Financial and Managerial Accounting

Assignment 1

Financial Statement Analysis

Learning Objectives for Course

1. Acquire a comprehensive understanding of the principles used to prepare and

present financial statements.

2. Relevant application of knowledge to read and understand financial statements

and to observe the effects of routine business transactions on them.

3. Develop quantitative skills necessary to read, interpret and perform the

calculations for the accounting reports involved in cost control and profit

planning.

4. Evaluate and identify financial strengths and weaknesses of a business through

appropriate conceptual analysis.

5. Analyse information and knowledge effectively in order to develop meaning to

solve complex problems and make decisions ;

Guidelines for assignment

? This is an individual assignment

? Ground your answer in relevant theory

? Plagiarism and reproduction of someone else’s work as your own will be

penalized

? Make use of references, where appropriate – Use Harvard or APA referencing

method.

? Late submission are not accepted

? Structural elements should include an introduction, main body, and a conclusion

? Word count guidance : part 1 – N/A. Business report wordage should be 2000

+/10%

? Type of assignment: Excel Assessed Work Folder and Business Report

? Learning Outcome Assessed: 1,2,3,4

? Submit one single document and not lots of different files.

Part 1 – Financial Analysis

The condensed financial statements of Soule Company for the years 2013 and 2014

are presented below.

Soule Company

Balance Sheets

December 31

2014 2013

Current assets

Cash and cash equivalents

Accounts receivable (net)

Inventory

Prepaid expenses

Total current assets

Property, plant, and equipment

Investments

Intangibles and other assets

Total assets

Current liabilities

Long-term liabilities

Stockholders’ equity—common

Total liabilities and stockholders’ equity

£ 330 £ 360

470 433

430 390

120 160

1,350 1,343

420 380

10 10

530 510

£2,310 £2,243

£ 900 £ 810

390 393

1,020 1,040

£2,310 £2,243

Soule Company

Income Statements

For the Years Ended December 31

2014 2013

Sales revenue

Costs and expenses

Cost of goods sold

Selling and administrative expenses

Interest expense

Total costs and expenses

Income before income taxes

Income tax expense

Net income

Compute the following ratios for 2014 and 2013.

(a) Current ratio.

(b) Inventory turnover. (Inventory on 12/31/12 was £326.)

(c) Profit margin ratio.

(d) Return on assets. (Assets on 12/31/12 were £2,100.)

(e) Return on common stockholders’ equity. (Stockholders’ equity on 12/31/12 was

£960.)

(f) Debt to total assets ratio.

(g) Times interest earned.

Critically evaluate your ratio calculations and conclude on the current state of the

company.

Word count 500 (+/- 10%)

£4,000

£3,600

984 895

2,400 2,330

10 20

3,394 3,245

606 355

242 142

£ 364 £ 213

Part 2 – Performance Evaluation

Evaluate the financial performance of a company of your choosing using the knowledge

and technical skills that you have gained during the course so far. Provide a theoretical

explanation of any ratio analysis. No need to recalculate ratios, often the financial

reports provides these.

Attach the company financial statements as an appendix to your statement as reference

to your work.

Present your findings in a Management Business Report wordage should be 1500

+/10%.