Accounting analysis which involves calculation and equation formula. Analysis after calculation is part of the report and this is at master level but no accounting jargon is needed, just make it simple and straightforward. Referencing is needed if necessary in Harvard referencing method.
Comparative financial statement data of Banfield DVDs, Inc., follow:
BANFIELD DVDs, INC.
Comparative Income Statement
Years Ended December 31, 2008 and 2007
Net Sales 667,000 599,000
Cost of goods sold 378,000 283,000
Gross profit 289,000 316,000
Operating expenses 129,000 147,000
Income from operations 160,000 169,000
Interest expense 37,000 51,000
Income before income tax 123,000 118,000
Income tax expense 34,000 53,000
Net income 89,000 65,000
BANFIELD DVDs INC.
Comparative Balance Sheet
December 31, 2008 and 2007
2008 2007 2006*
Cash 37,000 40,000
Current receivables, net 208,000 151,000 138,000
Inventories 298,000 286,000 184,000
Prepaid expenses 5,000 20,000
Total current assets 548,000 497,000
Property, plant, and equipment, net 287,000 276,000
Total assets 835,000 773,000 707,000
Total current liabilities 286,000 267,000
Long-term liabilities 245,000 235,000
Total liabilities 531,000 502,000
Preferred stock, 4% 50,000 50,000
Common stockholders' equity, no par 308,000 221,000 198,000
Total liabilities & stockholders' equity 889,000 773,000
* Selected 2006 amounts
1. Market price of Banfield's common stock: &92.80 at December 31, 2008, and
$67.50 at December 31, 2007.
2. Common shares outstanding: 15,000 during 2008 and 14,000 during 2007.
3. All sales on credit.
1. Compute the following ratios for 2008 and 2007: (12 marks)
a. Current ratio
b. Times-interest-earned ratio
c. Inventory turnover
d. Return on common stockholders' equity
e. Earnings per share of common stock
f. Price/ earning ratio
2. Decide whether (a) Banfield's ability to pay its debts and to sell inventory
improved or deteriorated during 2008 and (b) the investment attractiveness of its
common stock appears to have increased or decreased. (9 marks)
3. Analysts look for red flags that may signal financial trouble. Identify six most
common red flags and evaluate whether any of these red flags apply to Banfield
DVD. (9 marks)
Contribution Margin Income Statement
For the Month of February 2008
Sales revenue 90,000
Costs of goods sold 32,000
Marketing costs 10,000
General & administrative cost 3,000 45,000
Contribution margin 45,000
Marketing cost 16,500
General & administrative cost 3,500 20,000
Operating income 25,000
Cosmo Coffee sells three small coffees for every large coffee. A small coffee sells for $2, with a variable cost of $1. A large coffee sells for $4, with a variable cost of $2.
1. Determine Cosmo Coffee's monthly breakeven point in the numbers of small
coffees and large coffees. Prove your answer by preparing a summary contribution
margin income statement at the breakeven level of sales. Show only two categories
of costs: variable and fixed. (8 marks)
2. Compute Cosmo Coffee's margin of safety in dollars for February 2008. (2 marks)
3. If Cosmo Coffee can increase monthly sales volume by 10% what will operating
income be? (The sales mix remains unchanged.) (5 marks)
The Coca-Cola Company hardly needs an introduction. A line taken from the cover of a recent annual report says it all; if you measured time in servings of Coca-Cola, "a billion servings of Coca-Cola's ago was yesterday morning." On average, every U.S. citizen drinks 363 8-ounce servings of Coca-Cola products each year. Coca-cola's primary line of business is the making and selling of syrup to bottlers. These bottlers then sell the finished bottles and cans of Coca-Cola to the consumer.
In the annual report of Coca-cola, the following information was provided.
THE COCA-COLA COMPANY
Our gross margin declined to 61 percent this year from 62 percent in the prior year, primarily due to costs for materials such as sweeteners and packaging.
The increases (in selling expenses) in the last two years were primarily due to higher marketing expenditures in support of our Company's volume growth.
We measure our sales volume in two ways: (1) gallon shipments of concentrates and syrups and (2) unit cases of finished product (bottles and cans of Coke sold by bottlers).
a) Are sweeteners and packaging a variable cost of a fixed cost? What is the impact
on the contribution margin of an increase in the per unit cost of sweeteners or
packaging? What are the implications for profitability? (5 marks)
b) In your opinion, are marketing expenditures a fixed cost, variable cost, or mixed
cost to The Coca-Cola Company? Give justification for your answer. (5 marks)
c) Which of the two measures cited for measuring volume represents the activity
index as you learned in this topic? Why might Coca-Cola use two different
measures? (5 marks)
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