ch02 - CHAPTER 2 THE FINANCIAL STATEMENTS BRIEF EXERCISES...

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CHAPTER 2 THE FINANCIAL STATEMENTS BRIEF EXERCISES BE2–1 2000 2002 2003 Beginning Ending Retained 2003 2003 2003 Retained Earnings + Revenues Expenses Dividends = Earnings $13.5 + $27 $23.4 X = $16.0 X = $1.1 2003 Dividends as a percentage of 2003 net income: 2003 Dividends = $ 1.1 = 30.6% 2003 Net income ($27-$23.4) $ 3.6 BE2–2 (1) Current Liabilities financed $18 billion of the assets. Current Liabilities divided by Total assets = $18/$53 = 34.0% (2) Long-term debt financed $27 billion of the assets. Long-term debt divided by total assets = $27/$53 = 50.9% (3) Stockholders’ equity financed $8 billion of the assets. Stockholders’ equity divided by total assets = $8/$53 = 15.1% BE2–3 (a) Working capital = current assets – current liabilities. Boeing’s current assets total $17 billion, less $18 billion of current liabilities, gives the company negative working capital of $1 billion. Another measure of solvency would be the current ratio. The current ratio is current assets divided by current liabilities or $17 billion divided by $18 billion = 0.94. Both measures indicate that Boeing appears to have a solvency problem. Current assets are not sufficient to cover current liabilities. Under existing circumstances the Company will have to look to other sources to pay its current obligations. (b) No, Boeing has $9.1 billion of liquid assets (cash, short term investments, and accounts receivable) but it has $18 billion of current liabilities. (c) Boeing would be more solvent if accounts receivable were $5.3 billion and inventory was $4.5 billion. Accounts receivable are closer to cash than inventory. This means that accounts receivable are expected to be converted to cash in a shorter period of time than inventory. 1
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BE2-4 2003 2002 2001 Net cash flow from operating activities. .................. $ 13,517 $ 15,210 $ 14,805 Net cash flow from investing activities. ................... (3,105) (3,328) (8,387) Net cash flow from financing activities. ................... (9,173) (9,018 ) (6,358 ) Net change in cash. ................................................ $ 1,239 $ 2,864$ 60 Cash at beginning of period. ................................... 3,567 703 643 Cash at end of period………………………………. . $ 4,806 $ 3,567 $ 703 SBC Communication’s cash management activities over the three-year period of 2003, 2002, and 2001 appear to be extremely good. They are generating significant amounts of cash flow from operating activities. SBC Communications is then able to reinvest substantial amounts in its asset base. At the same time SBC Communications is also able to fund its financing activities from its operating cash flow. The large amount of funds being used in investing activities indicates that SBC Communications is growing its business. EXERCISES
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This note was uploaded on 03/25/2009 for the course FIN FIN504 taught by Professor Byungjinkwak during the Spring '09 term at Korea Advanced Institute of Science and Technology.

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ch02 - CHAPTER 2 THE FINANCIAL STATEMENTS BRIEF EXERCISES...

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