Question

Formulating Financial Statements from Raw Data
Following is selected financial information from General Mills, Inc., for its fiscal year ended May 29, 2016 ($ millions):
Revenue $16,563.1 Cost of goods sold $10,733.6
Cash from operating
activities 2,629.8 Cash, ending year 763.7
Cash, beginning year 334.2 Total liabilities 16,405.2
Stockholders' equity 5,307.1 Cash from investing a
ctivities 93.4
Non-cash assets 20,948.6 Total expenses (other
than cost of goods sold) 4,092.7
Cash from financing activities (2,293.7)
Cash from financing activites includes the effects of foreign exhange rate fluctuations.
A) Prepare the income statement, the balance sheet, and the statement of cash flows for General Mills for the fiscal year ended May 29, 2016.
General Mills, Inc.
Income Statement ($ millions)
For Year Ended May 29, 2016
Revenue
Cash, ending yearTotal expensesCost of goods soldNon-cash assets
Gross profit
Cash, ending yearTotal expensesCost of goods soldNon-cash assets
Net income
General Mills, Inc.
Balance Sheet ($ millions)
May 29, 2016
Cash Total liabilities
Cash, beginning yearNon-cash assets
Stockholders' equityNet income
Total assets Total liabilities and equity
General Mills, Inc.
Statement of Cash Flows ($ millions)
For Year Ended May 29, 2016
Cash from operating activities
Non-cash assetsNet incomeCash, beginning yearCash from investing activities
Cash from financing activities
Net change in cash
Noncash assetsNet incomeCash, beginning yearCash from investing activities
Cash, ending year
B) Does the negative amount for cash from financing activities concern us? Explain.
1) A negative amount for cash from financing activities implies that the company is unable to pay its debts as they come due and should be interpreted negatively.
2) A negative amount for cash from financing activities is the result of additional borrowings. Because the additional funds are invested in earnings-generating assets, this should be viewed positively.
3) A negative amount for cash from financing activities implies that the market value of the company's long-term debt has declined and this change should be viewed negatively.
4) A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.
C) Using the statements prepared for part a. compute the following ratios (for this part only, use the year-end balance instead of the average for assets and stockholders' equity):
i) Profit margin
ii) Asset turnover
iii) Return on assets
iv) Return on equity

Answer 1

Answer:

General Mills, Inc.

A1: General Mills, Inc.

Income Statement ($ millions)

For Year Ended May 29, 2016

Revenue                          $16,563.1

Cost of goods sold          10,733.6

Gross profit                        5,829.5

Total Expenses                 4,092.7

Net income                      $1,736.8

A2: General Mills, Inc.

Balance Sheet ($ millions)

May 29, 2016

Cash                                    $763.7

Non-cash assets             20,948.6

Total Assets                    $21,712.3

Total liabilities                  16,405.2

Stockholders' equity         5,307.1

Total liabilities & equity  $21,712.3

A3: General Mills, Inc.

Statement of Cash Flows ($ millions)

For Year Ended May 29, 2016

Cash from operating activities    $2,629.8

Cash from investing activities             93.4

Cash from financing activities      (2,293.7)

Net change in cash                        $429.5

Cash, beginning year  334.2

Cash, ending year       763.7        $429.5

B. Negative amount for cash from financing activities:

4) A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.

C) Using the statements prepared for part a. compute the following ratios (for this part only, use the year-end balance instead of the average for assets and stockholders' equity):

i) Profit margin

= Net Income/Revenue * 100

= $1,736.8/$16,563.1 * 100

= 10.48%

ii) Asset turnover

= Revenue/Average Assets

= $16,563.1/$21,712.3

= 0.76

iii) Return on assets

= Net Income/Assets * 100

= $1,736.8/$21,712.3 * 100

= 8%

iv) Return on equity

= Net Income/Equity * 100

= $1,736.8/$5,307.1 * 100

= 32.73%

Explanation:

i) Profit margin  is a financial performance measure that shows the amount of revenue that is not spent as cost of goods sold and expenses.

ii) Asset turnover is a financial performance measure that shows how assets have been utilized to generate sales.

iii) Return on assets  is also a financial performance measure that shows the percentage of profits that have been made from the use of the assets for the period.

iv) Return on equity is also a financial performance measure that the percentage of profits when compared with the equity of stockholders.