Financial Report Analysis

Financial Report

Analysis – Rainbow Paint Co.

Note:This is a practice activity to be performed before completing the Assignment for this unit. Also,this is the data to be used as the basis for your Unit 9 Final Project. The solutions for the Unit 4 Practice activity are located here.

Rainbow Paint Co.’s comparative financial statements for the years ending December 31, 2013 and 2012 are as follows. The market price of Rainbow Paint Co.’s common stock was $30 on December 31, 1999 and $25 on December 31, 2013.

Rainbow Paint Co.

Comparative Income Statement

For the Years Ended December 31, 2013 and 2012

2013

2012

Sales

$ 5,125,000

$ 3,257,600

Sales returns and allowances

125,000

57,600

Net sales

$ 5,000,000

$ 3,200,000

Cost of goods sold

3,400,000

2,080,000

Gross profit

$ 1,600,000

$ 1,120,000

Selling expenses

650,000

464,000

Administrative expenses

325,000

224,000

Total operating expenses

$

975,000

$

688,000

Income from operations

$

625,000

$

432,000

Other income

25,000

19,200

Income before Interest & Taxes

$

$

451,200

650,000

Other expense (interest)

105,000

64,000

Income before income tax

$

545,000

$

387,200

Income tax expense

300,000

176,000

Net income

$ 245,000

$

211,200

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Rainbow Paint Co.

Comparative Retained Earnings Statement

For the Years Ended December 31, 2013 and 2012

2013

2012

Retained earnings, January 1

$

723,000

$

581,800

Add net income for year

245,000

211,200

Total

$

968,000

$

793,000

Deduct dividends:

On preferred stock

$

40,000

$

40,000

On common stock

45,000

30,000

Total

$

85,000

$

70,000

Retained earnings, December 31

$

883,000

$

723,000

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Unit 4 [AC499: Bachelor’s Capstone in Accounting]

Rainbow Paint C0,

Comparative Balance Sheet

December 31, 2013 and 2012

Assets

2013

2012

Current assets:

Cash

$ 175,000

$

125,000

Marketable securities

150,000

50,000

Accounts receivable (net)

425,000

325,000

Inventories

720,000

480,000

Prepaid expenses

30,000

20,000

Total current assets

$ 1,500,000

$

1,000,000

Long-term investments

250,000

225,000

Property, plant, and equipment (net)

2,093,000

1,948,000

Total assets

$ 3,843,000

$ 3,173,000

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Liabilities

Current liabilities

$ 750,000

$

650,000

Long-term liabilities:

Mortgage note payable, 10%, due 2016

$ 410,000

–

Bonds payable, 8%, due 2017

800,000

$

800,000

Total long-term liabilities

$ 1,210,000

$

800,000

Total liabilities

$ 1,960,000

$

1,450,000

Stockholders’ Equity

Preferred 8% stock, $100 par

$ 500,000

$

500,000

Common stock, $10 par

500,000

500,000

Retained earnings

883,000

723,000

Total stockholders’ equity

$ 1,883,000

$

1,723,000

Total liabilities and stockholders’ equity

$ 3,843,000

$

3,173,000

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Instructions: Determine the following measures for 2013:

1. Working capital

2. Current ratio

3. Quick ratio

4. Accounts receivable turnover

5. Number of days’ sales in receivables

6. Inventory turnover

7. Number of days’ sales in inventory

8. Ratio of fixed assets to long-term liabilities

Unit 4 [AC499: Bachelor’s Capstone in Accounting]

9. Ratio of liabilities to stockholders’ equity

10. Number of times interest charges earned

11. Number of times preferred dividends earned

12. Ratio of net sales to assets

13. Rate earned on total assets

14. Rate earned on stockholders’ equity

15. Rate earned on common stockholders’ equity

16. Earnings per share on common stock

17. Price-earnings ratio

18. Dividends per share of common stock

19. Dividend yield

Unit 4 Assignment: Management Tools

Application

Step 1: Practice

Complete the AC499 Financial Report Analysis – Rainbow Paint Co. as practice for the Unit 4 Assignment. The solutions for the review problem can be found here.

Step 2: Review Ratio Sheet

Review the AC499 Financial Report Analysis Unit 4 Ratio Sheet.

Step 3: Financial Analysis

Complete a financial analysis of the company financials for Quixote Consulting. Use the Excel Template titled: “Unit 4 Financial Report Analysis Template.” Be sure to review the Excel tab titled “Hints & Instructions” before you attempt the Assignment tab.

Note: This Quixote Company file will be your graded Unit 4 Assignment,notthe Rainbow CompanyPractice Assignment.

When you are ready, you may submit your Quixote Ratio Analysis Excel template to the Unit 4 Dropbox page.

Note:Include your name in the filename of the Assignment.

Very Important Note:The Practice Set isbased on data for “Rainbow Paint Company.” Do NOTsubmit the Rainbow solutions in the Unit 4 Assignment Dropbox.

The Unit 4 Assignment is based on the Quixote data accumulated in Units 2 and 3. However, The Rainbow Paint Company data will be a VITAL and integral component of your Unit 9 Final Project. So, please complete the Practice Exercise AND keep your work saved in a file for later use.

Solution: