Wk7. Home Value sales

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Colorado State University, Global Campus *

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5440

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Business

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Feb 20, 2024

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xlsx

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Uploaded by MagistrateWren2087

Case 12.1 Home Value Stores Required Comparative Financial Statements: Home Value Stores (in thousands) 2021 2020 Sales $26,360,000 $23,800,000 Merchandise Costs 20,680,000 17,900,000 General and administrative Costs 3,220,000 3,600,000 Rent 235,000 220,000 Depreciation and ammortization 211,000 200,500 Interest Expense 110,000 90,000 Total 24,456,000 22,010,500 Earnings before taxes 1,904,000 1,789,500 Taxes 380,800 357,900 Net earnings $1,523,200 $1,431,600 Assets Cash and temporary Investments $90,000 $60,000 Receivables 358,000 202,000 Inventories 1,944,000 1,405,000 Home Value Stores operates 264 membership warehouse stores in the United States, Europe, a of household and grocery products. In the past year, sales increased by approximately 10.8 per opened only two stores in 2020 and 2021 and closed one of its stores due to poor performance. of Home Value and serve on the company's compensation committee. At a recent lunch meeting, they discussed the company's performance. (See the table on the nex were pleased with the increase in profit and decided to recommend a contract extension and a s anticipated, however, that the third member of the compensation committee, Tanya Barrett, wo is a poor measure of future firm performance. In her opinion, the company should be focused on what it is doing today to create future value company showed quarterly profit increases, its stock price remained flat. a. To prepare for an upcoming board meeting, Tanya has asked you to evaluate financial perfor of investment and the cost of capital. Specifically, she would like you to calculate the level of p given the investment in the company. Assume that the cost of capital is 15 percent. Is it clear th b. In fiscal 2022, the CEO of Home Value Stores retired. His successor is concerned that wareh to the company's strategy and how they can affect future firm value. In his opinion, while mont exclusively on how their actions affect these numbers. Suggest a performance measurement tec

Prepaid and other current assets 193,000 118,000 Total Current assets 2,585,000 1,785,000 Land 260,000 140,000 Building and equipment (net) 640,000 450,000 900,000 590,000 Total Assets $3,485,000 $2,375,000 Liabilities and Stockholder's Equity Account Payable $540,000 $500,000 Current portion of long-term debt 91,000 80,000 Accrued Income taxes 98,000 89,000 Total current liabilities 729,000 669,000 Long-term debt 810,000 600,000 Total Liabilities 1,539,000 1,269,000 Shareholder equity Common Stock 775,000 674,000 Retained Earnings 1,171,000 432,000 Total Stockholder Equity 1,946,000 1,106,000 Total Liabitities and Stockholder Equity $3,485,000 $2,375,000

and Asia. The company offers low prices on a limited selection rcent and net earnings increased by 6.4 percent. The company . Jack Davidson and Michael Prine are on the board of directors xt page for a balance sheet and an income statement.) Both substantial six-figure bonus for the company's CEO. They ould object to the bonus. Tanya believes that accounting profit e for shareholders. She has also pointed out that, although the rmance for 2020 and 2021, taking into account both the level profit (loss) that was earned in excess of the amount required hat the company has had superior financial performance? house managers do not understand how their actions are linked thly earnings are important, managers are focused almost chnique that can be used to address the new CEO's concerns.

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Solution to Part A NOPAT Calculation 2021 2020 Net Income $1,523,200 $1,431,600 Add: Interest Expense 110,000 90,000 Less: Interest Tax Shield 22,000 18,000 NOPAT $1,611,200 $1,503,600 Investment Calculation 2021 2020 Total Investments $3,485,000 $2,375,000 Less: Non-interest bearing liabilities Account Payable 540,000 500,000 Accrued Income Taxes 98,000 89,000 Investment $2,847,000 $1,786,000 Required NOPAT 2021 2020 Investment $2,847,000 $1,786,000 Cost of Capital 15% 15% Required NOPAT $427,050 $267,900 EVA 2021 2020 NOPAT $1,611,200 $1,503,600 Less: Required NOPAT $427,050 $267,900 EVA $1,184,150 $1,235,700 Solution to Part B The above calculation indicates a decline in NOPAT despite an increase in profit. It means the bonus to shareholders in 2021. The EVA is positive but still below the 2020 figure, reflecting a operating profit is below the required level, given the investment in the company. Another reas increase in inventory and the substantial increase in building and equipment. The company should follow the performance measurement approach, such as the balanced sco by the new CEO. The balanced scorecard will assist in evaluating a manager's performance in The balanced scorecard includes a set of four distinct perspectives (dimensions) to measure pe Financial Perspectives: It is critical for a business to have financial measures to assess its per the financial figures to evaluate the business performance. Hence, setting up matrices such as s the average time to check out, and more could assist Home Value in measuring the store's perf performance matrices regularly to determine deviation if it happens and correct it on time.

Customer Perspectives: Customer measures will support Home Value in examining its succe needs of customers. They could set measurement criteria such as customer satisfaction, produc customer feedback to assess their business performance in satisfying customers and meeting th Learning and Growth: The company should also set some learning and growth measures to e improving its ability to adapt to changes, innovate, and grow. They can introduce new product customer groups. Internal Process Perspective: The internal process perspective will support in examining the success. Assessment of internal processes will aid Home Value in improving business processe Human resource plays a crucial role in business success. Home value can set some performanc performance, increase employee satisfaction, and reduce employee turnover.

Input Data Tax Rate 20% Cost of Capiatl 15% e company did not warrant a substantial a decline in shareholder value. The net son for a lower EVA in 2021 was the orecard, to address the concerns expressed adding more value to shareholder wealth. erformance. rformance. Creditors and investors look at sales per customer, sales per square foot, formance. The company can assess these

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ess in meeting the requirements and the ct returns, customer complaints, and heir needs. evaluate its business performance in ts, enter new markets, or target new internal business activities critical to es. Eventually, business performance. ce measures to assess employee

Wk7. Home Value sales

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