MF620 Financial Statement Development and Analysis
Lesson 2: Financial Performance
Activity 2: Financial Performance (4 pages, 100 points)
Part A Bigco’s balance sheet one year ago indicated retained earnings of $450 million. This year, Bigco’s net income was $35 million. It paid its preferred shareholders a dividend of $5 million and paid its common shareholders a regular dividend of $6 million, along with a special one-time dividend of $10 million. What should be the retained earnings amount on this year’s balance sheet?
Part B Wholesale Lumber, Ltd. is a firm that distributes lumber to building supply and home improvement retail stores. The firm’s cost of sales for the most recent year was $45 million, its beginning inventory was $16 million, and its ending inventory was $18 million. Estimate Wholesale Lumber’s purchases of lumber materials for the year. For the most recent fiscal year, the company’s cost of sales was $45 million, its beginning inventory was $16 million, and its ending inventory was $18 million. Estimate Wholesale Lumber’s lumber material purchases for the year.
Part C Star Inc. has year 1 revenues of $80 million, net income of $9 million, assets of $65 million, and equity of $40 million, as well as year 2 revenues of $87 million, net income of $22 million, assets of $70 million, and equity of $50 million. Calculate Star’s return on equity (ROE) for each year based on the DuPont method and compare it with a direct ROE measure. Next, explain why the firm’s ROE changed between year 1 and year 2.
Please refer to the rubric on the following page for the grading criteria for this assignment.