000 $450,000
Cost of goods sold 2,300,000 160,000
Gross profit 3,300,000 290,000
Operating expenses 2,200,000 125,000
Operating income 1,100,000 165,000
Interest expense 60,000 5,000
Income before taxes 1,040,000 160,000
Income taxes 300,000 48,000
Net income $740,000 $112,000

Hossain Hossain V.A. * Gill Gill V.A.


Current assets $1,450,000 $85,000
Long-term assets 3,000,000 250,000
Total assets 4$,450,000 $335,000

Current liabilities $500,000 $68,000


Long-term liabilities 1,500,000 120,000
Total liabilities 2,000,000 188,000
Shareholders equity 2,450,000 147,000
Total liabilities & SE $4,450,000 $335,000

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