Group_B_Problem_Set_1

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Nov 24, 2024

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Running head: PROBLEM SET - 1 1 BA 620-71-H1 Problem Set – 1 Prepared by: Group B Varun Chillamcharla - 555563 Chaitanya Kurra - 552592 Rahupal Reddy Gaddam-559018 Nagarjuna Reddy Bhemanadham- 558066 Nikhil Akula – 554361 Saikiran karumuri - 562595

PROBLEM SET - 1 2 Part 1: Income Statement for the year ended on 31 December 2017 Amount in $ Particulars 2017 2016 Sales 5834400 3432000 Cost of goods Sold -4980000 -2864000 Depreciation -116960 -18900 Other Expenses -720000 -340000 Total Expenses -5816960 -3222900 Profit/Loss before tax 17440 209100 Less Interest Expense 176000 62500 Earnings before taxes -158560 146600 Current tax @40% -63424 58640 Net Income /Loss -95136 87960 Dividend 11000 22000 Balance Sheet as of 31 December 2017 Amount in $ Assets 2017 2016 Non-current assets Fixed Assets 1202950 491000 Accumulated depreciation -263160 -146200 939790 344800 Current Assets Cash 7282 9000 Accounts receivable 632160 351200 Inventory 1287360 715200 Short term Investments 20000 48600 1946802 1124000 Total Assets 2886592 1468800 Equity & Liabilities Equity share 460000 460000 Retained earnings 97632 203768

PROBLEM SET - 1 3 557632 663768 NON current liability Long term debt 1000000 323432 Current liability Accounts payable 324000 145600 Notes payable 720000 200000 Accrual’s 284960 136000 1328960 481600 Total Liabilities 2886592 1468800 Statement of retained Earnings 2017 Balance at the beginning of 2016 203768 Profit/loss for the year -95136 Dividend for the year -11000 Balance at the year end 97632 Statement and Cash Flow Amount in $ Particulars 2017 Operating Activities Net Income -95136 Non cash Adjustment Depreciation 116960 Changes in working capital Changes in AR -280960 changes in inventory -572160 Change in AP 178400 Change in Accounts 148960 Net Cash provided by operating activities -503936 Investing activities Cash used to buy assets -711950 Short term investment 28600 Net cash provided by investing activities - 683350

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PROBLEM SET - 1 4 Financial Activities Changes in notes payable 520000 Changes in long term debt 676568 Payment of cash dividend -11000 Net cash provided for financing activities 1185568 Net change in cash and cash equivalent -1718 Cash at beginning of the year 9000 Cash at the end of the year 7282 Part 2: A. Ratio Comments Current Ratio Formula: Current Assets/ current liabilities Current ratio used liquidity determine towards asset and demonstrated ratio consider for 1 year. This consists of current rends determine number of stress manage increase of assets over liabilities. Current ratio > 1 in the year 2016 Quick ratio Formula:(Current asset- Inventory)/Current liabilities Quick ratio describe cash sale that result available hand by Adam enhance quick ratio proportion that is 0.85 and process cash. Quick ratio defines decreasing every year whereas it indicates overall sales of the inventory. Inventory turnover Inventory turnover describes Inventory turnover describe

PROBLEM SET - 1 5 Formula: cost of goods sold/average inventory value that is 91.25/ year. This explains inventory cost will process refresh in 91 days and consider selling items would process within 90days. essential values that results approximately determine 94 per every year. This process defines inventory stocks of the company. Average collection period Formula: accounts receivable/ (net Sales/365) Collection period describe essential values whereas it consists of competitors ensure great indicators that processes indication values long period. Average collection considers the period 2017 by Adam. This explain essential values are processed by company would determine essential systems manage profit. Total asset turnover Formula: Net Sales/Avg total sales Asset turnover processes sales/average asset. This explain turnover of assets decline stage at 2.34x in2016. In 2017 asset turnover is decreased of 0.30% decline. Debt ratio Formula: Total liabilities/total assets Debit ratio of Adam manages to 1 and considers total assets that define liabilities and clear debts. Debt ratio describes the 1% ratio in year 2017 this is a positive sign for the company. Time Interest earned Formula: (operating income- depreciation)/interest Higher interest rates define ration that is favorable and company manage debt repayments that consider financial leverage in efficient ways. This probably In 2017 this explain interest rates fell down nearly 10% this consists of bad sign to the organization that ensure debt payments are not correct.

PROBLEM SET - 1 6 considers time interest show appropriate value process average points describe by the industry. Gross Profit Margin Formula: (net sales- COGS)/net sales Gross profit margin describe essential values that manage historical trends are processed over margins. This consists of price increase could control the competitors sales price Adam consider gross margin that lower values 0.2% results in last year. Net profit margin Formula: (Net Income/net sales)*100 Net margin describes company values enhance same industry and process product as well as cost structure. This consists of recurring items define non- operating. Net margin show result that is decreased to -1.63 that compare over industry standards and manage total profits of industry towards competitors. Return on total Assets Formula: EBIT/Avg total assets An asset returns describe high demand and consider the type of the industry and manage intensive sector operates lower values whereas company ensure higher returns on assets. Return assets describe decrease values shown towards Adams that is 0.3 consists of sales process decrease in last year 2016.

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PROBLEM SET - 1 7 Return on Equity Formula: Net income/shareholders’ Equity This explains Net income would prefer the essential dividends manage interests that are paid. Also results high returns this consists of stakeholder. Return on equity describe negative impact could probably manage shareholders’ investment process by company define decreased return. P/E Ratio Formula: Share price/earnings per share P/E ratio describes speculators could estimate stock that contrasted profit. P/E demonstrates essential values whereas it consists of stock values determine future income enhance high ratio. Compared to 2016 the result of P/E show the ratio that is 8.0 this means under the stock price of the Adam. Overall value of stock consists of market value. Return on Equity using DuPont Analysis This consists of proportion rate manage asset leverage that understands organziation probably manage new resources. This does not process monetary strength over budget report Health systems determine by the organization and consider proportion value 1 considered by general execution defined by Adams organization in 2017. B. Company process sales that is around $3432000 in year 2016 and next sales results $5834400 in year 2017 which means the growth rate show 70% higher in sales processed in YOY basis. This ensures efficient sales level that grows exponentially.

PROBLEM SET - 1 8 C. This explain growth rate could probably manage by the retail industry that is approximately 8% and describe company perform operations over industry. Average values will lead the company results that process essential values. Part 3: A: Break Even Point : In unit = Fixed cost / contribution per unit = $600000 / ($50 - $25) = 24000 bags In dollars = Fixed cost / plv ratio = 600000 / 0.50 = $1,200,000 Plv ratio = contn / sales = 1000000 / 2000000 = 0.5 or 50% Breakeven point defines point of production, that explains no profit or no loss is managed on the produced units. Revenue = expenses

PROBLEM SET - 1 9 Manager considered the values and complete scenario would process production of bags are increased which also process profits which I monitored the results. This increase production sources probably define breakeven points. B: Degree of financial leverage (FL) = EBIT/EBT = 400,000/280,000 =1.43 Main advantage describe FL could arises essential possibilities manage interest rates that probably define investment opportunities describe higher return. This consists of FL shows would process essential conditions that manage financing debts result high. This could help calculating risks that define debt financing. C: Degree of Operating Leverage (DOL) = Contribution/ EBIT = 1,000,000/ 400,000 = 2.5 DOL explains about the results that could impact over effective change take place in sales that effect level of operating determine profits of the organization. A high DOL define certain condition that ensure high risk and process very small lower values in sales are reported by the firm's and also record profits. This explains essential number processed over measuring risky situation define towards financial planning.

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