BUS522 Financial Tools for

Managers

Shark Tank: Wicked Good Cupcakes II

Due Date: Sunday by 11:59 p.m. EST of Unit 2 Total Points: 100

Evaluating Financial Performance – Ratio Analysis

In this assignment, you will be comparing financial ratios between Wicked Good Cupcakes and the company you chose to blog about in Unit 1.

Instructions:

 Provide a brief financial summary of Wicked Good Cupcakes and the company you chose in Unit 1.

 Using the attached Ratio Excel spreadsheet for Wicked Good Cupcakes (WGC), calculate all the ratios listed. Instructions on how to calculate the ratios are included in the spreadsheet provided.

o Copy and paste your ratio calculation as a Table 1, inserted into a

Word document.

o What do these ratios suggest about the company’s performance

during the period presented?

o In Table 2, list the 5 ratios from your ‘blog company’ and corresponding

ratios for WGC.

o Are these ratios ‘comparable’ for these two companies? Explain why you

think they are/not comparable.

o Which ratios would a senior operational manager for WGC be most

interested in following? Why?

Requirements:

 All questions posed must be addressed completely.

 All sources used must be properly cited in APA format.

Be sure to read the criteria, by which your assignment will be evaluated,

before you write, and again after you write.

Evaluation Rubric for Shark Tank: Wicked Good Cupcakes II Assignment

CRITERIA Exemplary Proficient Deficient

(9 – 10 Points) (7 – 8 Points) (0 – 6 Points)

Overview of the Two Companies

An overview is clearly

presented including

all key details.

An overview is

presented, though

key details may not

be clearly or

completely

presented.

Does not provide an

overview or the

overview is missing

key details.

(18 – 20 Points) (13 – 17 Points) (0 – 12 Points)

Table 1

w/Evaluation of the

Company’s

Performance

Table 1 and

evaluation are clearly

presented including

all key details.

Table 1 and

evaluation are

presented, though

key details may not

be clearly or

completely presented.

Does not provide

Table 1 and

evaluation or is

missing key details.

Table 2 The Table 2 is clearly

presented including

all key details.

Table 2 is presented,

though key details

may not be clearly or

completely presented.

Does not provide

Table 2 or missing

key details.

Compare and

Contrast Both

Company’s Ratios

The comparison is

clearly presented

including all key

details.

The comparison is

presented, though

key details may not

be clearly or

completely presented.

Does not compare

and contrast or is

missing key details.

Ratios Important to

a Senior

Operational

Manager and

Rationale

The important ratios

and rationale are

clearly presented

including all key

details.

The important ratios

and rationale are

presented, though

key details may not

be clearly or

completely presented.

Does not provide

important ratios and

rationale or is missing

key details.

(9 – 10 Points) (7 – 8 Points) (0 – 6 Points)

Clear and

Professional

Writing and APA

Format

Writing and format is

clear, professional,

APA compliant, and

error free.

Few errors that do

not impede

professional

presentation.

Errors impede

professional

presentation;

guidelines not

followed.

WickedGoodCupcakes

	ANNUAL BALANCE SHEET
	($ Thousands)
									31-Dec-15	31-Dec-16
			31-Dec-15	31-Dec-16
	ASSETS							Profitability Ratios (in %)
	Cash & Short-Term Investments		$17.11	$25.05				Return on equity
	Net Receivables		$1.62	$1.84				Return on assets
	Inventories		$42.72	$39.68				Return on invested capital
	Prepaid Expenses		$0.00	$0.00				Profit margin
	Other Current Assets		$3.38	$2.93				Gross margin
	Total Current Assets		$64.84	$69.49				Turnover-Control Ratios
								Asset turnover
	Gross Plant, Property & Equipment		$63.75	$58.28				Fixed-asset turnover
	Accumulated Depreciation		$36.16	$32.61				Inventory turnover
								Collection period (days)
	Net Plant, Property & Equipment		$27.58	$25.67				Days' sales in cash
	Intangibles		$5.88	$6.01				Payables period
	Other Assets		$6.16	$5.81
								Leverage and Liquidity Ratios
	TOTAL ASSETS		$104.47	$106.98				Assets to equity
								Debt to assets
	LIABILITIES							Debt to equity
	Long Term Debt Due In One Year		$0.00	$0.00				Times interest earned
	Accounts Payable		$10.59	$11.91				Current ratio
	Taxes Payable		$1.87	$2.01				Acid test
	Accrued Expenses		$7.19	$6.91
	Other Current Liabilities		$1.88	$1.85
	Total Current Liabilities		$21.54	$22.67
	Long Term Debt		$6.95	$19.79
	Deferred Taxes		$1.16	$2.32
	Other Liabilities		$3.04	$2.43
	TOTAL LIABILITIES		$32.68	$47.21
	EQUITY
	Common Stock		$0.07	$0.06
	Capital Surplus		$27.25	$24.31
	Retained Earnings		$73.89	$61.10
	Less: Treasury Stock		$29.42	$25.71
	TOTAL EQUITY		$71.79	$59.77
	TOTAL LIABILITIES & EQUITY		$104.47	$106.98
	Common Shares Outstanding		$5.14	$5.05
	Annual Income Statement
	($ Thousands, except per share )
	Sales		$179.24	$164.28
	Cost of Goods Sold		$95.71	$91.99
	Gross Profit		$83.53	$72.29
	Selling, General, & Administrative Exp.		$56.36	$50.65
	Operating Income Before Deprec.		$27.17	$21.64
	Depreciation,Depletion,&Amortization		$5.85	$5.89
	Operating Profit		$21.33	$15.74
	Interest Expense		$0.88	$0.56
	Non-Operating Income/Expense		$0.93	$0.31
	Special Items		$0.00	$0.00
	Pretax Income		$21.38	$15.49
	Total Income Taxes		$7.23	$5.60
	Income Before Extraordinary
	Items & Discontinued Operations		$14.15	$9.90
	Savings Due to Common Stock Equiv.		$0.00	$0.00
	Adjusted Net Income		$14.15	$9.90
	EPS Basic from Operations		$0.26	$0.19
	EPS Diluted from Operations		$0.25	$0.19
	Dividends Per Share		$0.02	$0.00
	Com Shares for Basic EPS		$5.06	$5.12
	Com Shares for Diluted EPS		$5.21	$5.27

Financial ratio analysis A reading prepared by Pamela Peterson Drake

O U T L I N E

1. Introduction 2. Liquidity ratios 3. Profitability ratios and activity ratios 4. Financial leverage ratios 5. Shareholder ratios

1. Introduction As a manager, you may want to reward employees based on their performance. How do you know how well they have done? How can you determine what departments or divisions have performed well? As a lender, how do decide the borrower will be able to pay back as promised? As a manager of a corporation how do you know when existing capacity will be exceeded and enlarged capacity will be needed? As an investor, how do you predict how well the securities of one company will perform relative to that of another? How can you tell whether one security is riskier than another? We can address all of these questions through financial analysis.

Financial analysis is the selection, evaluation, and interpretation of financial data, along with other pertinent information, to assist in investment and financial decision-making. Financial analysis may be used internally to evaluate issues such as employee performance, the efficiency of operations, and credit policies, and externally to evaluate potential investments and the credit-worthiness of borrowers, among other things.

The analyst draws the financial data needed in financial analysis from many sources. The primary source is the data provided by the company itself in its annual report and required disclosures. The annual report comprises the income statement, the balance sheet, and the statement of cash flows, as well as footnotes to these statements. Certain businesses are required by securities laws to disclose additional information.

Besides information that companies are required to disclose through financial statements, other information is readily available for financial analysis. For example, information such as the market prices of securities of publicly-traded corporations can be found in the financial press and the electronic media daily. Similarly, information on stock price indices for industries and for the market as a whole is available in the financial press.

Another source of information is economic data, such as the Gross Domestic Product and Consumer Price Index, which may be useful in assessing the recent performance or future prospects of a company or industry. Suppose you are evaluating a company that owns a chain of retail outlets. What information do you need to judge the company's performance and financial condition? You need financial data, but it doesn't tell the whole story. You also need information on consumer

Financial ratios, a reading prepared by Pamela Peterson Drake 1

spending, producer prices, consumer prices, and the competition. This is economic data that is readily available from government and private sources.

Besides financial statement data, market data, and economic data, in financial analysis you also need to examine events that may help explain the company's present condition and may have a bearing on its future prospects. For example, did the company recently incur some extraordinary losses? Is the company developing a new product? Or acquiring another company? Is the company regulated? Current events can provide information that may be incorporated in financial analysis.

The financial analyst must select the pertinent information, analyze it, and interpret the analysis, enabling judgments on the current and future financial condition and operating performance of the company. In this reading, we introduce you to financial ratios — the tool of financial analysis. In financial ratio analysis we select the relevant information — primarily the financial statement data — and evaluate it. We show how to incorporate market data and economic data in the analysis and interpretation of financial ratios. And we show how to interpret financial ratio analysis, warning you of the pitfalls that occur when it's not used properly.

We use Microsoft Corporation's 2004 financial statements for illustration purposes throughout this reading. You can obtain the 2004 and any other year's statements directly from Microsoft. Be sure to save these statements for future reference.

Classification of ratios

A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and another. Consider the ratio of current assets to current liabilities, which we refer to as the current ratio. This ratio is a comparison between assets that can be readily turned into cash — current assets — and the obligations that a