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Chapter 13 Financial Statement Project
40 Points Maximum Credit
Company name: J.M. Smucker Company
INSTRUCTIONS:
In order to answer the questions below, you will need to locate Smucker’s Income Statement, Balance Sheet and Statement of Cash Flows in the annual report. Since Smucker’s owns many
subsidiaries, these reports will have the term “Consolidated” in the title to signify that the operations of the subsidiaries have been added into the statements. Round answers (both numbers and percents) to 1 decimal place. (Example: 5.9 or 12.3%)
1. What are the dates of Smucker’s fiscal year? (Hint: you can determine this by looking at the financial statements.)
Smucker’s fiscal year begins on May 1st and ends April 30th every year. The current fiscal year is from May 1st, 2018 to April 30th, 2019.
2. Using horizontal analysis, compute Smucker’s percentage change in net sales from 2018 to 2019. Was this a positive or negative trend compared to the prior year’s percentage change in net sales? (Hint: you will also need to compute the percentage change in net sales from 2017 to 2018 to determine if the trend is positive or negative.)
Net Sales Given 2017
2018
2019
7392.30
7357.10
7838.00
Increase/ decrease
in net sales -35.20
[7357.10-7392.30]
480.90
[7838-7357.10]
% Change in Net
Sales -.48%
[(-35.50/7392.30)*100]
6.54%
[(480.90/7357.10)*100]
Decrease in net sales and increase in net sales Trend 48%
6.54%
Downward trend Upward trend 3. What was Smucker’s 2019 profit margin? Was this an improvement over the company’s 2018 profit margin?
Particulars 2018
2019
Profits (a)
1338.60
514.40
Net Sales (b)
7357.10
7838.00
Profit Margin [(a)/(b)*100]
18.20%
6.56%
●
Profit margin for 2019 was 6.56%
●
This profit margin was not an improvement over 2018 because it was less than 18.20%
4. What was Smucker’s times-interest-earned ratio for 2019? Did the company improve its ability to pay interest on its long term debt in 2019 when compared to 2018? (Hint: it’s OK to use net interest expense in your computation.)
Particulars 2018
2019
EBIT (Given)
861.00
701.60
(+) Interest Expenses 174.10
207.30
(+) Depreciation & Amortisation 206.80
240.30
EBITDA (a)
1241.90
1149.80
Interest Expense (b)
174.10
207.90
Times Interest Earned Ratio (a)/(b)
7.13 times 5.53 times Conclusion: TIE ratio of 2019 is less than TIE ratio of 2018. Hence the TIE ratio did not improve in 2019.
5. What was Smucker’s return on total assets for 2019?
Particulars 2018
2019
Net income (given) [a]
1338.60
514.40
Total assets (given) [b]
15301.20
16711.30
Return on total assets [a/b]
8.75%
3.10%
6. What was Smucker’s debt ratio for 2019?
Debt ratio = 8740.80
16711.30 = 0.523 or 52.30%
7. What was Smucker’s current ratio for 2019? Did the company’s ability to pay its current liabilities improve in 2019 when compared to 2018?
Particulars 2018
2019
Current assets (a)
1555
1625.20
Current liabilities (b)
1033.80
2341.50
Current ratio [a/b]
1.50
.69
We can see that the company’s ability to pay its current liabilities did not improve in 2019
when compared to 2018.
8. Compute Smucker’s days sales in inventory for 2019. Based on this ratio, is the company improving on the management of its inventory from 2018 to 2019? (Note: total inventory is the sum of the Raw Materials and Finished Products inventories.)
Particulars 2018
2019
Total inventory (a)
854.4
910.3
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COGS (b)
4521 * 365
4922.3 * 365
Days sales in inventory 68.98
67.50
There was an improvement in management of its inventory in 2019 because it took less days to see its inventory in 2019.
9. Did day-to-day operations at Smucker’s result in a positive or a negative cash flow in 2019?
There was a positive operating cash flow in 2019 and it was $1,141.2 million 10. What was Smucker’s largest use of cash in 2019?
In 2019 the company’s largest use of cash was “business acquired”. This is shown in the
investing activities section of the cash flow statement and the company acquired another
business for $1,903 million. 11. Item 1 in the Annual Report is a description of Smucker’s business (page 2). In fiscal year 2019, Smucker’s bought another business (“Ainsworth”). How did Smucker’s get the money to purchase this business?
The company bought Ainsworth on the basis of debt. We can see that in 2019 it raised $1500 and this debt was raised to buy out Ainsworth. 12. Management’s Discussion and Analysis (MD&A) section of the annual report is found on pages 19-33. In this section, the management of Smucker’s provides their explanation of the company’s financial results. On page 21 under the section on Operating Income, management explains why Operating Income decreased in 2019 even though sales increased. According to management, what is the primary reason(s) for the decrease in Operating Income in 2019? 13. In 2019, Smucker’s Operating Income dropped 11%, but Net Income fell by almost 62%. The income statement shows that a drop in Net Income (which is an after-
tax amount) occurred because Smucker’s had a huge tax benefit in 2018 that did not happen in 2019. On pages 21 & 22 in the section on Income Taxes, what was the primary reason given for the tax benefit that boosted 2018 Net Income?
14. The footnotes to Smucker’s statements follow the consolidated statement of stockholder’s equity from pages 43 through 73. In footnote 1 (on pages 43-48), Smucker discloses the accounting policies used by the company. Which inventory method does Smucker’s use? (Hint: look for the section on Inventories.)
15. According to footnote 1, which method is used to depreciate Property, Plant & Equipment?
16. According to footnote 1, how much did Smucker’s spend on advertising in 2019?
17. Scroll though the footnotes looking at the major headings until you find information on Reportable Segments. Based on the data presented, what is Smucker’s most profitable business segment?
18. Page 73 shows data on quarterly dividends. If a shareholder owned one share of
Smucker’s stock for the entire 2019 fiscal year, what would be the total that shareholder would receive in dividend payments?
19. Page 37 presents the Independent Auditor’s report. The accounting firm of Ernst
and Young was the group of Certified Public Accountants (CPAs) that audited Smucker’s
financial statements. Which of the following statements best describes the opinion of the
CPAs regarding the financial statements? (1) Smucker’s financial statements are correct. (2) Smucker’s financial statements are free from both fraud and errors. (3) Smucker’s financial statements are correct for transactions based in US currency but cannot be audited for transactions based in foreign currencies. (4) Smucker’s financial statements fairly present the company’s financial position and results of operations, at least related to material transactions and events.
20. Page 38 presents the Report of Management on Responsibility for Financial Reporting. For stock markets to work efficiently, shareholders and other investors must be able to place their trust in the financial statements and other financial reporting of public companies. Who is ultimately responsible for the integrity and accuracy of financial reporting at Smucker’s?
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Total Assets
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Stockholders' equity-common 237,461
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Cost of goods sold 36,405
Gross margin $44,495
Operating expenses 25,209
Net income $19,286
Number of shares of common stock 6,546
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Selling and administrative expenses
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Interest expense
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Income tax expense
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Debt investments
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Income taxes payable
31,000
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Bonds payable
220,740
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Long-term liabilities 73,398
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Property, plant, and equipment 659,739
Prepaid expenses 1,697
Temporary investments 38,252
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