Course Profile A
Unit 6:
Financial Analysis and A
Time:
30 hours
Activity
6.1 | Activity 6.2 | Activity 6.3 | Activity 6.4 | Activity 6.5
Unit Description
The information provided by any a
Students work primarily in groups on prepared cases which simulate real-life situations. Students are to apply their knowledge learned over the entire course in order to solve problems and make recommendations for improvements. They also engage in independent research of a Canadian corporation.
|
Activity |
Learning Expectations |
Assessment Categories |
Tasks |
|
6.1 5 hours |
FAV.01, FA1.04, FA1.01, FA1.02 |
Knowledge/ Understanding Thinking/Inquiry |
Introduction to Financial Analysis |
|
6.2 5 hours |
FAV.02, FA2.01, FA2.02, FA2.03, FA2.04 |
Thinking/Inquiry Application |
Production Costs and Profitability |
|
6.3 7 hours |
FAV.01, FA1.03 |
Knowledge/ Understanding Application |
Calculating Financial Ratios |
|
6.4 6 hours |
FAV.01, FA1.02, FA1.03, FA1.04 |
Thinking/Inquiry Application |
Interpret Financial Ratios |
|
6.5 7 hours |
FAV.03, FA3.01, FA3.02, FA3.03 |
Thinking/Inquiry Application Communication |
Careers Study |
Time: 5 hours
In this introductory activity, students
use a case study to refresh their knowledge of financial analysis from BAI3E.
Students then look at the financial statements that incorporated businesses
must prepare. Each section of the annual report is outlined and important a
CGE 1d - develops attitudes and values founded on Catholic social teaching and acts to promote social responsibility, human solidarity, and the common good;
CGE 2b - reads, understands, and uses written materials effectively;
CGE 2c - presents information and ideas clearly and honestly and with sensitivity to others;
CGE 3b - creates, adapts, and evaluates new ideas in light of the common good;
CGE 3c - thinks reflectively and creatively to evaluate situations and solve problems;
CGE 3d - makes decisions in light of gospel values with an informed moral conscience;
CGE 4c - takes initiative and demonstrates Christian leadership;
CGE 7a - acts morally and legally as a person formed in Catholic traditions;
CGE 7h - exercises the rights and responsibilities of Canadian citizenship.
Overall Expectations
FAV.01 - demonstrate the skills required to interpret financial information.
Specific Expectations
FA1.01 - demonstrate an understanding of the major elements of a corporate annual report;
FA1.02 - analyse the financial status of a business (e.g., profitability, scope for expansion) on the basis of a review of the financial statements;
FA1.04 - demonstrate an understanding of the various uses of financial data (e.g., by a potential investor or by a creditor.
Students should be able to calculate basic financial ratios from BAI3E. They should be able to define a corporation, list its characteristics, and be able to obtain an annual report. Students should know the different types of business ownership models.
·
Students
must contact three Canadian corporations in order to obtain their annual
reports. This should be completed six weeks prior to the start of this unit as
they are needed for this activity.
·
Students
need chart paper and markers for the case analysis.
·
The
teacher reviews BAI3E Catholic Course Profile and note financial analysis
ratios already taught to students: current ratio, quick ratio, working capital,
debt-to-equity ratio.
·
The
teacher has five or six copies of an annual report to use as an example.
·
The
teacher makes copies of the Financial Report Assignment (Appendix 2) if
necessary.
·
The
teacher books computer time to allow students to type part 2 of the Financial
Report Assignment (Appendix 2).
1. Place students in groups of three or four and distribute Coffee Palace Case (see Appendix 1) to each group.
2. Assign each group an identity: bankers, investors, suppliers, government, consultants, etc.
3. Each group analyses the case from the perspective of their assigned identity.
4. Recommendations and analysis are placed on chart paper and the groups present their findings to the class.
5. The teacher can use these presentations to outline specific methods of analysis already covered in BAI3E (See BAI3E Catholic Course Profile).
6. The chart paper from this analysis is needed again for Activity 5 of this unit.
7. The teacher should note to students that their case studies up to this point have dealt primarily with sole proprietorships and partnerships.
8. Corporations,
companies that are specific entities with rights and privileges, also must
produce financial reports outlined by the CICA (Canadian Institute of Chartered
A
9. Publicly traded corporations, those who sell shares on the TSE (Toronto Stock Exchange), must prepare an annual report that highlights the financial position of the company over the past year.
10. The teacher should go through an annual report with students and highlight the following sections: history, company information (products, services, location, employees, etc.), list of management and board of directors, financial statements, highlights of financial statements, notes on financial statements, ratios, cash flow statements, and auditor’s report (note: not all annual reports are formatted in the same manner. However, the required information is present).
11. The
teacher explains the purpose of the auditor’s report. It is their job to ensure
that the financial data shown is a
12. Students are to complete Part 2 of the Financial Report Assignment (Appendix 2) for their two Canadian corporations. This part of the report can be completed on the computer using an available word processor.
The teacher can assess students’ group work on the introductory case study based on their completeness of the work. Their communication skills can also be evaluated during the group presentations. In both cases, assessment of individual work is required for contributing to the final mark. A rubric for the Financial Report Assignment (Appendix 3) has been provided.
The following
are ways in which the activity can meet a student’s individual needs:
·
assist
students in the preparation of the letter requesting annual reports
·
provide
review sheets of financial ratios taught in BAI3E
·
provide
direction to analysis (ask leading questions)
·
provide
extension activities for students requiring enrichment (search for
corporation’s website and provide additional current financial information,
including current share price)
Corporate Annual Reports
www.tse.com – online annual reports
www.sedar.com – online annual reports
CICA Handbook
Appendix 1 – The
Appendix 2 – Financial Report Assignment
Appendix 3 – Financial Report Assignment Rubric
Time: 5 hours
In this activity, students’ financial analysis skills are extended to include trend and profitability analysis. Students make decisions on the financial health of companies based on past financial reports and extend the data into future periods. They complete a “what-if” analysis using spreadsheets in order to make decisions for companies based on profit analysis.
CGE 1d - develops attitudes and values founded on Catholic social teaching and acts to promote social responsibility, human solidarity, and the common good;
CGE 2e - uses and integrates the Catholic faith tradition, in the critical analysis of the arts, media, technology, and information systems to enhance the quality of life;
CGE 3c - thinks reflectively and creatively to evaluate situations and solve problems;
CGE 3d - makes decisions in light of gospel values with an informed moral conscience;
CGE 4c - takes initiative and demonstrates Christian leadership;
CGE 5f - exercises Christian leadership in the achievement of individual and group goals;
CGE 7a - acts morally and legally as a person formed in Catholic traditions;
CGE 7b - a
CGE 7j - contributes to the common good.
Overall Expectations
FAV.02 - demonstrate the skills required to analyse job costs and profitability.
Specific Expectations
FA2.01 - analyse the effect of fluctuations in labour costs on profitability;
FA2.02 - analyse the effect of fluctuations in material costs on profitability;
FA2.03 - analyse the effect of fluctuations in overhead costs on profitability;
FA2.04 - explain how profit or loss on a specific job is determined.
·
Students
know how to set up and manipulate a basic spreadsheet layout.
·
Students
have an understanding of the various sections of financial statements.
·
Students
are able to create formulas with both absolute and relative cell addresses.
·
Students
are able to input percentage data into a spreadsheet.
·
Book
computer time.
·
If
the teacher has obtained the spreadsheet templates from the Simcoe Muskoka
Catholic District School Board (SMCDSB) website (www.smcdsb.on.ca), copy it to
student directories.
·
Make
copies of Profitability Activity (Appendix 4) for students.
·
Make
copies of Trend Analysis Activity (Appendix 5) for students.
1. The teacher should introduce the topic by explaining to students that a company’s profitability depends on several cost and expense factors. In order for a company to make profit, they must control all expenses. Business decisions, therefore, must be partly based on their affect on profit for the company.
2. Discuss with students other factors that may affect business decisions (moral issues, ethical issues, environmental, labour, and government policies, technology, competition, economic and social issues, market place, dignity of work, stewardship of resources, etc.)
3. Students should complete Profitability Activity (Appendix 4) using a spreadsheet program. This activity should be submitted to the teacher for evaluation.
4. The teacher should discuss the answers to the activity after evaluation is complete.
5. The teacher should extend the idea of profit analysis into trend analysis (looking at profit and costs over a period of time).
6. The teacher may use a professional sports team as an example. A team who has won many games in the past are more likely to win in the future than teams that lose many games (use statistics like winning pct., goals for, goals against, wins on the road, wins at home, etc.). Hence, we can predict (albeit not perfectly) whether a team will win or lose based on past performance.
7. In the same way, the future financial health of a company can be predicted based on their past performance (financial investors complete this type of analysis on a daily basis for their clients).
8. Complete the Trend Analysis Activity (Appendix 5) on a spreadsheet program. This activity should be submitted to the teacher for evaluation.
9. The teacher should discuss the answers to the activity after evaluation is complete.
The teacher assesses the two activities
for a
The following
are ways in which the activity can meet students’ individual needs:
·
provide
review sheets of financial ratios taught in BAI3E
·
students
can use the computer to complete written assignments (spelling, grammar)
·
provide
extension activities for students requiring enrichment (search for
corporation’s website and provide additional current financial information,
including current share price)
·
provide
spreadsheet templates with formulas completed for weak students
Spreadsheet templates from www.smcdsb.on.ca
Appendix 4 – Profitability Activity
Appendix 5 – Trend Analysis Activity
Time: 7 hours
Expanding on the financial ratios learned
in BAI3E, students learn new ratios: earnings per share, dividend yield,
price-earnings ratio, debt ratio, return on assets, operating expense ratio,
inventory turnover, and a
CGE 2b - reads, understands, and uses written materials effectively;
CGE 7a - acts morally and legally as a person formed in Catholic traditions.
Overall Expectations
FAV.01 - demonstrate the skills required to interpret financial information.
Specific Expectations
FA1.03 - identify and describe the current
and projected financial strength of a business (e.g., by examining key
indicators such as liquidity and a
·
Financial
Ratios from BAI3E
·
Make
copies of Financial Ratios formula sheet (Appendix 6).
·
Make
copies of Financial Ratios Worksheet (Appendix 7).
·
Make
copies of Financial Ratios Assignment (Appendix8).
1. Distribute
the Financial Ratio formula sheet (Appendix 6) and demonstrate the calculation
and meaning of each measure (note: the teacher can eliminate some of the ratios
if they feel that they are not appropriate for their class). The teacher should
indicate an appropriate value for each ratio. Many ratios depend on industry
averages or on the current market place. (For example, inventory turnover
varies a
2. Have students complete the Financial Ratio Worksheet (Appendix 7) and submit for evaluation. For each calculation, students determine whether the value represents a positive or negative indication of the company’s financial health. The teacher should go through the solutions for each question in order to ensure that students understand how to calculate the ratios.
3. Have students complete the Financial Ratios Assignment - Jenkins Corporation Part 1 (Appendix 8). Students may complete the assignment using a spreadsheet or pen and paper. This assignment should be submitted for evaluation.
4. A class discussion of the assignment should follow the formal evaluation.
The teacher assesses the Financial Ratio Worksheet and Assignment (Appendix 7 and 8). A class discussion of the worksheet and assignment will also help the teacher assess the knowledge base of students and their ability to describe the meaning of the ratios.
Appendix 6 – Financial Ratio formula sheet
Appendix 7 – Financial Ratio Worksheet
Appendix 8 – Financial Ratio Assignment
Time: 6 hours
This activity attempts to culminate students’ knowledge of financial analysis. Students complete two assignments initiated in previous activities. Students use their knowledge to make decisions about a company’s financial health and make recommendations to improve future performance.
CGE 2b - reads, understands, and uses written materials effectively;
CGE 3c - thinks reflectively and creatively to evaluate situations and solve problems;
CGE 7a - acts morally and legally as a person formed in Catholic traditions;
CGE 7j - contributes to the common good.
Overall Expectations
FAV.01 - demonstrate the skills required to interpret financial information.
Specific Expectations
FA1.02 - analyse the financial status of a business (e.g., profitability, scope for expansion) on the basis of a review of the financial statements;
FA1.03 - identify and describe the
current and projected financial strength of a business (by examining key
indicators such as liquidity and a
FA1.04 - demonstrate an understanding of the various uses of financial data (e.g., by a potential investor or by a creditor).
·
Students
have basic spreadsheet and word processing skills.
·
Students
have knowledge of financial ratios, trend and profitability analysis, and
annual reports.
·
Book
computer time.
·
Make
copies of Financial Report Assignment Rubric (Appendix 3).
·
Students
should have the following: Annual Reports, Financial Ratio Assignment - Jenkins
Corporation (Appendix 8), Coffee Palace Case (Appendix 1) and Financial Report
Assignment (Appendix 2).
·
Chart
Paper and markers will be needed.
1. The teacher places students in the same groups that were used for the Green case used in
Activity 6.2. Each group completes a ratio and trend analysis of the case using the same identity as in Activity 1. The groups place their analysis on chart paper and present it along with their initial assessment from Activity 1. The groups note the differences in their assessment and whether their recommendations changed due to their knowledge obtained throughout the unit.
2. Students complete Financial Ratio Assignment - Jenkins Corporation Part 2 (Appendix 8) and submit it for evaluation. Students can complete the assignment using a computer or pen and paper. Again, the teacher can have a class discussion regarding the case and the conclusions students reached about the corporation.
3. Complete Financial Report Assignment Part 3 (Appendix 2) using a spreadsheet and word processor. When evaluating this project, use the Financial Report Assignment Rubric (Appendix 3). This assignment acts as students’ culminating activity.
Students submit Part 2 of Jenkins Corporation for evaluation. A rubric is used to evaluate the Financial Report Assignment. This assignment represents the culminating activity for the unit. The teacher can also use the analysis of the Green case to assess communication and connection skills.
Appendix 1 –
Appendix 2 – Financial Report Assignment
Appendix 3 – Financial Report Assignment Rubric
Appendix 8 – Financial Ratio Assignment
Time: 7 hours
Students explore a
CGE 1d - develops attitudes and values founded on Catholic social teaching and acts to promote social responsibility, human solidarity, and the common good;
CGE 1g - understands that one’s purpose or call in life comes from God and strives to discern and live out this call throughout life’s journey;
CGE 1i - integrates faith with life;
CGE 3b - creates, adapts, and evaluates new ideas in light of the common good;
CGE 4a - demonstrates a confident and positive sense of self and respect for the dignity and welfare of others;
CGE 5b - thinks critically about the meaning and purpose of work;
CGE 5c - develops one’s God-given potential and makes a meaningful contribution to society;
CGE 5d - finds meaning, dignity, fulfilment, and vocation in work which contributes to the common good;
CGE 5e - respects the rights, responsibilities, and contributions of self and others;
CGE 5g - achieves excellence, originality, and integrity in one’s own work and supports these qualities in the work of others;
CGE 5h - applies skills for employability, self-employment, and entrepreneurship relative to Christian vocation;
CGE 6a - relates to family members in a loving, compassionate, and respectful manner;
CGE 7b - a
CGE 7j - contributes to the common good.
Overall Expectations
FAV.03 - produce a summary of
professional a
Specific Expectations
FA3.01 - describe educational
opportunities in a
FA3.02 - describe current issues in a
FA3.03 - identify career opportunities in
a
Students should be familiar with performing Internet searches.
·
Gather
resources (brochures, advertisements, websites, etc.) related to the three
major a
·
Book
computer time for career research.
·
Arrange
for two guest speakers: an a
·
Book
computer time for education research.
·
Arrange
for a guidance counsellor to conduct a short information session on relevant
programs and institutions.
·
Make
copies of A
1. The
teacher presents the three major a
2. The
teacher and students brainstorm a list of various a
3. Using
the Internet, students complete A
4. Students share research findings with peers (possibly via Bristol board display, short presentation, or written report).
5. Students
take notes during guest speaker presentations by an a
6. The
teacher leads students in a discussion of educational and training requirements
for a
7. A guidance counsellor can be asked to make a presentation to students on educational programs, course requirements, and school-to-work programs available to students.
8. Students
brainstorm a list of skills and characteristics that would be beneficial to a
career in a
9. Students conduct a self-analysis to identify personal strengths and weaknesses. They then indicate any careers for which they may be well-suited; as well, the teacher should lead students in developing strategies that would allow them to acquire or improve upon necessary skills.
10. The
teacher presents and explains major assessment tasks, requirements, and
evaluation
(Appendices 10 and 11).
11. Students prepare interview questions for assessment.
12. Students are given a reasonable amount of time to conduct interviews and prepare a report.
13. Students
give a presentation to the class on the small business owner/a
This activity clearly lends itself to the assessment of learning skills. Specifically, the “works independently” and “work habits/homework” categories can be assessed by observing students as they conduct the required Internet research. The category of “teamwork” can be assessed through the contribution of students during the brainstorming sessions. The quality and depth of a students’ self- assessment can be reflective of their “initiative.” Lastly, a student’s “organizational” skills can be assessed based on their level of preparation for the major assessment.
There are a number of other student tasks that can be assessed and evaluated at the option of the teacher:
·
the completed a
·
the results of the a
· a reflection following the guest speaker presentations
· a completed self-analysis
Lastly, Appendices 10 and 11 include the major assignment and rubric for assessment and evaluation purposes that evaluate the achievement chart categories. This can be presented to students at the beginning of the activity. Students can work individually or in small groups as per the teacher’s instructions.
The following is a list of possible a
·
provide
a guided worksheet for career- and education-related research
·
provide
a list of possible interview questions for the small business owner/a
·
rather
than conducting a formal presentation in front of the class, have student(s)
share information (orally) with the teacher on a one-on-one basis
For a
Canadian
The
(“Teacher’s Colleague Program” provides
many education resources for high school business studies teachers, such as:
CICA Handbook, CAMAGAZINE, CAs – The Next Generation, etc.“Associate Student
Program” provides resources to students who are considering a career as a
professional a
Canadian
General A
Certified General A
Canadian Management Association – www.cma-canada.org/
For career information
www.careercruising.com/home/index/htm/ – School licences available. Provides an excellent resource for a variety of career-related information.
www.workopolis.com – job database
Career Bridges – licensed by the Ministry of Education
Career.Max –
www.canadajobsearch.com/careerspecific.htm – Canadian career and industry-specific jobs
http://cdn.cx.bridges.com-provides general career information and industry-specific jobs.
For education information
College and University websites
www.cga-ontario.org – Certified General A
www.cma-canada.org – The Society of
Management A
(a poster of university courses recognized as prerequisite studies is available.)
www.icao.on.ca – The Ontario CA Challenge
Appendix 9 – A
Appendix 10 – Career Studies Interview Assignment
Appendix 11 – Career Studies Interview–Assessment and Evaluation Rubric
Case Study:
Chris Woods, a local entrepreneur,
started the
|
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||
|
|
2001 |
2000 |
|
Sales |
610 220 |
490 360 |
|
Cost of Goods Sold |
410 720 |
320 800 |
|
Gross Profit |
199 500 |
169 560 |
|
Operating Expenses |
140 560 |
120 140 |
|
Net Income |
58 940 |
49 420 |
|
|
|
|
|
|
||
|
|
2001 |
2000 |
|
Assets |
|
|
|
Current
Assets |
|
|
|
Cash |
32 600 |
28 580 |
|
A |
40 600 |
40 800 |
|
Inventory |
63 400 |
40 000 |
|
Fixed Assets |
|
|
|
Land and Building |
190 000 |
190 000 |
|
Equipment |
20 000 |
16 000 |
|
Delivery Truck |
28 900 |
28 900 |
|
TOTAL
ASSETS |
375
500 |
344
280 |
|
Liabilities |
|
|
|
Current
Liabilities |
|
|
|
Bank Loan |
80 000 |
85 000 |
|
A |
50 400 |
62 100 |
|
Long-term Liabilities |
|
|
|
Mortgage |
140 000 |
145 000 |
|
TOTAL LIABILITIES |
270 400 |
292 100 |
|
Owner’s Equity |
|
|
|
C. Woods, Capital |
105 100 |
52 180 |
|
TOTAL LIABILITIES AND OWNER’S EQUITY |
375 500 |
344 280 |
Task
Students organize themselves into groups of three or four. The teacher assigns each group an identity from the following list: Bankers, Investors, Suppliers, Government, Consultants. From the perspective of their assigned identity, students analyse Mr. Woods’ financial statements and indicate whether or not they would provide him with funds to expand his business. Students should give specific reasons for their decision. They place their information on chart paper and present their findings to the class.
Part 1
Assume you are a junior a
·
Using
the financial section of a newspaper (Toronto Star, Globe and Mail, National
Post, etc.), select two companies on the Toronto Stock Exchange that are of
interest to you. (Note: do not select banking, investment, or mining
companies).
·
Have
your teacher approve your selections. It is preferable that there is no
duplication of companies in the class.
·
Obtain
a copy of the annual reports. The website for the Toronto Stock Exchange
(tse.com) has a free annual report-ordering service. Alternatively, you may
write or phone the company.
·
Notify
the teacher when the annual reports arrive.
Part 2
For two of the companies from which you received an annual report, write a report that includes:
·
the
name of the company;
·
a
brief description of the company that includes the products or services it
sells, location(s), number of employees, a short history and any other
information that may be pertinent or interesting;
·
the
names of the top officers of the company, including the chief executive officer
and/or president, the chairman of the board and, if given, any vice-presidents
and their positions;
·
the
name of the a
·
a
list of the following (using the data provided in the financial statements):
revenues, operating expenses, net income, total current assets, total fixed
assets, total current liabilities and total long-term liabilities, dividends
and current share price, and number of common shares.
Part 3
Write an analysis of each of the two companies based on the financial ratios. In most annual reports, the ratios are given; however, if they are not provided, you must calculate them. List the value of each ratio (as listed below), describe whether it is an advantage or disadvantage to the financial health of the company, and explain why. Finally, make a recommendation to your company that states whether each company should be purchased. Include a rationale for your decision.
·
Earnings
per common share, dividend yield, price earnings ratio (find the current share
price in the newspaper), operating expense ratio, debt ratio, inventory
turnover, a
Unit 6: Financial Analysis and A
Activity 6.4: What Does It All Mean?
Expectations
FAV.01 - demonstrate the skills required to interpret financial information;
FA1.01 - demonstrate an understanding of the major elements of a corporate annual report;
FA1.02 - analyse the financial status of a business on the basis of a review of the financial statements;
FA1.03 - identify and describe the current and projected financial strength of a business.
|
Achievement Chart Categories |
Level 1 |
Level 2 |
Level 3 |
Level 4 |
|
Knowledge/
Understanding Demonstrate an understanding of the major elements of a corporate annual report |
- demonstrates limited understanding of the major elements of a corporate annual report |
- demonstrates some understanding of the major elements of a corporate annual report |
- demonstrates considerable understanding of the major elements of a corporate annual report |
- demonstrates thorough understanding of the major elements of a corporate annual report |
|
Thinking/Inquiry Analyse the financial status of a business on the basis of a review of the financial statements |
- demonstrates limited analysis of the financial status of a business on the basis of a review of the financial statements |
- demonstrates moderate analysis of the financial status of a business on the basis of a review of the financial statements |
- demonstrates considerable analysis of the financial status of a business on the basis of a review of the financial statements |
- demonstrates a high degree of analysis of the financial status of a business on the basis of a review of the financial statements |
|
Identify and describe the current and projected financial strength of a business |
- identifies and describes the current and projected financial strength of a business with limited effectiveness |
- identifies and describes the current and projected financial strength of a business with some effectiveness |
- identifies and describes the current and projected financial strength of a business with considerable effectiveness |
- identifies and describes the current and projected financial strength of a business with a high degree of effectiveness |
|
Communication Communicates information and ideas clearly |
- communicates information and ideas with limited clarity |
- communicates information and ideas with some clarity |
- communicates information and ideas with considerable clarity |
- communicates information and ideas with excellent clarity |
|
Application Demonstrate the skills required to interpret financial information |
- demonstrates limited skills in interpreting financial information |
- demonstrates some skills in interpreting financial information |
- demonstrates considerable skills in interpreting financial information |
- demonstrates thorough skills in interpreting financial information |
Note: A student whose achievement is below Level 1 (50%) has not met the expectations for this assignment or activity.
The profitability of a company depends on several cost and expense factors. Essentially, the lower the expenses or costs the higher the profit. Below is the income statement for Green Garden Tools. If your teacher has not provided you with the spreadsheet file below, create your own using a spreadsheet program of your choice. Be sure to create formulas to calculate values in place of question marks.
|
Income Statement Year ended |
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|
Revenue |
|
|
|
|
Sales |
612 200 |
|
|
|
Sales Returns |
13 000 |
|
|
|
Net Sales |
? |
|
|
|
Cost of Goods Sold |
|
|
|
|
Beginning Inventory (Jan 1) |
40 000 |
|
|
|
Net Purchases |
441 500 |
|
|
|
Cost of Goods Available for |
? |
|
|
|
Ending Inventory (Dec 31) |
64 300 |
|
|
|
Cost of Goods Sold |
? |
|
|
|
Gross Profit |
? |
|
|
|
Operating Expenses |
|
|
|
|
Advertising |
27 200 |
|
|
|
Salaries |
81 075 |
|
|
|
Delivery |
7 900 |
|
|
|
Telephone |
1 000 |
|
|
|
Utilities |
3 450 |
|
|
|
Insurance |
3 100 |
|
|
|
Interest and Bank Charges |
7 900 |
|
|
|
General |
425 |
|
|
|
Total Expenses |
? |
|
|
|
Net Income |
? |
|
|
Answer the following
questions:
1. What is the gross profit and net income of this company?
2. What is the largest expense for this company?
3. What is the smallest expense for this company?
The following
are independent case assumptions. After each question, return the income
statement to its original numbers.
5. A new telephone company is offering a deal that will cut your telephone expense by 20%. Change the telephone expense to reflect this savings.
a) How much will Mr. Green save?
b) What happens to his net income?
c) Should he change telephone companies based on this analysis? Is there other information you would like to have?
6. Mr. Green employees have not received a pay raise for three years. They would like either a 10% pay raise or a dental plan that will cost the company $4500 per year.
a) Calculate each scenario (for the dental plan, add another expense category called Dental Plan) and write down the new net income for each plan.
b) Based on your analysis, which plan should Mr. Green offer?
7. If Mr. Green provides free delivery, it is expected that Sales will increase by 10%. The delivery expense for the company will increase 10 times from current levels.
a) Make the changes to the income statement. What happens to net income? (Assume that cost of goods sold does not change.)
b) Should Mr. Green offer free delivery? Why?
8. Mr.
Green insurance company is offering a deal to its customers. If he will
purchase advertising space in their upcoming newsletter, the company will
decrease insurance premiums by 10%. The cost of the advertising space is $300.
Should Mr. Green a
9. A new supplier is trying to get Mr. Green business. They will provide all of the garden products that he sells in his store for 15% less than the current net purchases. However, the products they supply are not of the same quality of the current suppliers. Sales returns are expected to increase by 3 times current levels.
a) Make the changes to the income statement. What happens to net income?
b) Should Mr. Green change suppliers? Why? Are there other factors he should consider?
10. Every business decision should be based on their effect on net income. Do you agree with this statement? Explain.
Students project future profitability based on past performance. These projections are altered by a number of financial factors such as economic conditions, competition, and labour negotiations.
1. Type the following data in a spreadsheet program of your choice:
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Revenue and Expense Forecasts |
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ABC Data Systems |
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Past five-year trends |
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Sales increase |
10% per year |
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Cost of Goods Sold (COGS) |
81% of sales |
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Salaries Increase |
1% per year |
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Advertising |
1.5% of sales |
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Utilities Increase |
10% per year |
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Maintenance |
$1000 per year |
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2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
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Sales |
125 000 |
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COGS |
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Gross Profit |
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Expenses: |
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Salaries |
12 000 |
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Advertising |
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Utilities |
1 500 |
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Maintenance |
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Total Expenses |
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Net Income |
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2. Create formulas to calculate unknown values for 2001. Copy these values to 2006.
Examples Sales for 2002 = Sales for 2001*0.10 + Sales for 2001
COGS for 2001 = Sales for 2001*0.72
As the financial a
3 a. While meeting with the union steward, she notes that workers expect a 4% pay increase each year until 2006. Change the spreadsheet and indicate the effect this would have on net income.
b. Afterwards, you meet with the human resources director who indicates that salaries should not increase more than 1.5% per year. Update the spreadsheet and indicate the effect this would have on net income.
c. Based on the two meetings, what do you think is a reasonable salary increase for the employees? Change the spreadsheet to reflect your assumptions.
4 a. In a meeting with the marketing department, they stated that the advertising budget should be doubled in order to maintain market share. Update the spreadsheet and indicate the effect this would have on net income.
b. Do you think that the company can afford this increase? Give reasons.
5. While eating lunch, you notice an article in the national newspaper that suggests that energy costs will decrease due to market deregulation. It is expected that utility costs will decrease 2% per year until 2006. Update the spreadsheet and indicate the effect this would have on net income.
6. That afternoon, you visit the purchasing department and discover that our company has been bestowed the honour of “special buyer status.” This means that COGS will only be 77% of sales instead of the current level of 81%. Update the spreadsheet and indicate the effect this would have on net income.
7. While sitting in your office, the vice-president of sales drops in and states that he is worried that the economy is entering a recession. He predicts that sales will only increase by 2% per year instead of the 10% growth experience in the past five years. Update the spreadsheet and indicate the effect this would have on net income.
8 a. At the end of the day, you are looking at your modified spreadsheet. You receive an e-mail from the president of the company that states that the board of directors requires that net income be at least 10% of sales in order to satisfy investors.
b. Create a new title under the Net Income cell and label it “Income as a % of Sales”. Use the following formula: (Net Income/Sales)*100. Copy it across to 2006.
9. Given all the information that you have collected during the day, adjust the trend data to create a forecast that meets the expectations of the board of directors, senior management, and workers. Give reasons for your decisions.
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Ratio or Other Measurement |
Equation |
Significance |
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Earnings per share of common stock |
Net income |
Gives the amount of earnings applicable to a share of common stock. |
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Dividend yield |
Dividend per share |
Shows the rate of return earned by shareholders based on current price for a share of stock. |
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Price-earnings ratio |
Market price per share |
Indicates if price of stock is in line with earnings. |
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Operating expense ratio |
Operating expenses |
Indicates management’s ability to control expenses. |
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Return on assets |
Net income |
Measures the productivity of assets regardless of capital structure. |
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Debt ratio |
Total liabilities |
Indicates the percentage of assets financed through borrowing; it shows the extent of leverage being used. |
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Working capital |
Current assets - current liabilities |
Measures short-run ability to pay debt. |
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Inventory turnover |
Cost of goods sold |
Indicates marketability of inventory and reasonableness of quantity on hand. |
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A |
Net sales |
Indicates reasonableness of a |
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Current
ratio |
Current assets |
Measures short-run ability to pay debt. |
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Quick ratio |
Quick assets |
Measures the short-term liquidity of a business. |
Given the following data, calculate the required financial ratios in the space provided.
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Ratio |
Data |
Calculations |
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Debt Ratio |
a. Total liabilities = $428 000 Total assets = $1 000 000 b. Total liabilities = $369 000 Total assets = $520 000 c. Total liabilities = $83 000 Total assets = $275 000 |
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Working Capital |
d. Current assets = $126 000 Current liabilities = $34 000 e. Current assets = $670 000 Current liabilities = $910 000 f. Current assets = $76 000 Current liabilities = $72 000 |
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Current
Ratio |
g. Current assets = $45 000 Current liabilities = $54 000 h. Current assets = $510 000 Current liabilities = $290 000 i. Current assets = $315 000 Current liabilities = $232 000 |
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Quick
Ratio |
j. Quick assets = $32 000 Current liabilities = $54 000 k. Quick assets = $425 000 Current liabilities = $290 000 l. Quick assets = $250 000 Current liabilities = $232 000 |
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Operating
Expense Ratio |
m. Operating expenses = $330 000 Net sales = $450 000 n. Operating expenses = $75 000 Net sales = $130 000 o. Operating expenses = $760 000 Net sales = $2 500 000 |
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Inventory Turnover |
p. Cost of goods sold = $530 000 Average inventory = $140 000 q. Cost of goods sold = $11 000 000 Beginning inventory = $4 200 000 Ending inventory = $3 600 000 r. Cost of goods sold = $1 408 000 Beginning Inventory = $247 000 Ending Inventory = $268 000 |
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Ratio |
Data |
Calculations |
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A |
s. Net sales = $900 000 Average receivables = $101 500 t. Net sales = $2 200 000.00 Beginning receivables = $90 500 Ending receivables = $112 000 u. Net sales = $480 000 Beginning receivables = $42 000 Ending receivables = $55 000 |
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Return on Assets |
v. Net income = $127 000 Total assets = $860 000 w. Net income = $750 000 Total assets = $4 500 000 x. Net income = $2100 Total assets = $52 000 |
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Dividend Yield |
y. Dividend per share = $5 Market price per share = $125 z. Dividend per share = $1.50 Market price per share = $225 A. Dividend per share = $2.25 Market price per share = $73 |
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Earnings Per Share of Common Stock |
B. Net income = $75 000 Number of common shares = 5000 C. Net income = $2 300 000 Number of common shares = 263 000 D. Net income = $540 000 Number of common shares = 110 000 |
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Price-Earnings Ratio |
E. Share price = $83 Earnings per share = $5.50 F. Share price = $75 Earnings per share = $1.50 G Share price = $43.50 Earnings per share = $2.25 |
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Below are the financial statements for Jenkins Corporation, a distributor of athletic wear, located in St. Thomas, Ontario.
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Jenkins Corporation |
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2002 |
2001 |
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Assets |
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Current
Assets |
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Cash |
350 000 |
250 000 |
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A |
910 000 |
900 000 |
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Inventory |
6 020 000 |
5 200 000 |
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Fixed Assets |
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Land and Buildings |
900 000 |
850 000 |
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Equipment |
4 800 000 |
4 400 000 |
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Total Assets |
12 980 000 |
11 400 000 |
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Liabilities |
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Current
Liabilities |
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Bank Loan Payable |
1 700 000 |
2 400 000 |
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A |
450 000 |
460 000 |
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Long Term Liabilities |
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Mortgage Payable |
2 400 000 |
2 500 000 |
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Total Liabilities |
4 550 000 |
6 360 000 |
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Shareholder’s Equity |
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Capital Stock |
8 430 000 |
5 040 000 |
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(2002 - 330 000 shares) |
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(2001 - 275 000 shares) |
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Total Liabilities and Shareholder’s
Equity |
12 980 000 |
11 400 000 |
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Jenkins Corporation |
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2002 |
2001 |
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Sales |
22 000 000 |
16 000 000 |
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Cost of Goods Sold |
16 060 000 |
11 120 000 |
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Gross Profit |
5 950 000 |
4 880 000 |
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Operating Expenses |
3 336 000 |
3 520 000 |
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Net Income |
2 604 000 |
1 360 000 |
Notes:
·
a
·
cash
dividends of $400 000 were paid in 2002 and $275 000 in 2001
·
the
market price for the company’s shares was $86 on December 31, 2002, and $43.50
on
December 31, 2001
1. Calculate the following ratios:
·
working capital, current ratio,
quick ratio, debt ratio, inventory turnover, a
2. Analyse the above ratios and their trends to determine whether or not Jenkins Corporation is a good investment.
Using the Internet, go to the following sites and answer the questions below. Submit your answers to the teacher when completed.
Go to www.cma-canada.org/ontario/default.asp
1. What does CMA stand for? How many CMAs are there in Canada and in Ontario?
2. What do CMAs do? In what industries do they generally work?
3. What three steps must be completed in order to become a CMA? What topics are generally covered?
4. What topics are covered on the CMA test? What type of questions are usually used?
5. How much does the CMA program cost?
Go to www.cica.ca/cica/cicawebsite.nsf/public/homepage
6. What does CICA stand for? How many people does the CICA represent? What is their function?
7. What
is a chartered a
8. What are MOPES?
9. What is the vision statement of the CICA? What is their mission statement?
10. What type of education is required to become a CA?
11. What type of remuneration should CAs expect?
12. What is the UFE? Why is it so important?
Go to www.cga-canada.org
13. What is a CGA? What do they do?
14. How do you become a CGA?
15. What type of practical work experience do you need to become a CGA?
16. What
areas of a
17. What is the purpose of the CGA-Canada? How many people do they represent?
18. How does the CGA promote professionalism?
19. What is the mission statement of the CGA?
20. When was the CGA founded? When was the CGA officially recognized by the Government of Canada?
Unit 6:
Financial Analysis and A
Activity 6.5: Your Future in the Wonderful World of A
Expectations
FA3.01 - describe educational
opportunities in a
FA3.02 - describe current issues in a
FA3.03 - identify career opportunities in
a
In order to gain a practical perspective
on the a
Step 1
Conduct a personal interview with one of the following people:
·
a
local small business owner (business owner must manage business’ finances)
·
an
a
·
a
book keeper
Your task is to collect information on the following:
1. name of business
2. description of business
3. position
4. job description (be specific)
5. educational background
6. other training
7. most
important skills and characteristics to the su
8. biggest challenges faced
9. a
10. importance
of a
11. the role of financial information in decision-making
12. advice to students in secondary school who wish to start a small business
13. other relevant or interesting information
Interview questions must be prepared and approved by the teacher prior to conducting the interview.
Step 2
Following the completion of the interview, prepare a two-or three-page, typed report that summarizes the responses and findings from the interview.
Step 3
Conduct a five-minute presentation to the class on your experience. The focus of your presentation should reflect the expectations of the assignment: educational requirements, detailed description of the career opportunity, and other relevant career-related issues.
Unit 6: Financial Analysis and A
Activity 6.5: Your Future in the Wonderful
World of A
Expectations
FA3.01 - describe educational
opportunities in a
FA3.02 - describe current issues in a
FA3.03 - identify career opportunities in
a
|
Achievement Chart Category |
Level 1 |
Level 2 |
Level 3 |
Level 4 |
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Knowledge/ Understanding |
- demonstrates limited knowledge of career opportunities |
- demonstrates some knowledge of career opportunities |
- demonstrates considerable knowledge of career opportunities |
- demonstrates thorough knowledge of career opportunities |
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Demonstrates knowledge of educational
opportunities |
- demonstrates limited knowledge of educational opportunities |
- demonstrates some knowledge of educational opportunities |
- demonstrates considerable knowledge of educational opportunities |
- demonstrates thorough knowledge of educational opportunities |
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Communication |
- uses electronic tools to describe current issues with limited effectiveness |
- uses electronic tools to describe current issues with some effectiveness |
- uses electronic tools to describe current issues with considerable effectiveness |
- uses electronic tools to describe current issues with a high degree of effectiveness |
Note: A student whose achievement is below Level 1 (50%) has not met the expectations for this assignment or activity.
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