HW #6_Text.docx - E1 3-1 Using Financial Information to...

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Unformatted text preview: E1 3-1 Using Financial Information to ldantlfy Companies LENS-1.134.136. I 3-5! 1 3-6. 1 34 The following selected financial data pertain to four unidentified companies: COMPANIES I. Z 3 4 Balance Sheet Data (component pencentage) Cash 3.5% 43% 8.2% 11.7% Accounts receivable 16.9 28.9 16.8 51.9 Inventory 46.3 35.6 513 0.0 Property and equipment. 13.3 21,7 7-".6 13.? Income Statement Data (component percentage) Cost of goods sold 13.0% "115% 55.8% 0.0% Profit befiore taxes 2.1 0.? 1.2 3.2 Selected Ratios murmur ratio 1.3 1.5 1.6 1.2 Inventor;I nnnnver ratio 3.6 9.3 1.5 NM“ *NIA = Not applicable The above financial information pertains to the following companies: a. High-end clothing store b. Advertising agencyr 1:. Wholesale candy oornpon}r 6‘. Car manufaclm'er Required: Match each corrosion}.r with its financial information. E13-2 L013-1,13-2.13-3. 1 3-5. 13-6. 1 3-? 11:11:15 Financial Information to Identify Companies The following selected financial data pertain to four unidentified companies: COMPANIES 1 2 3 4 Bulanuu Shawl. Data (wrnpununt percentage) Cash 7.3% 21.6% 6.1% 11.3% Accounts receivable 28.2 39.? 3.2. 22.9 Inventor).r 21.6 [1.6 1.8 27.5 Property and equipment 32.1 18.0 74.6 25.] Income Statement Data (component percentage} Cost ofgooda sold 34.7% 0.0% 0.0% 56.6% Profit before taxes 1.? 3.2 2.4 (5,9 Selected Ratios Current ratio 1.5 1.2 0.6 1.9 Inventory turnover ratio 27.4 Nb? NIA“ 3.3 3NIA = Not apphnable The above financial information pertains to the following companies: a. Travel agency.r 12. Hotel c. Meat pmcessing company.r d. Drug company Required: Match each company with its financia] information. 51 3-5 Calculating Component Percentages ””34 Compute the component percentages for Law‘s income statement below. Diswss any trends you LOWE‘S COMPANIES. INC. a r observe. Consolidated Statements of Earnings [in millions, except per share and percentage data) Fiscal Years Ended on January 30, January 31, February 1, 2015 % Sales 2.014 9% Sales 2013 % Sales Net sales $56.22.? $53,417 106.90% Cost of sales 36,665 34,941 Gross margin 19,558 13,476 Expenses: Selling, general, and administrative 13,281 12,365 Depreciation 1,435 1,462 Internet—net 5 15 476 Total expenses 15,282 14,803 Pwtax earnings 4,275 3.673 Income tax provision 1.573 1,337 Netnrnjngs 3 2,698 3 2,235 Analyzing the Impact of Selected Transactions on the Current Ratio E1 3-1 D The Bombay Company, Inc. sold a line of home furnishings that included furniture wall decor, and Lil" 3‘6 decorative soonest-rim. Bombay operated through a network of retail locations throughout the United States and Canada. as well as through its direct-to-custorner operations and international licensing arrangements. The company was forced to file for bankruptcy. In its last financial statement prior to bonitmptoy, Bombay reported current assets of $1 ELISMDOD and current liabilities of $1 13,909,000. Required; Determine the impact of the following independent transactions on the current ratio for Bombay: Sold long-term assets for cash. Antone-d sevemnce pay and benefits for employees who were terminated. Wrote down the carrying value of certain imrentory items that were deemed to be obsolete. Acquired new imentory; supplier was not. willing to provide normal credit terms, so an 18-month interest—beating note was signed. PPN’.‘ E1 3-1 2 Computing Liquidity and Solvency Ratio. LOB-5, ”'5' 13'? Clntas designs and manufactures mfiforms for enrpomtions throughout the United States and Canada. The company‘s stock is traded on the NASDAQ. Selected infomation from the company‘s financial statements follows. CINTAS [in millions) Select Income Statement Information Net revenue $4,552 $42.16 Cost of goods sold 2.63? 2.529 Selling. general, and administrative expenses 1,303 1,222 Interest expense 1'2 TD Income tax expense 233 134 Net income Select Statement of Cash Flows Information Cash paid for interest 65 69 Cash flows from Operating activities Select Balance Sheet Information Cash and equivalents 513 352 Marketable securities — 6 Accounts receivable 508 505 Inventories 25] 240 Prepaid expense and other current assets 26 25 Accounts payable 150 121 Current accrued expenses 3?? 342 Current portion of long-lento debt 1 8 Other current liabilities: 102 85 Long-term debt Required: Compute the following ratios: - Receivable turnover ratio (assume that all sales were credit sales) - Inventory mrnover ratio - Current ratio - Cash ratio - Times interest earned ratio - Cash coverage ratio i 1 -I. I3-2,13-3.13-4, Analyzing Ratios 1.111'13-1] Company X and Company ‘1’ are two giants of the retail industry. Both offer full lines of moderately priced merchandise. In the last fiscal year. annual aalea for Companyr X. totaied $.53 billion and annual sales for Company 1' totaled $21} billion. Compare the two companies as a potential inweatment based on the follmaring ratios: Ration for Current Year Company X Company '1’ FEE i 1.1} 12:51l Gross. profit margin 23.6 39.3 Profit margin 2.3 5.? Current ratio 2.11 La- Cash coverage ratio 131.? 2.2 Delat-toueqtiitg.r 1.4 2.1] Renlrn on equityr 12.1} 22.3 REI'UJ‘D. on aaaets 5.2 9.3 Dividend yield Not applicable 1.4 Earnings per Share $5.1? $5.21) P1343 LDIE-£.13-5.13~E, 13-1 Calculating Profitability. Turnover, Liquidity. and Solvency Ratios (AH 3—3} Using the financial information presented in Exhibit. 13.], calculate the following ratios for The Home Depot: . Retum on equit},r ' Return on assets v Totalasaet turnover . hivenIory tumover - Current ratio - Quick ratio - Cash coverage. ratio 4' Debt-moguiry rafio P1 3-5 Computing Difference: and Comparing Financial Statements Using Percentages [AP1 3-5] LD‘ 3"3' 1 3-5 The comparative financial statcments for Prince ll'lornpenjtr are below: 111mm Sultan-t Sales revenue Cost of goods sold Gross profit Operating expenses and interest expense Pretax income Income tax Net income Balance Sheet Cash Accounts receivable (net) Inventor}.r Property and competent [net] Total assets Cm'rcnt liabilities {no interest) Long-term liabilities (Interest rate: 10%] Common stock [$5 par value, 6.01] shapes outstanding} Retained earnings Total liabilities and stocklioiders‘ equity Required: 1. Complete the following columns for each item in the preceding conipaiative financial statements: INCREASE [DECREAEE] from Year 1 to Year 1 Amount Percent _ 2. By what amount did the current ratio change from Year 1 to Year 2‘? __ Financial Reporting and Analysis Cases CP1 34 Intarpretlug Flnanclal Results Based on Corporate Strategy L01 3'1 . 13~5 In this chap ter, we discussed the importance of analyzing financial results based on an understanding of the company's business strategy. Using the DuPont model. we illustrated how different strategies could earn high returns for investors. Assume that two companies in the same industry adopt fundamentally different strategies. One manufactures high-end consumer electronics. Its products employ state—of—tho— art technology. and the company offers a high level of Customer service both before and after the sale. The other company emphasizes low cost with good performance. Its products utilize well—established technology but are never innovative. Customers bu}r these products at large, self-service warehouses and are expected to install the products using information contained in printed brochures. Which of the DuPont model ratios would you expect to differ for these companies as a result of their different business sn'ategies? (“’1 3-5 L013—5 Inferring Information from the DuPont Hodel Ration In this chapter, we diseuSsed the DuPont model. Using that framework, find the missing amount in each of the following cases: Case 1: ROE is 10 percent; net inoome is $200,000; the total asset hirnover ratio is 5; and net sales are $1,000,000. ‘What is the amount of average stockholders’ equity? Case 2: Not income is $1,500,030; net sales are $3,003,000; average stookholdea‘s’ equin is “2.000.000; ROE is 22 percent; and the total asset turnover ratio is B. What is the amount of average tots] assets? Case 3: ROE is 15 percent; the net profit margin is 10 percent: the total asset turnover ratio is 5; and average total assets are $1 ,,.000000 What is the amount of average stockholders’ equity? Case 4: Net income is $500,000; ROE is 15 percent; the total asset turnover ratio is 5; net sales are $1,000,000; and financial leverage is 2. What is the amount of average total assets? Critical Thinking Case CP'I 3-; Evaluating an Ethical Dilemma . . LC" 3'5 Barton Company,r requested a large loan from First Federal Bank to acquire a tram of land for future ”in“. ad“, expansion. Barton reported current assets of $1.900,000 ($430,000 in cash) and current liabilities of fab-{n6 ‘ “300.00 '3' $1,075,000. First Federal denied the loan request for a number of reasons, including the fact that the cur- TDifieod Quill" rent ratio was below 2:1. When Barton was informed of the loan denial. the controller of the company = 1 fit]. 1t g M immediately paid $420,000 that was owed to several trade creditors. The controller then asked First Fed- Matt-t! I m, 0 _ atom oeral to reconsider the loan application. Based on these abbreviated facts, would you recommend that First new i l . Federal approve the loan request? Why? the control r‘s acnona ethical? 1.9151900 120:5??? N9 #1111 we : Middleman 'Hnant‘é’od’w e new fiat-1'1”“ ' ‘figéeflvrea Mo 35min Financial Reporting and Analysis Team Project 1 v‘ llfilafifimzfl C91 3-? Ten- Prniect: Euminiln II Annual [snort ...
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