FIN – The Worthy Clothier and Rocket, Inc.

PART 1The Worthy Clothier, a seller of clothes, has been in business for several years.An internal cost analyst has prepared the following financial data from the annual reports.You have been hired as a financial consultant to help analyze the financial position. As astart, you are asked to respond to the questions listed.2012Current RatioQuick RatioDay’s Sales in ReceivablesMerchandise Inventory TurnoverDebt RatioTimes Interest EarnedSales as a % of 2008 SalesNet Income as a % of 2008IncomeGross Profit MarginOperating Expenses to NetSalesNet Profit MarginReturn on Total Assetsa.20112010200920082.802.03614.20.484.6146%2.431.93584.10.504.8123%2.361.82544.10.495.9112%2.101.61423.90.475.7106%2.001.47353.70.476.0100%131%38.5%120%38.8%110%38.9%106%40.0%100%39.7%11.4%7.6%9.4%11.3%8.6%9.6%11.5%8.9%9.6%11.4%9.4%10.0%11.7%9.3%10.7%Required: [One sheet only; label with the following letters]Explain the trend in liquidity. Make specific reference to the effect of receivables and inventory onthis trend.b. Briefly describe the trend in the long-term debt-paying ability of Worthy. Explain the cause(s) of thistrend.c. The Net Profit Margin has declined substantially. Cite and discuss specific causes in this decline.d. Has the firm used its total assets effectively? Discuss the ability of the firm to generate sales basedon total assets. Incorporate Du Pont system ( http://en.wikipedia.org/wiki/DuPont_analysis )Dupont = NPM * TAT = ROI * FL = ROEe. Specifically cite and briefly describe two additional types of information, which would aid youranalysis.f. Determine ROE for 2012 and 2011.PART 2The balance sheet for December 31, 2013, and December 31, 2012, and the income statement for theyear ended December 31, 2013, for Rocket, Inc., follow:Rocket, Inc.Balance SheetDecember 31, 2013 and 20122013AssetsCashAccounts Receivable (net)InventoryLandBuilding and EquipmentAccumulated DepreciationTotalAssets$LiabilitiesandStockholders’ EquityAccountsPayableIncome Taxes PayableWagesPayableCurrent Notes PayableCommonStockRetainedEarningsTotalLiabilitiesandStockholders’ Equity$$201225,00060,00080,00050,000130,000(85,000)260,000$30,000$$20,00070,000100,00050,000115,000(70,000)285,0004,00035,0003,00050,0003,00060,0005,000110,00061,000100,00084,000260,000285,000Rocket, Inc.Income StatementFor the Year ended December 31, 2013SalesExpenses:Cost of Goods SoldSelling and Administrative(Includes depreciation of $15,000)Interest ExpenseTotal Expenses500,000330,00090,0005,000425,000Income Before Taxes75,000Income Tax Expense30,000Net Income$45,000Note: Cash Dividends of $68,000 were declaredand paid during 2013.Required: [One sheet only; label with the following letters]a. Prepare the statement of cash flows for 2013 in complete and good form. (Present cash flows fromoperations using indirect method)b. Prepare cash flows from operations using direct method.c. Find "Cash Conversion Cycle" [use year end B/S numbers where necessary]d. Determine FLI (Financial Leverage Index)