CorpA Balance Sheets
Corporation A
Comparative Balance Sheets
As of December 31
Assets: 20X3 20X2 20X1
Cash $ 210,000 $ 780,000 $ 1,530,000
Accounts Receivable 315,000 265,000 240,000
Inventory 436,000 405,000 330,000
Prepaid Insurance 15,000 18,000 21,000
Total Current Assets $ 976,000 $ 1,468,000 $ 2,121,000
Land 1,650,000 1,630,000 1,400,000
Buildings 2,300,000 1,760,000 1,400,000
Less: Accumulated Depreciation (560,000) (490,000) (440,000)
Net Buildings 1,740,000 1,270,000 960,000
Total Long-Term Assets 3,390,000 2,900,000 2,360,000
Total Assets 4,366,000 4,368,000 4,481,000
Liabilities & Stockholder’s Equity
Accounts Payable 215,000 134,000 185,000
Salaries and Wages Payable 63,000 49,000 40,000
Dividends Payable 69,702 36,818 0
Notes Payable—Line of Credit 356,000 205,000 98,000
Total Current Liabilities 703,702 424,818 323,000
Notes Payable—Long-Term 1,393,722 949,811 1,017,219
Bonds Payable 1,000,000 1,000,000 1,000,000
Less: Discount on Bonds Payable (41,583) (48,317) (54,603)
Net Bonds Payable 958,417 951,683 945,397
Total Long-term Liabilities 2,352,139 1,901,494 1,962,617
Total Liabilities 3,055,841 2,326,312 2,285,617
Contributed Capital 1,500,000 1,500,000 1,500,000
Retained Earnings 1,449,159 1,080,688 730,383
Treasury Stock (1,639,000) (539,000) (35,000)
Total Stockholders’ Equity (SE) 1,310,159 2,041,688 2,195,383
Total Liabilities & Stockholdler’s Equity $4,366,000 $4,368,000 $4,481,000
CorpA Income Statements
Corporation A
Comparative Income Statements
For the 12 Months Ended December 31
20X3 20X2 20X1
Sales Revenue $4,010,000 $3,400,000 $2,300,000
Cost of Goods Sold Expense (2,520,000) (1,910,000) (940,000)
Salaries and Wages Expense (660,000) (840,000) (750,000)
Depreciation Expense-Building (115,000) (88,000) (70,000)
Insurance Expense (117,000) (102,000) (95,000)
Total Expenses (3,412,000) (2,940,000) (1,855,000)
Operating Income 598,000 460,000 445,000
Interest Expense—Notes (76,911) (69,591) (54,749)
Interest Expense—Bonds (66,734) (66,286) (65,868)
Gain (Loss) Sale of Buildings (2,000) 45,000 (51,000)
Gain (Loss) Sale of Land (3,000) 43,000 7,000
Total Other (148,645) (47,877) (164,617)
Net Income $449,355 $412,123 $280,383
Earnings per share $6.71 $4.74 $2.83
CorpA Statement of Cash Flows
Corporation A
Comparative Statements of Cash Flow
For the 12 Months Ended December 31
For the 12 Months Ended December 31 20X3 20X2
Cash received from customers $ 3,938,484 $ 3,335,116
Cash paid to suppliers -2,470,000 -2,022,000
Cash paid for salaries and wages -646,000 -831,000
Cash paid for insurance -114,000 -99,000
Cash paid for income taxes -145,556 -129,709
Cash paid for interest—Bonds -60,000 -60,000
Cash paid for interest—Notes Payable -52,740 -66,946
Net Cash from Operating Activities $ 450,188 $ 126,461
Investment in Land -300,000 -1,420,000
Investment in Building -930,000 -640,000
Sale of Building 343,000 287,000
Sale of Land 277,000 1,233,000
Net Cash from Investing Activities $ (610,000) $ (540,000)
Proceeds (Payment) Notes Payable -32,188 128,539
(Purchase) Sale Treasury Stock -330,000 -440,000
Dividends Paid -48,000 -25,000
Cash from Financing Activities $ (410,188) $ (336,461)
Net Change in Cash -570,000 -750,000
Beginning Cash 780,000 1,530,000
Ending Cash $ 210,000 $ 780,000
CorpA Firm & Industry Ratios
Corporation A
Firm and Industry Financial Ratios
20X3 20X2 20X3/20X2 Industry
Return on Equity 0.27 0.19 0.14
Dividend Payout 0.18 0.15 0.10
Return on Assets 0.10 0.09 0.10
Return on Sales 0.11 0.12 0.11
Asset Turnover 0.92 0.77 1.02 `
Current Ratio 1.39 3.46 2.35
Quick Ratio 0.75 2.46 1.75
Debt/Assets 0.70 0.53 0.35
Accounts Receivable Days 26.40 27.11 19.50
Inventory Days 60.91 70.23 41.50
Accounts Payable Days 25.59 31.73 28.40
Summary: Cash Conversion Days 61.71 65.61 32.60
CorpA Other Information
Corporation A
Common Stock: The firm has 400,000 shares authorized and 100,000 shares issued at year-end 20X1, 20X2, and 20X3.
Treasury Stock: The firm purchased 1,000 shares of treasury stock at year-end 20X1, 12,000 at year-end 20X2, and 20,000 at year-end 20X3.
Market Valuation: The market price of the stock was $31 at year-end 2006, $35 at year-end 20X1, $42 at year-end 20X2, and $55 at year-end 20X3. o
For valuation purposes, industry experts use the dividend valuation model to value the common equity interest of industry firms. Potential investors’ required rate of return for this firm is 14%; growth rate is 13% for 20X4 and 20X5, and then declines to 12% for all later years.
Market Returns: The stock returns for the market as a whole were as follows: 15.7% in 20X1, 8.2% in 20X2, and 12.1% in 20X3.
CorpB Balance Sheets
Corporation B
Comparative Balance Sheets
As of December 31,
20X3 20X2 20X1
Cash 210,000 780,000 1,530,000
Accounts Receivable 410,000 360,000 300,000
Less: Allowance for Doubtful Accounts (4,100) (14,616) (1,500)
Net Accounts Receivable 405,900 345,384 298,500
Inventory 436,000 405,000 330,000
Prepaid Insurance 15,000 18,000 21,000
Total Current Assets 1,066,900 1,548,384 2,179,500
Land 1,650,000 1,630,000 1,400,000
Buildings 2,300,000 1,760,000 1,400,000
Less: Accumulated Depreciation (560,000) (490,000) (440,000)
Net Buildings 1,740,000 1,270,000 960,000
Total Long-Term Assets 3,390,000 2,900,000 2,360,000
Total Assets 4,456,900 4,448,384 4,539,500
Accounts Payable 215,000 134,000 185,000
Salaries and Wages Payable 63,000 49,000 40,000
Dividends Payable 93,216 44,178 0
Notes Payable—Line of Credit 356,000 205,000 98,000
Total Current Liabilities 727,216 432,178 323,000
Notes Payable—Long Term 778,032 961,219 939,680
Bonds Payable 1,000,000 1,000,000 1,000,000
Add: Premium on Bonds Payable 89,826 105,753 121,062
Net Bonds Payable 1,089,826 1,105,753 1,121,062
Total LT Liabilities 1,867,857 2,066,973 2,060,743
Total Liabilities 2,595,073 2,499,151 2,383,743
Contributed Capital 1,500,000 1,500,000 1,500,000
Retained Earnings 1,167,827 925,233 691,757
Treasury Stock (806,000) (476,000) (36,000)
Total Stockholders’ Equity (SE) 1,861,827 1,949,233 2,155,757
Total Liabilities and SE 4,456,900 4,448,384 4,539,500
CorpB Income Statements
Corporation B
Comparative Income Statements
For the 12 Months Ended December 31
20X3 20X2 20X1
Sales Revenue 4,010,000 3,400,000 2,300,000
Cost of Goods Sold Expense (2,520,000) (1,810,000) (940,000)
Salaries and Wages Expense (660,000) (840,000) (750,000)
Depreciation Expense—Building (115,000) (88,000) (70,000)
Bad Debt Expense (11,000) (18,000) (8,000)
Insurance Expense (117,000) (102,000) (95,000)
Total Expenses (3,423,000) (2,858,000) (1,863,000)
Operating Income 587,000 542,000 437,000
Interest Expense—Notes (52,740) (66,946) (51,647)
Interest Expense—Bonds (44,072) (44,691) (45,285)
Loss from Inventory Write-Off 0 (86,000) 0
Gain (Loss) Sale of Buildings (2,000) 45,000 (1,700)
Gain (Loss) Sale of Land (3,000) 43,000 7,000
Total Other (101,812) (109,637) (91,633)
Net Income Before Taxes 485,188 432,363 345,367
Income Tax Expense (30 percent rate) 145,556 129,709 103,610
Net Income 339,631 302,654 241,757
Earnings per share 4.04 3.40 2.44
CorpB Statement of Cash Flows
Corporation B
Comparative Statements of Cash Flow
For the 12 Months Ended December 31
20X3 20X2
Cash received from customers 3,938,484 3,335,116
Cash paid to suppliers (2,470,000) (2,022,000)
Cash paid for salaries and wages (646,000) (831,000)
Cash paid for insurance (114,000) (99,000)
Cash paid for income taxes (145,556) (129,709)
Cash paid for interest—Bonds (60,000) (60,000)
Cash paid for interest—Notes Payable (52,740) (66,946)
Net Cash from Operating Activities 450,188 126,461
Investment in Land (300,000) (1,420,000)
Investment in Building (930,000) (640,000)
Sale of Building 343,000 287,000
Sale of Land 277,000 1,233,000
Net Cash from Investing Activities (610,000) (540,000)
Proceeds (Payment) Notes Payable (32,188) 128,539
(Purchase) Sale Treasury Stock (330,000) (440,000)
Dividends Paid (48,000) (25,000)
Cash from Financing Activities (410,188) (336,461)
Net Change in Cash (570,000) (750,000)
Beginning Cash 780,000 1,530,000
Ending Cash 210,000 780,000
CorpB Firm & Industry Ratios
Benson, Cundiff, & Gilbert
Interview Ratios
Firm and Industry Financial Ratios
20X3 / 20X2
20X3 20X2 Industry
Return on Equity 0.25 0.21 0.19
Dividend Payout 0.2 0.16 0.1
Return on Assets 0.11 0.1 0.1
Return on Sales 0.12 0.13 0.11
Asset Turnover 0.9 0.76 1.02
Current Ratio 1.47 3.58 2.35
Quick Ratio 0.85 2.64 1.75
Debt/Assets 0.58 0.56 0.35
Accounts Receivable Days 35.04 35.43 35.68
Inventory Days 60.91 74.11 41.5
Accounts Payable Days 25.59 33.55 28.4
Summary: Cash Conversion Days 70.36 75.98 48.78
CorpB Projected Balance Sheet
Corporation B
Projected Comparative Balance Sheets
As of December 31
20X3 20X4 20X5 20X6 20X7
Cash $ – 0 $ – 0 $ – 0 $ – 0 $ – 0
Accounts Receivable 0 40,000 60,000 70,000 0
Inventory 200,000 230,000 250,000 260,000 0
Current Assets 200,000 270,000 310,000 330,000 0
Equipment 400,000 400,000 400,000 400,000 400,000
Less: Accumulated Depr. 0 -132,000 -312,000 -372,000 -400,000
Net Equipment 400,000 268,000 88,000 28,000 0
Other 0 0 0 0 0
Total Long-Term Assets 400,000 268,000 88,000 28,000 0
Total Assets $ 600,000 $ 538,000 $ 398,000 $ 358,000 $ – 0
Accounts Payable 140,000 161,000 175,000 182,000 0
Total Liabilities 140,000 161,000 175,000 182,000 0
Equity 460,000 377,000 223,000 176,000 0
Total Liabilities & Equity $ 600,000 $ 538,000 $ 398,000 $ 358,000 $ – 0
CorpBProjected Income Statement
Corporation B
Projected Comparative Income Statements
For the Years Ending December 31
20X4 20X5 20X6 20X7
Sales Revenue $ 440,000 $ 510,000 $ 560,000 $ 630,000
Cost of Goods Sold 140,000 160,000 210,000 250,000
Salaries Expense 60,000 75,000 90,000 120,000
Depreciation Expense 132,000 180,000 60,000 28,000
Other Expense 10,000 10,000 10,000 10,000
Total Operating Expenses 342,000 425,000 370,000 408,000
Gain (Loss) Sale Asset 0 0 0 40,000
Net Income Before Taxes 98,000 85,000 190,000 262,000
Income Tax Expense 29,400 25,500 57,000 78,600
Net Income $ 68,600 $ 59,500 $ 133,000 $ 183,400

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