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ASSIGNMENT
This assignment is worth 10% of your final grade.
The objective of this assignment is to enable you pull together the various topics learned
in this course and to make you an informed user of financial statements. You will achieve
this by applying the concepts learned in the class to real world business problems.
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The assignment is based on a publicly listed company Rona Inc. (excerpts of which can
be found at the back of your text book, Appendix A, downloaded from Connect or
obtained from the company’s website at www.rona.ca).You may also find it helpful, and
in some questions necessary, to locate your own useful sources on the Internet. Be sure to
cite any sources used. Unless otherwise specified, you do not need to cite page numbers
or sections within the Annual Report itself. Answers should be provided immediately
following each question. That is, re-state the question and provide your answer
immediately following. If you feel any exhibits are needed, add the exhibits to the end of
the assignment and clearly refer to relevant elements of the exhibits when answering
questions. You may use point form to answer the questions as long as you provide
thorough explanations to justify your answers, where necessary. Proper spelling,
grammar, and punctuation must be used and up to 10% will be deducted from your grade
on the assignment should the quality of your writing suffer in any of these respects.
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There is no limit to the number of pages you can include in your assignment. Questions
that require more than a simple statement of fact as an answer (i.e., most of the questions)
should have answers that are thorough enough to allow me to understand why you
responded the way you did. Note, however, that overly lengthy answers containing
excessive amounts of irrelevant information will detract from your grade. In short, your
answers to each question should be concise, but thorough.
The assignment is due in the MyLS course Dropbox by midnight on Tuesday, April 1,
2014 and will be submitted through Turnitin. If you are unfamiliar with Turnitin, you can
refer to the following link: http://www.wlu.ca/page.php?grp_id=10042&p=13281
Assignments handed in after midnight on April 1, will receive a grade of zero.
If you have any questions about the assignment, please post them to the discussion board
so that all students can benefit from the responses.
2
REVIEW OF RONA INC.’S ANNUAL REPORT
PART ONE: GENERAL
1. What is the address of Rona Inc.’s corporate headquarters?
2. Describe the various ways in which Rona Inc. generates revenues.
3. Rona Inc.’s shares are traded on the Toronto Stock Exchange under the symbol RON.
What kind of company does this make Rona Inc.?
PART TWO: QUALITATIVE MESSAGE FROM THE COMPANY
1. What is the purpose of the message from the President?
2. Why must a reader be careful when assessing the comments in the MD & A?
3. What risks does Rona Inc. face in trying to achieve its strategic objectives?
PART THREE: FINANCIAL REPORTING RESPONSIBILITIES
1. Regarding Rona Inc.’s financial reporting, who is responsible for what? (What is
management responsible for and what is the auditor responsible for?
2. What is the auditor’s opinion of Rona Inc.’s 2009 financial statements? What does this
mean?
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PART FOUR: FINDING FINANCIAL INFORMATION AND ANALYSES
1. Refer to the financial statements of Rona Inc. for 2009 (in Appendix A of your text
book or download the annual report from the Cases section of Connect or from Rona
Inc.’s website at www.rona.ca).
Required:
a. Use the company’s balance sheet to determine the amounts in the
accounting equation.
b. What is the amount of the company’s current liabilities on December 27,
2009? Are current assets sufficient to cover current liabilities?
c. Has financing for the company’s investments in assets primarily come
from liabilities or from shareholders’ equity?
d. Rona’s largest expense for its 2009 fiscal year was Cost of Sales, but Cost
of Sales does not appear as a line item in the annual report’s income
statement. However, the Management Discussion and Analysis that
accompanies the financial statements mentions that Rona’s gross margin
for fiscal 2009 was 27.36 percent. Calculate the actual dollar amount of
Cost of Sales for Rona using this information.
e. Calculate the debt-to-assets ratio at December 27, 2009, and December 28,
2008. Based on these calculations, has Rona’s financing become more or
less risky over the two years?
f. Calculate the asset turnover ratio for the December 2009 and 2008 year
ends. Rona’s total assets at the end of fiscal 2007 were $2,459,138
(thousand). Based on these calculations, has Rona used its assets more or
less efficiently in 2009 year end than in the 2008 year end? 3
g. Assume that Rona experienced no shrinkage in the most current year.
Using the balance sheet and income statement, estimate the amount of
purchases in the year ended December 27, 2009.
h. Does the company follow the lower of cost and net realizable value rule?
What method(s) does the company use to determine the cost of its
inventory? Describe where you found this information.
i. Compute to one decimal place the company’s inventory turnover ratio and
days to sell for the most recent year, given that the cost of goods sold is
$3,397,634 (thousand). What does this information mean?
j. Does the company report an allowance for doubtful accounts on the
balance sheet or in the notes? Explain why it does or does not.
k. Do you have any concerns about Rona Inc.’s ability to meet its long-term
obligations?
l. What method of amortization does the company use? What amount of
depreciation and amortization expense was reported for the year ended
December 27, 2009?
m. Which of the two basic reporting approaches for the cash flows from
operating activities did Rona Inc. use?
n. In the 2009 fiscal year, Rona generated $283 million from operating
activities. Where did Rona spend this money? List the two largest cash
outflows.
PART FIVE: BENCHMARKING
1. For the company, Home Depot (Appendix B), please provide the following
information for the 2009 year:
a. What type of business organization is it?
b. What types of products or services does it sell?
c. On what day of the year does its fiscal year end?
d. Are its financial statements audited by independent CAs? Is so, by whom?
e. Show the relationship between the income statement, the statement of
retained earnings, the balance sheet and the cash flow statement.
2. Calculate financial ratios to assess profitability, liquidity and solvency and
compare the results for Home Depot with those of Rona Inc. (Use two ratios for
each category).
3. What are the pitfalls of performing such comparisons?
PART SIX: INVESTMENT POTENTIAL
1. What is “big bath” accounting and why do companies sometimes engage in it? Do
you see any evidence of this at Rona Inc. in recent years?
2. If Rona Inc. were interested in managing its earnings, which financial statement
estimates could it “manage” to achieve this goal?
3. Describe something you found very interesting while reading Rona Inc.’s
financial statement notes.
4. Based solely on the information gathered so far in this review, would you be
interested in investing in Rona Inc.? Why?
