Finance Game #3

2. Prepare one paragraph explaining why actual performance for the quarter was different than projected.

Our forecasted demand was much higher than actual demand. We sold roughly 4,000 units less than projected. This caused a negative variance in Revenue of $411,280. Our cost of goods sold dropped because we had a significant amount of ending inventory leftover due to lower sales. We had a lower actual income than projected because we sold less than projected.

3. Evaluate performance using DuPont equation for quarters 1 &2 (one paragraph). Calculate and show each component of the equation (profit margin, total asset turnover and equity multiplier). Total Asset Turnover ratio must be adjusted reflect annual sales.

DuPont Analysis Quarter 1 Quarter 2

Net Margin .0761 0.1158

Asset Turnover 2.3052 2.1985

Equity Multiplier 1.5100 1.5391

DuPont Equation (ROE) .2649 .3919

Overall the ROE has increase over the last quarter which is a good sign for investors. The major reason for the increase is due to the net margin increase. In quarter one the Company earned eight cents for every dollar of revenue, but for quarter two the Company jumped to earning twelve cents. The asset turnover has decreased due to lower sales and higher inventory levels.

4. Calculate:

A. Stock price as multiple of book value

12,295,255/1,000,000 = 12.30

B. Stock price as a multiple of after-tax earnings

1,204,578/1,000,000 = 1.20

5. Prepare report explaining how the quarter 2 number was developed for:

A. Accounts receivable balance

Accounts Beginning 6,524,661

Cash Collected -

Credit Given 443,821

Ending Accounts Balance 6,968,482

This report shows that $443,821 worth of credit was given over the cash collected during the month. We can make the assumption that more credit sales occurred than cash received because the accounts receivable