Please see attached assignment
M403 2020W Problem Set 1 Problems Part I: General 1. For each transaction below, write the net effect on Assets (A), Liabilities (L), Equity (E), Revenue (Rev), Expense (Exp), Cash flows from operating activities (CFO), Cash flows from investing activities (CFI), and Cash flows from financing activities (CFF). Write 0 for no net effect and use negative numbers to indicate reductions in accounts or cash outflows. Transaction A L E Rev Exp CFO CFI CFF A Issue $175 of shares B Pay $500 to cover future rent C Recognize expense associated with $500 prepaid rent D Sell inventory (book value of $25) for $60 cash F Purchase $71 of inventory on account E Pay $65 to inventory suppliers owed from prior purchase 2. Assume that the beginning balance of cash was 805. What would the cash balance be after the transactions in the previous problem, assuming no other transactions? Part II: TACO and SHAK Financial Statements and Ratios 3. Use EDGAR or another source to calculate the following ratios and performance measures for Del Taco (NASDAQ: TACO) and Shake Shack (NYSE: SHAK) for the fiscal years ending on January 1, 2019, and December 26, 2018, respectively. · Calculate the ratios based on annual amounts (e.g., annual sales) · For ratios, round to the nearest thousandth and write as decimal numbers, not percent (e.g., write 0.521 rather than 52% or 52 or 0.52 or 0.5213). · Where applicable, use average values rather than beginning or ending balances (e.g., for ROA and Asset turnover). · For Shake Shack, use “Net income” rather than “Net income attributable to Shake Shack, Inc.” Del Taco (FYE 1/1/2019) Shake Shack (FYE 12/26/2018) ROA (Net income /Average total assets) Asset turnover (Sales / Average total assets) Net profit margin (Net income / sales) 4. Based on the ratios you calculated above, briefly comment on the companies’ financial performance for the fiscal years that ended around the end of 2019. · Limit your response to three sentences. Part III: WMT, TGT, and SBUX Financial Statements and Ratios Data: Use SEC EDGAR or another resource to obtain financial statements and notes for the following firms and fiscal year-ends. You can use their 10-K’s or annual reports. Company Exchange: Ticker Fiscal year end Wal-Mart NYSE: WMT January 31, 2019 Target NYSE: TGT February 2, 2019 Starbucks NASDAQ:SBUX September 29, 2019 5. According to the 10-K, how does Target generate revenues? (In one sentence) 6. Calculate the current ratio, gross profit margin, total working capital, and quality of earnings ratio for Target and Wal-Mart for the fiscal years ended February 2, 2019 and January 31, 2019, respectively. 6. For the ratios, round your answer to 3 decimal points. Write your answers as numbers, i.e., for 1.2345, write 1.235 rather than 123.5%. 6. For working capital, round your answer to the nearest million, and leave out the dollar sign ($) and commas. 6. For Wal-Mart’s Gross Profit Margin, please exclude “Membership and other Income.” This will make the number more comparable to Target’s. 6. For Wal-Mart’s net income, please use “Consolidated net income”. 6. For Target’s net income and operating cash flows, please use amounts from continuing operations. Target (February 2, 2019) Wal-Mart (January 31, 2019) Current Ratio (Current Assets/ Current Liabilities) Gross Profit Margin (Gross Profit/ Total Revenue) Total Working Capital (Current assets minus current liabilities) Quality of Earnings Ratio (Cash flows from operations/ Net income) 7. Based on the amounts you calculated above, briefly comment on the companies’ financial positions, both stand-alone and relative to each other. 8. Calculate the current ratio, gross profit margin, total working capital, and quality of earnings for Wal-Mart for the prior fiscal year. 8. For the ratios, round your answer to 3 decimal points. 8. For working capital, round your answer to the nearest million, and leave out the dollar sign ($) and commas 8. For Wal-Mart’s Gross Profit Margin, please exclude “Membership and other Income.” This will make the number more comparable to Target’s. 8. For Wal-Mart’s net income, please use “Consolidated net income”. Wal-Mart (prior fiscal year) Current Ratio (Current Assets/ Current Liabilities) Gross Profit Margin (Gross Profit/ Total Revenue) Total Working Capital (Current assets minus current liabilities) Quality of Earnings Ratio (Cash flows from operations/ Net income) 9. Comparing the ratios you calculated for Wal-Mart’s most recent and prior reported fiscal years, briefly comment on how Wal-Mart’s financial position changed from the prior year to the most recent. (6 points) 10. Explain the accounting rationale behind deferring revenues. 11. In which section of the balance sheet do deferred revenues show up and why? 12. What types of business activities give rise to the deferred revenues? 13. Does Target have any deferred revenue on its balance sheet? If none, write 0. If yes, write the number, in millions of dollars (exclude dollar signs and commas). Hint: Make sure to check the notes. Please ignore “Deferred income” related to the Pharmacy Transaction with CVS. 14. Does Wal-Mart have any deferred revenue associated specifically with membership fees on its balance sheet for the most recent fiscal year reported? Hint: Make sure to check the notes. 15. Does Starbucks have any deferred revenue on its balance sheet for the most recent fiscal year reported? If none, write 0. If yes, write the number, in millions of dollars (exclude dollar signs and commas). Hint: Make sure to check the notes. Please include in your answer deferred revenue related to the Nestle licensing deal, both current and non-current portions. 16. When does Starbucks recognize marketing expenses? How is this treatment different from the treatment of costs of sales related to company-operated store revenues? 17. Using financial statement data for the most recent fiscal year, estimate how much cash Starbucks collected from its customers. Use the following equation: where the changes in A/R and Def. Rev. should be taken from the Statements of Cash Flows.[footnoteRef:1] [1: In using the equation, we want changes in A/R and Def. Rev. that drive a difference between Cash from customers and Net Sales. This is what is reflected in the statement of cash flows prepared under the indirect method because it shows differences between Cash from Operations, which contains cash from customers, and Net Income, which contains Net Sales. Changes from the balance sheet reflect this, but also can reflect (i.e., can be contaminated by) mergers, acquisitions, divestitures, or changes in account balances driven by foreign currency or exchange rate fluctuations.] 18. Using financial statement data for the most recent fiscal year, estimate how much cash Starbucks paid to suppliers of inventory. Use the following equation: where the changes in Inventory and accounts payable should be taken from the Statements of Cash Flows.[footnoteRef:2] [2: In using the equation, we want changes in inventory and accounts payable that drive a difference between Cash paid to inventory suppliers and cost of sales. This is what is reflected in the statement of cash flows prepared under the indirect method because it shows differences between Cash from Operations, which is net of cash paid to suppliers, and Net Income, which is net of COGS. Changes from the balance sheet reflect this, but also can reflect (i.e., can be contaminated by) mergers, acquisitions, divestitures, or changes in account balances driven by foreign currency or exchange rate fluctuations.] M403 2020W PS1 – Problems4