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Financial Review – Instructions

Assignment #2: Huckle’s Piano Service
Dudley Huckle repairs a variety of keyboard instruments from his shop in Belleville, ON. He started out on his own two years ago after buying the business of his mentor, Ludwig Mozart. The business employs 6 piano repair techs, plus Dudley. Currently, they tune and fix pianos in eastern Ontario, but Dudley believes the business can grow if he hires some new employees and opens a new office closer to Toronto. His services are sold to the major music shops in the area and, although he occasionally tunes pianos for individuals, he wants to focus on his B2B business.
Dudley’s accountant has just finished the Current Year (actual) financial statements, so Dudley now has two full years of actual results to compare with each other. Because he knows that it is important to plan and budget for the future, Dudley has also prepared a Plan for next year. This incorporates Dudley’s idea to hire new staff and open a new office. He wants to increase his return on equity, so he is planning to finance this expansion by simply getting another loan from his bank.
Approximately 75% of Dudley’s sales are on credit. 25% are cash sales. 65% of Dudley’s purchases are on credit
At the beginning of the year, Dudley rented much of his equipment and tools. He has since bought out some of Mozart’s assets at auction, and plans to buy more equipment since he feels that renting is really expensive.
Required:
1. Using Excel formulas, complete the missing information, ie the coloured cells, in the attached worksheet (totals, Income Taxes,
% differences between years and plans, etc).
2. Perform a horizontal analysis comparing the Actual amounts for the current year to last year’s results, and also to the Planned amounts for next year. Discuss any items you think are unusual, unrealistic, good, bad, or otherwise interesting
3. Calculate the financial ratios indicated in the coloured cells. Comment on the company’s performance in the areas of
profitabillity, efficiency, liquidity, and leverage. What do you think of Dudley’s plan to expand, and how he intends to finance it?
Marks will be awarded as noted in the yellow cells.
Save your completed Excel file, ensuring your name is included in the file name. Submit the completed Excel file via Blackboard before the end of the day Wednesday March 9.
Hints:
1)
Last year was the first year of operations, so some of last year’s ratios require a slightly different calculation. These have been provided for you.
2)
Cash Flow From Operations is one of the required calculations.
To calculate this number, take Net Income and add back the Depreciation expense, to arrive at Net Income before Depreciation (“NIBD”). Then calculate any increase or decrease in Working Capital from the beginning to the end of the period. (Working Capital for this purpose is Receivables plus Inventory, minus Current Liabilities). An increase in Working Capital should be deducted from NIBD, and a decrease in Working Capital should be added to NIBD, in order to arrive at Cash Flow From Operations.

Worksheet

Student Name Student Number
Dudley Huckle

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