For the following Financial statements, assume that COGS is always 70% of Sales,
ID: 2652882 • Letter: F
Question
For the following Financial statements, assume that COGS is always 70% of Sales, Interest Expense is always 10% of the previous years long term debt, Depreciation is always 20% of the previous years Net Fixed Assets, and taxes are always 40% of EBT.
2010 2011 2012 2013
Net Working Capital 1000 1000 1200 1300
Net Fixed Assets 1500 1600
Long Term Debt 2000 2040 2644
Total Equity 500 460 440 436
2010 2011 2012 2013
Sales 2000 XXXX 3500
COGS 1400
Depreciation 300 300 320
EBIT 300 730
Interest 204 236
EBT 494
Taxes 120 198
NI 296
Capital Expenditures 400 500
Dividends 100 200 300
You do not have to answer each question in order. Fill out the chart above first and then answer the questions. You do NOT need to try to figure out the 2010 Income Statement. There may be more than one way to find the answers
Choose the answer that is CLOSEST to the correct answer.
1. What is 2012 Sales?
a.1820 b. 2112 c. 2360 d. 2680
2. What is Return on Equity in 2011?
a. 6% b. 9% c. 13% d. 17%
3. What is Additional Financing Needed in 2013? (Change in LTD from 2012 to 2013)
a.192 b. 236 c. 284 d.380
4. What is Capital Expenditures in 2011?
a. 100 b. 200 c.300 d.400
5. What is the Fixed Asset Turnover in 2013?
1.5 b. 2 c. 2.5 d. 3
Explanation / Answer
Particular
2010
2011
2012
2013
Part 1
Net WC
1000
1000
1200
1300
Net Fixed Asset
1500
1500
1600
1780
Long Term Debt
2000
2040
2360
2644
Total Equity
500
460
440
436
Part 2
Sales
2000
3500
COGS
1400
2450
Depreciation
300
300
320
EBIT
300
504
730
Interest
200
204
236
EBT
100
300
494
Tax
40
120
198
NI
60
180
296
Part 3
Capital Expenditure
400
500
Dividend
100
200
300
Note – Blank cells of first part filled as per following formula
Net Working Capital + Net Fixed Asset = Long Term Debt + Total Equity
(‘2) Return on Equity in 2011
Return on Equity= Net Income for Shareholders/ Total Equity
Return on Equity= (60/460 ) x100
Return on Equity = 13 % ( Option –c)
(‘3) Additional Finance needed in 2013
Long Term Debt (2013)
2644
Less: Long term debt in 2012
2360
Additional Finance needed in 2013
284
Option C
(‘5) Fixed Asset Turnover ratio in 2013
Fixed Asset Turnover ratio= Revenue / Net Fixed Assets
Fixed Asset Turnover ratio= 3500/1780
Fixed Asset turn over ratio= 1.96 say 2
Option B ( i.e 2 most closest )
(‘4) Capital Expenditure in 2011
Capital Expenditure in Fixed Assets means Increase in Fixed Assets.
We Know That
Net Fixed asset at the end of year=
Beginning Fixed Assets + Net Addition during the year – Depreciation for the year
Net Addition = Net Fixed Asset at year end + Depreciation for year – Beginning Fixed Asset
Net Addition= 1500 +300-1500
Net Addition ( i.e Capital Expenditure)= 300 ( Option C )
(‘1) Sales for the year 2012
We now that
EBIT + Depreciation= Earnings Before Depreciation Interest and Tax (EBDIT)
504 + 300 = EBDIT
EBDIT= 804
Sales – COGS= EBDIT
Sales = COGS + EBDIT
If COGS is the 70 % of sales then EBDIT will be 30 % of sales.
Hence Sales = EBDIT/ 30 %
Sales= 804/0.3
Sales= 2680 ( Option D)
Particular
2010
2011
2012
2013
Part 1
Net WC
1000
1000
1200
1300
Net Fixed Asset
1500
1500
1600
1780
Long Term Debt
2000
2040
2360
2644
Total Equity
500
460
440
436
Part 2
Sales
2000
3500
COGS
1400
2450
Depreciation
300
300
320
EBIT
300
504
730
Interest
200
204
236
EBT
100
300
494
Tax
40
120
198
NI
60
180
296
Part 3
Capital Expenditure
400
500
Dividend
100
200
300