ED-16/Comprehensive Problem D:

ED-16 Computing trend analysis

Magic Oaks Realty’s net revenue and net income for the following five year period using 2012 as the base year, follow:

2016 2015 2014 2013 2012

Net Revenue $ 1,310,000 $ 1,187,000 $ 1,110,000 $ 1,011,000 $ 1,045,000

Net Income 122,000 113,000 84,000 72,000 83,000

Requirements

1. Compute trend analysis for net revenue and net income. Round to the nearest full percent.

2. Which grew faster during the period, net revenue or net income?

Comprehensive Problem D

Analyzing a company for its investment potential

In its annual report WRS Athletic Supply Inc includes the following five year financial summary.

WRS ATHLETIC SUPPLY, INC.

Five-Year Financial Summary (Partial; adapted)

(Dollar amounts in thousands except per share data)

2018 2017 2016 2015 2014 2013

Net Sales $244,524 $217,799 $191,329 $165,013 $137,634

Net Sales Increase 12% 14% 16% 20% 17%

Domestic Comparative Store Sales Increase 5% 6% 5% 8% 9%

Other Income—Net 2,001 1,873 1,787 1,615 1,391

Cost of Goods Sold 191,838 171,562 150,255 129,664 108,725

Operating, Selling, and General and Administrative Expenses 41,236 36,356 31,679 27,408 22,516

Interest:

Interest Expense (1,063) (1,357) (1,383) (1,045) (803)

Interest Income 138 171 188 204 189

Income Tax Expense 4,487 3,897 3,692 3,338 2,740

Net Income 8,039 6,671 6,295 5,377 4,430

Per Share of Common Stock:

Net Income 1.81 1.49 1.41 1.21 0.99

Dividends 0.30 0.28 0.24 0.20 0.16

Financial Position

Current Assets, Excluding Merchandise Inventory $ 30,483 $ 27,878 $ 26,555 $ 24,356 $ 21,132

Merchandise Inventory at LIFO Cost 24,891 22,614 21,442 19,793 17,076 $16,497

Property, Plant, and Equipment, Net 51,904 45,750 40,934 35,969 25,973

Total Assets 94,685 83,527 78,130 70,349 49,996

Current Liabilities 32,617 27,282 28,949 25,803 16,762

Long-term Debt 22,731 21,143 17,838 18,712 12,122

Shareholders’ Equity 39,337 35,102 31,343 25,834 21,112

Financial Ratios

Acid-test Ratio 0.9 1.0 0.9 0.9 1.3

Rate of Return on Total Assets 10.2% 9.9% 10.3% 10.7% 9.6%

Rate of Return on Shareholders’ Equity 21.6% 20.1% 22.0% 22.9% 22.4%

Requirements

1. Analyze the company’s financial summary for the fiscal years 2014–2018 to decide whether to invest in the common stock of WRS Include the following sections in your analysis, and fully explain your final decision.

1. Trend analysis for net sales and net income (use 2014 as the base year).

2. Profitability analysis.

3. Evaluation of the ability to sell merchandise inventory (WRS uses the LIFO method).

4. Evaluation of the ability to pay debts.

5. Evaluation of dividends.