Introduction:
Company G operates a small chain of wholly owned home centers selling to consumers and contractors. Sales volume varies among the individual stores and ranges between $11
million and $20 million per year. The company is organized as a corporation and does not
operate as a sub-chapter S corporation.
Given:
Consolidated financial statements for Company G are shown on the attached “Statement
Analysis Template.”
• Sales volume shown is net sales.
• During Year 12 60% of net sales were on a credit basis.
• Inventory is stated at cost on a first-in, first-out basis.
• Depreciation expense totaled $1,875,000 for Year 12 and $1,644,000 for Year 11.
• Depreciation expense is not shown as a separate item on the income statements but
is included in store operating expense and general and administrative expense.
• Depreciable assets are depreciated using the straight-line method over the estimated
useful life of the assets.
• The market value for the company common stock at the end of Year 11 was
$3.50/share and at the end of Year 12 it was $5.75/share.
For this task, you will use financial statements and pertinent industry data to interpret
Company G’s financial condition. The required ratios have been calculated for Year 11 and are shown on the attached “Statement Analysis Template.”
Ratios gathered from financial statements that were submitted to banks and other financing
institutions by a large number of home centers are also included on the template. The
industry ratios included on the template were generated from statements submitted by
stores with annual sales between $10 million and $24 million.
As you develop your response, you should consider Company G trends by comparing Year
12 ratios to the same ratios for Year 11, consider what is depicted by the horizontal
analysis, and benchmark Company G’s performance and condition by comparing Year 12
ratios with the same ratios for the home center industry.
Task:
A. Calculate each of the thirteen indicated ratios for Year 11 indicated in the attached
“Statement Analysis Template.” Complete the attached spreadsheet with this information.
B. Complete a horizontal analysis of the income statements using the attached spreadsheet
with this information.
Note: Round the percentages to the nearest hundredth of a percent, i.e. 6.84%.
Answers like 6.80% or rounded up to 7% are not acceptable.
C. Complete a horizontal analysis of the balance sheets using the attached spreadsheet
with this information.
Note: Round the percentages to the nearest hundredth of a percent, i.e. 6.84%.
Answers like 6.80% or rounded up to 7% are not acceptable.
D. Write a business memorandum to the CEO of Company G (suggested length of 2–3
pages) in which you:
1. Explain for each ratio and trend whether the ratio or trend indicates a strength of the
company; a likely weakness, threat, or emerging problem; or a satisfactory condition
that management should not view as a strength or weakness.
2. Justify your identification of each ratio or trend as a strength, weakness, or
satisfactory condition.
3. Evaluate the Company G ratios and trends against the available ratios and trends for
the home center industry.
• Include the URL where you found the information you have entered on the
template.
Note: Information on trends can be gathered through Internet research. Some suggested
websites are included in the Web Links section below. Please consider, however, that ratios you find on the Internet are generally computed as of the current date so ratios on the task might not match the numbers you see in your research. It is best to consider the data based on the trends you see for the industry and how Company G is doing related to those trends.
E. If you choose to use outside sources, include all in-text citations and references in APA
format.