ended 2014 and 2013. For simplicity, use year-end balances in your ratio computations. (4 pts) 2014 2013 ROE .103x.96x2.44=24.1% .094x.93x2.28=19.9% Profit Margin 437.9/4243.2=10.3% 389/4123.4=9.4% Asset Turnover 4243.2/4414.3=9.6% 4123.4/4449.7=9.3% Financial Leverage 14.3% 11.2% *I had to redo the chart since it did not convert correctly when I opened google docs, was running out of time. (b) Has the Company’s ROE increased or decreased in 2014? Which component(s) of the ROE decomposition support or contribute to that directional change in the Company’s ROE? The company has increased in profit margin, asset turnover, and financial leverage. (c) Select ONE of the three components of the ROE decomposition and explain what most likely lead to the observed change in that component. (HINT: Explanations for two of the three components are more readily identifiable from the financial statements. You only need to identify ONE of those.) As we see Net Sales have increased, we can see how this affects profit margins increased. ACCT 607 Applied Case Assignment #3 (Chapters 5 and 13) - Continued
Part II: Press Release and 10-Q for 2015-Q2 2. Are the Company’s quarterly financial statements audited by independent CPAs? How do you know? I would say no. Al though they do it on the yearly as we saw in one of the previous case assignments, auditing quarterly would be difficult since it requires alot of time to review. 3. What periods are being reported on the Company’s interim income statements? Refer to specific months and years. The periods are May 31, 2015, May 31, 2014, and November 30, 2014. 4. (a) What level of growth does the Company expect for its Net Sales for the fiscal year 2015? (HINT: Refer to the details of press release, and think carefully about how the Company is describing its sales!) The company expects to see an adjusted earning increase of 3-5%. (b) Would the management guidance for fiscal year 2015’s net sales be likely interpreted by investors as an improvement or a deterioration in the Company’s performance, relative to 2014? Based on what the predicted earnings, I think they would interpret it as an improvement.