Part 1: Step 1: Select a company from the Fortune 500 list below: http://fortune
ID: 2390821 • Letter: P
Question
Part 1:
Step 1: Select a company from the Fortune 500 list below: http://fortune.com/fortune500/
Step 2: The company you selected has to be approved by the Professor. Each student has to select a different company.
Step 3: From the Income Statement and Balance Sheets of the company you have selected, prepare the following:
A horizontal analysis of income statement and balance sheet using the oldest year as the base year.
Prepare a vertical analysis of the income statement and balance sheet for the latest year reported.
Calculate the following ratios for the latest year and indicate whether the ratio is a liquidity, solvency, pr profitability ratio.
Asset turnover ratio.
Receivables turnover ratio.
Average collection period.
Current ratio.
Debt to total asset ratio.
Earnings per share.
Profit margin rate.
Return on asset ratio.
Return on common stockholders’ equity ratio.
Comment on your findings based on the ratios and the information given in the annual report (800 words).
Part 2:
Question 1: What are the differences between absorption income and contribution margin income statements? How are these income statements used? (Limit: 800 words)
Question 2: What is break-even point? How do managers use margin of safety for decision-making? (Limit: 800 words).
Explanation / Answer
1.Ans
Traditional and contribution margin earnings statements provide a designated picture of a organization's budget for a given period of time. Whilst each serve the cause of displaying whether or not a manufacturer has a web profit or loss, they vary in the best way they arrive at that figure.
Ordinary earnings declaration
often referred to as a revenue and loss announcement, a common sales announcement suggests the extent to which a corporation is profitable or not in the course of a given accounting period. It supplies a abstract of how the enterprise generates revenues and incurs charges by means of both running and non-running movements.
Contribution margin revenue announcement
In a contribution margin revenue declaration, a company's variable costs are deducted from sales to reach at a contribution margin. A contribution margin is just about a manufacturer's revenues minus its variable expenses, and it indicates how a lot of a manufacturer's revenues are contributing to its constant costs and internet income. As soon as a contribution margin is determined, a manufacturer can subtract all applicable constant costs to reach at a web profit or loss for the accounting interval in question.
Differences
even as a average income announcement works with the aid of isolating product charges (those incurred in the procedure of manufacturing a product) from period bills (those incurred in the procedure of selling products, as opposed to making them), the contribution margin income statement separates variable charges from constant fees. In a contribution margin revenue declaration, variable promoting and administrative durations charges are grouped with variable product charges to reach at the contribution margin.
A traditional revenue statement makes use of absorption or full costing, the place both variable and constant manufacturing fees are included when calculating the price of goods offered. The contribution margin revenue assertion, in contrast, makes use of variable costing, because of this fixed manufacturing bills are assigned to overhead fees and for this reason no longer integrated in product fees.
Firms are traditionally required to gift natural revenue statements for external reporting functions. Contribution margin earnings statements, against this, are by and large presented to managers and stakeholders to analyze the performance of individual merchandise or product classes. Businesses can advantage from contribution margin sales statements on account that they are able to furnish more detail as to the fees and assets needed to provide a given product or unit of a product. Whilst each sales statements ultimately serve the motive of displaying whether a enterprise is profitable or no longer over a specified interval of time, the contribution margin sales statement can present extra perception as how you can that net profit or loss got here to be.
2.Ans
Smash-even evaluation is a trade software extensively used throughout all industries to assess business efficiency in terms of bills, on account that it is a supply-part analysis. Spoil-even evaluation is an most important side of a good marketing strategy, given that it helps the trade examine the rate buildings, and the number of units that need to be sold in order to quilt the price or make a revenue. Smash-even evaluation is commonly completed as a part of a business plan to look the how practical the industry concept is, and whether or not it's worth pursuing. Even after a trade has been set-up, break-even evaluation can be immensely worthy in the pricing and promotion system, together with rate manipulate.
Comfortably put, ruin-even factor can also be determined by means of calculating the point at which revenue acquired equals the complete costs associated with the production of the items or services.
Wreck-even factor = constant expenses/ (Unit promoting rate â Variable fees)
The notion behind the evaluation
utilising the above formula, the industry can determine what number of items it desires to produce with the intention to ruin-even. Once the business has reached this point, in income or units bought, all fees (fixed and Variable) have been recovered. Past this factor, every further unit offered will result in increasing revenue for the industry. The expand in revenue can be with the aid of the amount of unit contribution margin, which is the quantity of further revenues that goes toward protecting the fixed fees and revenue. It can be calculated as follow:
Unit Contribution Margin = income cost â Variable charges
costs
There are two designated nature of charges that a trade has to incur in its natural operational activities:
constant costs
These costs stay the equal in spite of what number of units the company is producing. These incorporate -up fees, and different capital expenditures which do not have got to be paid periodically. Rent, coverage, utility expenditures and repairs are additionally viewed fixed fees, on the grounds that variants are minute and the amount does now not straight depend on the quantity of items produced. For example, if a tire manufacturer rents a constructing at $2000 per thirty days, and decides to produce a hundred tires, the fixed cost will likely be $2000. The amount will stay the equal if even there is not any undertaking and 0 tires are produced.
Variable bills
These costs are straight associated with the number of items produced, and these are habitual in nature, considering that they ought to be paid periodically. Because the business produces increasingly goods and offerings, these charges broaden proportional. For illustration, the rate of rubber required to manufacture a tire is $10. If company produces zero tires, the total variable expenses comes right down to $0 (10*0). Alternatively, if the enterprise produces 500 tires, the total variable bills comes right down to $5000 (500*10). These charges quite often include material, labor, direct sales and advertising, storage and so on.
Sales
revenue is the money that a industry absolutely receives from its consumers for the provisions of items and services in the course of a certain interval. Discounts and deductions have already been adjusted, which means it is the gross sales from which various expenditures are later deducted in order to calculate revenue or loss. Complete sales can be calculated by using multiplying the cost at which goods or services are bought by means of quantity items offered.
Contribution Margin
Contribution margin can be calculated by using subtracting variable charges from the revenues. The contribution margin suggests how much of the enterpriseâs revenues might be contributing toward overlaying the constant expenditures. It may be expressed on per unit groundwork or for the whole amount. It may also be expressed as a percent of net revenue.
Two forms of ruin-Even Calculations items and revenue