Assignment: Compute the missing values in the shaded cells, making sure the Balance Sheet

Balances!
ILLUSTRATIVE CASE FOR FINANCIAL STATEMENT ANALYSIS
Exhibit 1 ABC CORPORATION INCOME STATEMENTS (in 000s)

Statement of Income
2000 2001 2002
Revenue $104,618 $320,414 $635,191

Operating Expenses 121,811 283,190 503,282

Depreciation 3,995 10,417 26,922
Total Operating Expenses 125,806 293,607 530,204

Earnings or (Loss) before

Interest & Taxes (21,188) 26,807 104,987

Other Income or (Expense)1

Interest Expense (7,395) (14,132) (21,009)
Capitalized Interest 4,487 8,043 5,325 4.83603753524708
Interest Income 2,527 2,491 5,314 15.4111875330672
Other 0 18,706 407 20.2472250683143

Earnings or (Loss) before Tax (21,569) 41,915 95,024

Tax Expense or (Credit) (239) 3,378 40,116

Net Income or (Loss) -$42,996 $72,100 $240,127

Less: Preferred Stock Dividends $14,092 $16,970 $5,955

Net Income for Common -$57,088 $55,130 $234,172

Exhibit 2 BALANCE SHEETS as of December 31, 20XX (in 000s)

ASSETS 2000 2001 2002
Cash & Cash equivalents $34,403 $117,522 $257,853
Receivables 21,633 20,791 11,931
Inventories 1,133 2,210 4,840
Other 2,744 3,742 8,435
Total Current Assets 59,913 144,265 283,059

Fixed Assets 272,970 518,714 1,035,133

Less Depreciation 3,966 13,836 37,972
Total Fixed Assets 269,004 504,878 997,161

Other Assets 15,211 24,630 98,703

TOTAL ASSETS 344,128 673,773 1,378,923

LIABILITIES & OWNERS' EQUITY

Accts Payable $12,867 $24,549 $46,042
Salaries Payable 5,599 18,265 37,140
Current Portion, Long Term Debt 24,800 54,985 50,754
Short Term Borrowings 15,138 28,781 21,679
Other Current liabilities 32,620 67,546 114,049
Total Current Liabilities 91,024 194,126 269,664

Long Term Debt 137,110 290,665 639,498

Deferred Credits & Other 6,595 10,708 55,088

Convertible Preferred Stock 163,552 210,441 0

Common Stockholder's Equity (Deficit)2

Common Stock ($.01 par) 44 65 638
Additional Paid-in Capital 487 3,868 407,471
Other net 0 (2,983) (9,272)
Retained Earnings/Deficit (54,684) (33,117) 15,836
Total Common Stock Equity (54,153) (32,167) 414,673

TOTAL LIAB. & OWN. EQUITY $344,128 $673,773 $1,378,923

FOOTNOTE:
1
Presented in same format as the Annual Report to the SEC on form 10-K; Interest paid is
shown as a negative number and interest earned from investments is shown as a positive.

2
Number of Shares of Common Stock:
Jan.1 Common Stock Shares 6,399,900 6,511,150 6,545,950
Exercise of Stock Options 111,250 34,800 811,623
Initial Public Offering 10,120,000
Auto. Conversion Preferred Stock 46,038,393
Employee Stock Purchase Plan 242,718
Other (272)
Year End Common Stock 6,511,150 6,545,950 63,758,412
 TREND ANALYSIS of ABC CORPORATION FINANCIAL STATEMENTS

NOTE: The Trend Analysis can be done in two ways: a) Comparing each line item of a year with the
corresponding item of the base year (e.g., Revenue: 2001 ratio will be 349654/111632=3.13;
2002 ratio is 646237/111632=5.78); b) Divide each item by that year's REVENUE for the
Income Statement, and by TOTAL ASSETS for the Balance Sheet. The ratios of each item can be
compared to determine a trend.

A: Trend Analysis compared to base year values as 1 for selected accounts:

NOTE: Compute the missing values in the shaded cells.

TREND INCOME STATEMENT: 2000 2001 2002

Revenue 1.00 3.06 6.07

Operating Expenses 1.00
Depreciation & amortization expense 1.00

Net Income available for common (1.00)

TREND BALANCE SHEET:

Inventory 1.00
Current Assets 1.00
Total Fixed Assets 1.00
Total Assets: 1.00

Current Liabilities 1.00

Long-term Debt 1.00
Total Liab. & Equity: 1.00

B: Trend Analysis using Common Size Income Statement and Balance Sheet for each year,
on selected accounts.

Common Size Income Statement

Revenue 1.00 1.00 1.00
Operating Expenses 1.20 0.92 0.83
Depr. & Amortiz. Expenses
Interest expense
Earnings before Tax
Net Income available for common

Common Size Balance Sheet

Total Assets: 1.00 1.00 1.00
Current Assets 0.17
Other Assets 0.04
Fixed Assets 0.78

Current Liabilities 0.26

Long Term Debt excluding Current Portion 0.40
Deferred Credits 0.02
Preferred Equity 0.48
Common Stock Equity (0.16)
 FINANCIAL RATIO ANALYSIS OF ABC CORPORATION

RATIO EQUATION 2001 2002 2002 One Major Competitor

Ave. 2000 & 2001 Year End Ave. 2001 & 2002 Ave. 2001 & 2002
A: LIQUIDITY:
Current Ratio Current Assets/ Current Liabilities 0.70 1.05 0.58
Quick Ratio (Current Assets - Inventory) / CL 0.69 0.645764 1.03 0.56
0.731767
B: PROFITABILITY: 0.688765
Net Profit Margin % Net Income3 / Revenue in % 8.64% -9.67%
Return on Assets Net Income3 / Total Assets in % 3.98% -5.21%
Return on Equity Net Income3 / Total Equity in % 13.24% -88.38%
Earning Power EBIT / Total Assets 7.61% -6.00%

Leverage Total Assets / Equity -13.65 3.33 16.97

Assets Turnover Revenue / Total Assets 0.39 0.46 0.57

C: EFFICIENCY:

AR Turnover Revenue / Accts Receivable 10.12 53.24 41.64

Days Sales outstanding Accts receivable / (Revenue/360) 48.9 6.76 8.73

D: DEBT:
Debt Ratio Long-term Debt/(Long-term Debt+Equity) 0.63 0.79
Times Interest Earned EBIT / Interest Expense 5.00 (2.62)

E: FINANCIAL:
Earnings Per Share (EPS) Net Income/ No. of Shares 0.77 ($10.22)
Price/Earnings (P/E) Market Price / EPS 35.17 N/A
Stock Price December 314 $200.00 $27.00 $12.10

Notes:
3
Net Income before preferred dividends should be used for these ratios

4
Stock not public prior to 2002, Price per share is assumed as $200 in 2001 and $100 in 2000.
ABC Stock Closed at $44.20 on first day of trading in April 2002 and $27.00 at year-end.
Stock Price is Actual at December 31, not an average. Competitor stock price was $12.10
on December 31, 2002 and $29.26 on December 31, 2001.