Question

Please I need Help with: BM155 Project 5

Managing and Interpreting Key Financial Information & Statements

Project Description:

T & T, Inc. is an up-and-upcoming small business that makes widgets. As a founding partner in this small business, you are responsible for managing the company’s financials. To help you complete this responsibility, use the information you learned in Chapter 10 and 11 on understanding a company’s finances.

Using the Project 5 Supplement Data Sheet, compose the Income Statement for the fiscal year of 2018 and balance sheet for December 31, 2018.

Form the income statement, calculate the gross profit margin, operating profit margin, and the net profit margin for T & T, Inc.

After creating both financial statements, calculate the current ratio, return on assets, debt ratio, & return on equity for T & T, Inc.

Using the Project 5 Supplement Data Sheet, compose the three-month cash budget for T & T, Inc. for January, February, & March 2019.

Type up your income statement (with all 3 required margin percentages), balance sheet, current ratio, return on assets, debt ratio, return on equity, and three-month cash budget in an Excel file.

Project #5 Supplement Data Sheet - Managing and Interpreting Key Financial Information & Statements

Company Name: T & T, Inc.

Type of Business: Manufacturer (producer)

Product: Widget

Income statement related financial information:

Sales of product

• Widgets are sold for $30 individually, In 2018 70,000 units were sold
  Cost of goods sold

• 1 widget costs $15 to make
  Operating Expenses
• Billboard in downtown Chicago - $10,000 monthly
• Print Ads on the CTA - $3,000 monthly
• Administrative costs - $5000 monthly
• Selling expense - $12,000 monthly
• Salary expense - $50,000 monthly
• Depreciation of truck - $500 monthly (life of 6 years)
  Interest Expense

• Mortgage $2,000 monthly
• Equipment loan interest $500 monthly
  Income Tax
• 22% annually on profits b4 tax
  Dividend of $10,000 paid
  
  
  
  Balance sheet related financial information:
  Current assets
• Cash $150,000
• Accounts Receivable $450,000
• Inventory $300,000
  Fixed assets

• New manufacturing equipment $50,000
• New facility - building & land $250,000 (**T & T, Inc. invested $50,000 cash as down payment, remaining funds came from a bank mortgage)
  Other assets

• T & T, Inc. holds a manufacturing process patent $150,000
  Short-term debt
• Account Payable $200,000
• Accrued Expense $25,000
• Short-term note $50,000
  Long-term debt

• Mortgage $200,000
• Long-term note $50,000
  Equity

• Common stock $787,880
• Retained earnings $37,120
  
  
  
  
  
  Cash budget related financial information:
  Historical sales, sales projections, inventory costs

2018 Historical Sales Data		2019 Predicted Sales Data
November	$75,000	January	$100,000
December	$75,000	February	$180,000
		March	$180,000
		April	$190,000
		May	$250,000

Percentage of collections AR

• Of T & T, Inc.’s sales, 40% is collected in the month of the sale, 30% is collected in the following month, and the remaining 30% is collected in the month after that.
  Inventory costs & schedule
• Inventory will be purchased 1 month in advance of sale, but will be paid in the month of the sale.
• Inventory costs will be 60% of following month’s expected sales.
  Operating Cash Disbursements:

• Billboard in downtown Chicago - $10,000 monthly
• Print Ads on the CTA - $3,000 monthly
• Administrative costs - $5000 monthly
• Selling expense - $12,000 monthly
• Salary expense - $50,000 monthly
• Utilities – Cost is 2% of current month’s sales – paid for in the same month
  Cash Flows from Operations:

• To boost cash flow to start the new fiscal year of 2019, common stock is sold for $100,000
• To expand manufacturing capacity for peak production times during early summer, T & T, Inc. will invest in renovations to their facility for $15,000 in March.
• To go along with the expanded capacity of facility, T & T, Inc. will purchase additional equipment for $10,000 in March.
  
  
  Key Financial Ratios:

1. To understand the liquidity of T & T, Inc. calculate the current ratio. (Industry avg. 2.2)
2. To understand T & T, Inc.’s profitability on its assets calculate the return on assets (ROA). (Industry avg. 12%)
3. To understand the use of debt by T & T, Inc. calculate the debt ratio. (Industry avg. 50%)
4. To find out the rate of return (ROR) earned by the owners on their equity investment in T & T, Inc. calculate the return on equity (ROE). (Industry avg. 10%)

BM155 Financial Services: Project 5

Answer 1

a) Income Statement

Income statement for the year ending 31.12.2018
	Year ended 31.12.2018
Net Sales	2,100,000
Cost of Goods Sold	1,050,000
Gross Profit Margin	1,050,000
Gross Profit Margin % (Gross Profit/Net Sales)	50.00%
Operating Expenses:
Billboard in downtown Chicago	120,000
Print Ads on the CTA	36,000
Administrative costs	60,000
Selling expense	144,000
Salary expense	600,000
Depreciation	6,000
Total Operating Expenses	966,000
Operating Profit Margin	84,000
Operating Margin % (Operating Profit Margin/Net Sales)	4.00%
Interest expenses	30,000
Income Tax	11,880
Net Profit margin	42,120
Net Profit Margin % (Net Profit Margin/Net Sales)	2.01%

b) Balance Sheet & Ratios

Balance Sheet for the year ended 31.12.2018
Assets
Current Assets
Cash	150,000
Accounts Receivable	450,000
Inventory	300,000
Total Current Assets	900,000
Fixed assets
New manufacturing equipment $50,000	50,000
New facility - building & land	250,000
Other assets
T & T, Inc. holds a manufacturing process patent	150,000
Total Assets	1,350,000
Liabilities & Shareholder's Equity
Current Liabilities
Account Payable	200,000
Accrued Expense	25,000
Short-term note	50,000
Total Current Liabilities	275,000
Long Term Liabilities
Mortgage	200,000
Long-term note	50,000
Total Long Term Liabilities	250,000
Total Liabilities	525,000
Stockholder's equity
Equity	787,880
Retained Earnings	37,120
Total Stockholders Equity	825,000
Total Liabilites and Shareholder's equity	1,350,000
Current ration = Current Assets/Current Liabilities =	900000/275000	3.27
Debt Equity Ratio = Long term Liabilities/Stockholder Equity =	250000/825000	30.3%
Return on Assets = Net Profit/Total Assets =	42120/1350000	3%
ROE = Net Profit/Stock Holders Equity =	42120/825000	5.1%

c) Cash Budget

Cash Budget for 3 months
Particulars	Jan	Feb	Mar	Total
Cashflow from Operating activities
Cash received from Customers	85,000	124500	156000	365,500
Less: Cash paid for
Inventory Purchases	60,000	108000	108000	276,000
Billboard in Downtown Chicago	10,000	10,000	10,000	30,000
Print ads on the CTA	3,000	3,000	3,000	9,000
Administrative expenses	5,000	5,000	5,000	15,000
Selling expenses	12,000	12,000	12,000	36,000
Salary Expenses	50,000	50,000	50,000	150,000
Utilities	2,000	3,600	3,600	9,200
Net Cash from Operating Activities	(57,000)	(67,100)	(35,600)	(159,700)
Cashflow from Investing activities
Facility Renovation			(15,000)	(15,000)
Additional Equipment purchase			(10,000)	(10,000)
Net Cash from Investing Activities	-	-	(25,000)	(25,000)
Cashflow from financing activities
Sale of Common Stock			100,000	100,000
Net Cash from Financing Activities	-	-	100,000	100,000
Net increase/(decrease) in cash	(57,000)	(67,100)	39,400	(84,700)

Workings

Cash Collection is as per below schedule in line with given information - 40% in current month, 30% in following month and 30% in month after following month

Cash Collection Schedule
Cash collection	Sales	Jan Collection	Feb Collection	March Collection
November	75,000	22,500
December	75,000	22,500	22,500
Jan	100,000	40,000	30,000	30,000
Feb	180,000		72,000	54,000
March	180,000			72,000
Total Collection		85,000	124,500	156,000

Inventory payment Schedule

Inventory payments	December	Jan	Feb	March	April
Sales	75000	100000	180000	180000	190000
60% Inventory costs paid in the month of sales though purchased for following month sales		60000	108000	108000	114000