Question 39:

Comparison of Annual Reports

Cara Operations Ltd.
Hudsons Bay Company
Facts about the
corporations:
What the
corporation is all
about
Historical picture
Future Plans
Top Competitors
(4 marks)

Sales (Revenue) (2 marks)

Profit/Losses (2 marks)
Total Assets (2 marks)
Identify trend for sector or
product (4 marks)
Evidence of trend found in
Annual Report (6 marks)

Caras is about serving

good quality food at
restaurants with excellent
customer service. Caras
was founded in 1883. In
the future Caras plans on
opening more restaurants
for convenience to the
customer.
Two
of
Caras
top
competitors
are
Tim
Hortons
Inc.,
and
McDonalds.
$128,600K
$104,065K
$839,841K
Providing more convenient
sources for customer;
increasing
developing
alternative channels
by providing drivethrus, take-out, call
ahead and delivery
options

Hbc provides a wide

selection of goods and
services through retail
chains.
Hbc
was
established
in
1670.
Future plans for Hbc is to
operate
as
a
single
shopping
solution
to
provide a seamless and
common cost effective
back-of-house to the
customer. One of Hbcs
top competitors is WalMart Inc.
$7,383,813K
$182,763K
$4,275,687K
Creating exclusive product
for Hbc; increasing

Tommy
Hilfiger,
Nautica, Polo, Jones
New York, Chap,
Ralph
Lauren,
added
to
new
exclusive
brands
Mac
and
Jac,
Maxfield
and
Melrose. They also
sourced
for
companies outside
Canada to become
exclusive to Hbc.

Question 40:
Caras is an industry leader for restaurant and dining experience. Hbc is in the
merchandise industry. Caras presented their financial data by providing a

consolidated balance sheet, consolidated statements of earnings and retained

earnings on the same sheet. Finally provided consolidated statements of cash flow.
Hbc presented their financial data by providing consolidated statements of
earnings, then consolidated statements of retained earning separately, next
consolidated balance sheets, finally consolidated statements of cash flow. Caras
report is much longer and is more detailed then Hbcs report. Cara has more defined
future plans but Hbc has better font which makes it easier to read.

Question 41:
The note is for additional information. This also helps the finance division create the
balance sheet and run the final numbers. The note allows investors and
shareholders to understand the companys worth. It lists the accumulated
amortization schedule and lists assets and how it is depreciated.

Question 42:
Acorn Construction Company
Cash Flow Statement Indirect Method
For the year ended December 31, 2008
Cash flow from operating activities
Net Income
Adjustments to reconcile net income to net cash provided
by operating activities
Loss on sale of equipment
4800
Increase in accounts receivable
(33000)
Decrease in inventory
6600
Increase in accounts Payable
4000

8600

(17600)
Net cash used by operating activities
Cash Flow from investing activities
Purchase of equipment
Sale of equipment
Net cash used in investing activities
Cash Flow from financing activities
Payment of cash dividends
Net cash provided by financing
Net decrease in cash
Cash January 1st
Cash December 31, 2008

(9000)
(150000)
54000
(96000)
(40000)
(40000)
(145000)
0
(145000)

Question 43:
Leafs Inc.
Comparative Income Statement
December 31, 2007 and 2006
2007
2006
$ Increase/
(Decrease)
2176250
2098625
77625
1574375
1563500
10875

% Increase/
(Decrease)
3.7
0.7

601875

535125

66750

12.5

Freight
Warehousing

51000
60950

46875
56250

4125
4700

8.8
8.4

Total Other Cost of

Sales

111950

103125

8825

8.6

Net Margin

489925

432000

57925

13.4

Selling expenses
Administration
expenses

134625
25000

135406
25000

(781)
0

(0.6)
0

Pre-tax income
Income tax expense

330300
148635

271594
122217

58706
26418

21.6
21.6

Net Income

181665

149377

32288

21.6

Sales
Acquisition cost of
goods sold
Gross Margin

Question 44:
Warehousing cost refers to the cost of storage and handling of goods.
Question 45:
Selected Information for High

Dollars ($)

Component

Plains Company Inc.

Income Statements
2007 2006
Net Sales
Cost of Goods Sold
Gross Profit on sales
Expenses (including income tax)

2007

2006

800000
500000
250000
150000

600000
360000
240000
180000

Percentages (%)
2007
2006
100
62.5
31.25
18.75

100
60
40
30

Question 46:
The year-to-year changes are not favourable, costs of goods have increased by
2.5% and the profit on sales has decreased by 8.75% between 2006 and 2007. Even
though the expenses have decreased by 11.25% it can be thought of as the
decrease is due to lack of sales which would decrease the income taxes paid by the
company.

Question 47:
Introduction
This report provides information on the advantages and disadvantages of
debt and equity financing. The client is looking to expand his business and needs to
explore his financial options. There are a few paths to choose from which are
detailed in this report. The client wants to increase his product generation to meet
consumers demands, which he needs financial backing to purchase the necessary
means.
Notes Payable
Notes payable are promissory notes to the loaning financial institution. The
bank may require pledged collateral and/or the business owners to personally
guarantee the loan. It will require a business office(s) to sign formal loan agreement.
If the loan is approved it will be listed in the general ledger under the account,
Notes Payable. This is a loan on guarantee for repayment, which will increase the
companys debt.
Bonds
Bonds are certified loans at which the issuer promises to pay the holder a
specific amount of interest for a length of time. These are issued by corporations
and the government at all levels. There are many different types of bonds. Secured

bonds are attached to an asset, for example a mortgage bond would be secured by
the land. Debenture bond also called unsecure bonds and require no asset, are
usually used by large corporations with good credit ratings. Term bonds which
mature on a specific date and on that date the payment is due. Serial bonds mature
in instalments which include both principal and interest. Registered bonds are the
most common type, interest payments are made to the registered owner. Bearer
bonds are transferable and holders must send in coupons to collect interest.
Convertible bonds can be converted into shares, interest is paid until converted.
Redeemable bonds also called retractable bonds can be traded in before maturity.
Finally there are junk bonds they are speculative and have a high rate of nonpayment. If this is the way that is chosen a bond rating agency will help the
investors to decide the type and amount dependant on the risk level given by the
agency. This increases the companys debt.

Equity Financing
Equity financing is a way to obtain cash flow without increasing debt. It is a
method where funding comes from an investor in exchange for a share of the
ownership. Venture capital is provided by an outside investor to businesses with
growth potential in exchange for shares. These are considered high risk as the
investors may not receive back their capital investment. Angel investors are
individuals or groups who invest and look for high returns. They typically invest after
entrepreneurs capital from family and friends has been exhausted but before it
reaches the stage at which it is eligible for venture capital. Angel investment
typically ranges from $10,000 to $150,000 but may range upwards to $500,000. In
return the investor will be highly involved with the business. As most Angel
investors are retired executives and entrepreneurs and their advice is very valuable.
What Investors Look For
Investors look at current ratio, profit margin and debt ratio when deciding to
provide financing or to invest. When lenders and investors want to know if a
company can pay their bills they look at current ratio. A current ratio over 1 is good,
which this company has. Profit margins are ratios stated in percent of sales. As this
is smaller company investors and lenders will be looking for a higher margin, 22% is
the present profit margin, which is good. Debt ratios show the relationship in debt to
the assets. Interested parties look at this number to see if the business operates
efficiently. A lower percentage of total debt to asset is more desirable. This company
has a 39.1 % which means 39.1% assets have been purchased by credit.
Conclusion
In conclusion the recommendation is to find an interested angel investor for
the company. The preferred investor should have previous experience with similar

companies. This will help by not adding extra debt, and also by providing frequent
and valuable advice to the owner. With the companys current ratio, profit margin
and debt ratio it should not be long before they find a suitable angel investor.

Question 48:
a)
Youre a Star
Comparative Income Statement
2005
2006
539075
650750
33000
44000
506075
606750
93.88
93.24

2007
825600
55000
770600
93.34

Sales
Total Cost of Sales
Gross Profit
Gross Profit %
Expenses:
Payroll
Sales and marketing and other expenses
Depreciation
Insurance
Rent
Utilities
Leased equipment
Payroll taxes
Total Operating Expenses
Profit before interest and taxes
Interest expense
Taxes incurred

150000
25200
7200
5400
60000
25200
27600
22500
323100
182975
10926
42424

150000
25200
7200
5400
60000
25200
27600
22500
323100
283650
12531
67780

150000
25200
7200
5400
60000
25200
27600
22500
323100
447500
14174
110137

Net Profit
Net Profit/sales

129625
24.05%

203339
31.25%

323189
39.15%

b)
The consolidated balance sheet for company Youre a Star shows an increase in new
worth, sales, assets, every year. Also how there was a large jump between 2006 and
2007 in assets.
c)
The cash received shows a decrease in new current borrowing, and new investment
received accounts, while there was an increase in the sales account. The
Expenditures shows the cash spending is the same every year, purchase of longterm assets decreased, while net cash flow is increasing.

d)
i)
2005
0.00
29.2

Sales Growth
Accounts receivable percentage of total
Assets
Sales
Gross Margin
93.88
Current Ratio
1.27:1
Total Debt to Total Assets
75.17
Net Profit Margin
24.05
Assets to sales
59.12
Current Debt/Total Assets
40.97

2006
20.72
16.91

2007
26.87
12.4

93.24
2.77:1
52.97
31.25
102.1
35.21

93.34
3.17:1
42.08
39.15
139.21
31.03

ii)
The ratios indicate how well the company is progressing over the fiscal period which
helps investors and stockholders understand the companys financial state.
Question 49:
Key financial indicators are the current ratio, and net profit margin.