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):
*Cash from financing activites includes the effects of foreign exhange rate fluctuations.
Revenue $16,563.1
Cost of goods sold
$10,733.6
Cash from operating activities 2,629.8
Cash, ending year
763.7
Cash, beginning year 334.2
Total liabilities
16,405.2
Stockholders' equity 5,307.1
Cash from investing activities
93.4
Noncash assets 20,948.6
Total expenses (other than cost of goods sold)
4,092.7
Cash from financing activities* (2,293.7)
(a) Prepare the income statement, the balance sheet, and the statement of cash flows for General Mills for the fiscal year ended May 29, 2016.
Hint: Enter negative numbers only for answers in the statement of cash flows (if applicable).
General Mills, Inc.
Income Statement ($ millions)
For Year Ended May 29, 2016
Revenue $Answer
AnswerCash, ending yearTotal expensesCost of goods soldNoncash assets Answer
Gross profit Answer
AnswerCash, ending yearTotal expensesCost of goods soldNoncash assets Answer
Net income $Answer
General Mills, Inc.
Balance Sheet ($ millions)
May 29, 2016
Cash $Answer Total liabilities $Answer
AnswerCash, beginning yearNoncash assetsStockholders' equityNet income Answer AnswerCash, beginning yearNoncash assetsStockholders' equityNet income Answer
Total assets $Answer Total liabilities and equity $Answer
General Mills, Inc.
Statement of Cash Flows ($ millions)
For Year Ended May 29, 2016
Cash from operating activities $Answer
AnswerNoncash assetsNet incomeCash, beginning yearCash from investing activities Answer
Cash from financing activities Answer
Net change in cash Answer
AnswerNoncash assetsNet incomeCash, beginning yearCash from investing activities Answer
Cash, ending year $Answer
(b) Does the negative amount for cash from financing activities concern us? Explain.
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.
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.
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.
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):
Round all answers to two decimal places (example for percentage answers: 0.12345 = 12.35%).
(i) Profit margin
(ii) Asset turnover
(iii) Return on assets
(iv) Return on equity

Answer 1

General Mills, Inc.

a) Income Statement for the fiscal year ended May 29, 2016

Revenue $16,563.1

Cost of goods sold $10,733.6

Gross profit $5,829.5

Total expenses (other than cost of goods sold) 4,092.7

Net income $1,736.8

Balance Sheet as of the fiscal year ended May 29, 2016

Cash, ending year 763.7

Noncash assets 20,948.6

Total assets $21,712.3

Total liabilities 16,405.2

Stockholders' equity 5,307.1

Liabilities + equity $21,712.3

Statement of Cash Flows for the fiscal 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 cash flow $429.5

Cash, beginning year 334.2

Cash, ending year 763.7

b) 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) Following ratios:

(i) Profit margin = 10.49%

(ii) Asset turnover = 0.76

(iii) Return on assets = 8.00%

(iv) Return on equity = 32.73%

Step-by-step explanation:

a) Data and Calculations:

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 activities 93.4

Noncash assets 20,948.6

Total expenses (other than cost of goods sold) 4,092.7

Cash from financing activities* (2,293.7)

(i) Profit margin = $1,736.8/$16,563.1 * 100 = 10.49%

(ii) Asset turnover = $16,563.1/$21,712.3 = 0.76

(iii) Return on assets = $1,736.8/$21,712.3 * 100 = 8.00%

(iv) Return on equity = $1,736.8/$5,307.1 * 100 = 32.73%