Question

Instructions Part 1: Work in two or three person teams or you can work alone. Prepare an income statement and classified balance sheet for the period ended Dec 31, 20xx. The balance of inventory on Dec 31 is $30. The company’s stock trades on the NASDAQ exchange for $75 per share. Dilbert is an L.L.C. and does not pay federal income taxes.

Dilbert Pharmaceuticals, Inc.
Trial Balance
December 31, 20xx
(in Millions)
Cash	$8
Inventory (Jan. 1, 20xx bal.)	$10
Land	$15
Building	$135
Equipment	$55
Accounts Payables		$20
Wages Payable		$5
Notes Payable (Due in 7 Years)		$100
Common Stock		$50
Retained Earnings		$30
Dividends	$15
Sales		$150
Purchases	$40
Purchases Returns		$2
Purchases Discounts		$3
Freight In	$12
Selling Expenses	$35
R&D Expenses	$20
Loss from Natural Disaster	$15
	$360	$360

Instructions Part 2: Prepare the financial statements needed in excel. Calculate the following ratios. Most of these have come up in class so far but, if not, use your textbook or Investopedia.com to look them up. Calculate (1) Current Ratio; (2) Debt to Asset Ratio; Return on Assets Ratio, Return on Equity Ratio and the Price Earnings Ratio.

Once you have the ratios calculated, write a brief memo, addressed to your teacher, that explains the results of your ratio analysis. Use a memo template found in Microsoft Word or something similar. Make sure to proof read your memo. It will be graded based on content and how professional looking it is. The memo doesn’t have to be excessively long but it should explain your evaluation of Dilbert Pharmaceuticals, Inc.’s liquidity, solvency and profitability. In addition, the memo should conclude with your opinion as to whether the company’s stock is fairly valued or not and why you think that.

Dilbert has been in business since 1982. The company is located in Hot Springs, Arkansas and employs 2,400 people. The company sells pharmaceutical products in the USA, Mexico and Canada. The company’s sales primarily come from three drugs used to treat various cancers and pain loss conditions. Sales and cash flows from operations have increased steadily since the company was founded averaging increases of at least 10% per year. The company operates in a highly competitive global industry and can’t increase selling price on its products without losing significant sales volume and market share.

For the last two years, the current ratio was 1.20 and 1.35 and the debt to asset ratio was 45% and 48%. The industry average for these two ratios is 2.0 and 70%. For previous years, the ROA has been 15% and 18%. The industry average is 20%. For previous years, the ROE has been 35% and 38%. The industry average is 40%. For the other companies in Dilbert’s industry, the Price Earnings Ratio average is 50. For the S&P 500, the average Price Earnings Ratio is 20. That should be all the data you need to complete this assignment. The Earnings Per Share for the year ended 20xx is $2.50.

Answer 1

ANSWER

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