Following is the balance sheet for Sullivan Hotels Corporation as of December 31, 2012. In 2012, corporation generated a net income of $430,000. Answer the following questions using this information and the financial statement below. A. Calculate the earnings per share in 2012. B. Assume that in 2013, Sullivan Corporation issued 300,000 shares of $1 par value common stock for a market price of $10 per share. Fifty percent of the proceeds will be used to pay down the long-term debt, 25 percent of the proceeds will be used to buy fixed assets, and the remainder will be deposited in the corporation’s cash bank account. Compile the balance sheet after the new stock issue (Note that the value of the sale of stock more than par value is accounted for in “Paid-in-Capital”). C. Assume that Sullivan Corporation generates a net income of $450,000 in 2013 (after the new stock issue). Calculate the new earnings per share. How might stockholders feel about the results of the new stock issue? SULLIVAN HOTELS CORPORATION Balance Sheet; December 31,2012 Current Assets Current Liabilities Cash $ 50,000 Wages Payable $ 30,000 Marketable Securities 30,000 Accounts Payable 25,000 Accounts Receivable 40,000 Notes Payable 50,000 Inventory 60,000 Total Current Liabilities $ 105,000 Prepaid Expenses 15,000 Total Current Assets $ 195,000 Long-term Debt Mortgage and LT Loans $2,500,000 Fixed Assets Total Long Term Debt $2,500,000 Net Fixed Assets $7,000,000 Total Fixed Assets $7,000,000 Owners’ Equity Common Stock (3,000,000 shares ($1 par)) $3,000,000 Paid in Capital in excess of par 500,000 Retained Earnings 1,090,000 Total Owners’ Equity $4,590,000 Total Assets $7,195,000 Total Liabilities and Owner’s Equity $7,195,000 Financial Statement Analysis of Sunstone Hotel Investors. Use the 2011 and 2012 consolidated financial statements of Sunstone Hotel Investors, Inc. drawn from their 2012 Annual Report (They are the last 4 pages of this document). It is provided as a PDF file on the website. Included are the Consolidated Balance Sheets (for the years ended 2011 & 2012), Consolidated Statement of Operations and Comprehensive Income for the years ended 2010, 2011, & 2012), and the Consolidated Statements of Cash Flows (for the years ended 2010, 2011, & 2012). A. Vertical Analysis and Horizontal Analyses. Conduct the following and write a summary of findings related to these Analyses. If you notice something of particular interest in the Vertical Analysis, refer to the Horizontal Analysis that supports or explains that finding (and visa versa). 1. Vertical Analysis of the Balance Sheet using Total Assets as constant for 2011 and 2012 2. Vertical Analysis of the Income Statement using Total Revenues as constant for 2010, 2011, and 2012 3. Horizontal Analysis of the Balance Sheet for the change between 2011 and 2012 4. Horizontal Analysis of the Income Statement for the change between 2010 and 2011 AND 2011 and 2012. B. Ratio Analysis for 2011 and 2012. Compute the following ratios for Sunstone for 2011 and 2012 and describe what each ratio says about the business AND discuss what changes, if any, across the two years say about the business. To complete some of the ratios, you will need the following information about balances on 12/31/2010. For each ratio, include in your answer a brief discussion of each ratio, and also any differences in conclusions the two ratios suggest). Account Balance on December 31, 2010 (in thousands except shares data Inventories $1,024 Total Assets $3,050,205 Total Equity $1,156,051 Common shares outstanding 104,384,127 Assume 100% of “Sales revenue from room” is credit sales for all years. Assume 65% of “Sales revenue from food and beverage is credit sales for all years. Assume 0% of “Other operating revenue” is credit sales for all years. 1. Liquidity Ratios (*Consider “assets held for sale” as similar to inventory and “restricted cash” as not available for the payoff of current obligations.) • Current Ratio • Quick Ratio 2. Activity Ratios • Accounts Receivable Turnover Ratio • Average collection period • Total Assets Turnover Ratio 3. Leverage Ratios • Debt-to-Equity Ratio • Debt-to-Total Assets Ratio • Times-Interest-Earned Ratio 4. Profitability Ratios • Operating Profit Margin Ratio • Net Profit Margin Ratio • Operating Return on Assets Ratio • Return on Equity Ratio 5. Market Ratios • Earnings per Common Share Ratio • Operating Cash Flow per Share Ratio • Free Cash Flow per Share Ratio
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