Given the following financial statements for Voice-Soft, a voice recognition company, answer the questions on the next page. Income Statements Year Ended December 31, 20X2 20X1 Sales 8000 5000 Cost of goods sold (COGS) 7300 4380 EBITDA 700 620 Depreciation and Amortization 200 120 EBIT 500 500 Interest Expense 75 100 EBT 425 400 Taxes (20%) 85 80 Net Income 340 320 Balance Sheets As of December 31, 20X2 20X1 Assets Current assets: Cash 300 20 Short term investments 460 100 Accounts receivable 640 400 Inventories 800 480 Total current assets 2200 1000 Net plant and equipment 1800 1500 Total assets 4000 2500 Liabilities and Stockholders' Equity Current liabilities: Notes payable 200 150 Accounts payable 600 350 Total current liabilities 800 500 Long-term debt 1200 750 Total liabilities 2000 1250 Common equity: Common stock 1800 1030 Retained earnings 200 220 Total common equity 2000 1250 Total liabilities and stockholders' equity 4000 2500 1.) Calculate ROE using the DuPont equation for Voice-Soft in 20X1 and 20X2. 2.) What caused the change in ROE between 20X1 and 20X2?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Given the following financial statements for Voice-Soft, a voice recognition company, answer the questions on the next page.
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Income Statements |
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Year Ended December 31, |
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20X2 |
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20X1 |
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Sales |
8000 |
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5000 |
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Cost of goods sold (COGS) |
7300 |
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4380 |
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EBITDA |
700 |
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620 |
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200 |
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120 |
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EBIT |
500 |
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500 |
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Interest Expense |
75 |
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100 |
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EBT |
425 |
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400 |
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Taxes (20%) |
85 |
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80 |
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Net Income |
340 |
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320 |
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As of December 31, |
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20X2 |
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20X1 |
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Assets |
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Current assets: |
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Cash |
300 |
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20 |
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Short term investments |
460 |
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100 |
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Accounts receivable |
640 |
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400 |
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Inventories |
800 |
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480 |
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Total current assets |
2200 |
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1000 |
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Net plant and equipment |
1800 |
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1500 |
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Total assets |
4000 |
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2500 |
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Liabilities and |
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Current liabilities: |
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Notes payable |
200 |
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150 |
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Accounts payable |
600 |
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350 |
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Total current liabilities |
800 |
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500 |
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Long-term debt |
1200 |
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750 |
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Total liabilities |
2000 |
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1250 |
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Common equity: |
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Common stock |
1800 |
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1030 |
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200 |
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220 |
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Total common equity |
2000 |
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1250 |
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Total liabilities and stockholders' equity |
4000 |
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2500 |
1.) Calculate
2.) What caused the change in ROE between 20X1 and 20X2?
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