10 corporate borrowing if the firm was so successful

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Unformatted text preview: he context of the cash flow analysis we developed in Chapter 2, what was the impact of customers’ not paying until orders were shipped? 10. Corporate Borrowing If the firm was so successful at selling, why wouldn’t a bank or some other lender step in and provide it with the cash it needed to continue? 11. Cash Flow Which is the biggest culprit here: too many orders, too little cash, or too little production capacity? 12. Cash Flow What are some of the actions that a small company like The Grandmother Calendar Company can take (besides expansion of capacity) if it finds itself in a situation in which growth in sales outstrips production? 13. Comparing ROE and ROA Both ROA and ROE measure profitability. Which one is more useful for comparing two companies? Why? 14. Ratio Analysis Consider the ratio EBITD/Assets. What does this ratio tell us? Why might it be more useful than ROA in comparing two companies? QUESTIONS AND PROBLEMS 1. Du Pont Identity If Alexander, Inc., has an equity multiplier of 1.90, total asset turnover of 1.42, and a profit margin of 7.3 percent, what is its ROE? 2. Equity Multiplier and Return on Equity Draiman Company has a debt-equity ratio of .85. Return on assets is 8.1 percent, and total equity is $750,000. What is the equity multiplier? Return on equity? Net income? 3. Using the Du Pont Identity Y3K, Inc., has sales of $3,800, total assets of $1,925, and a debt-equity ratio of 0.75. If its return on equity is 16 percent, what is its net income? 4. EFN The most recent financial statements for Scanlin, Inc., are shown here: Basic (Questions 1–10) INCOME STATEMENT Sales Costs Taxable income Taxes (34%) Net income $28,000 23,850 $ 4,150 1,411 $ 2,739 Assets Total BALANCE SHEET $100,300 $100,300 Debt Equity Total $ 26,500 73,800 $100,300 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $282.20 was paid, and the company wishes to maintain a constant payout ratio. Next year’s sales are projected to be $31,360. What is the external financing needed? CHAPTER 3 Financial Statements Analysis and Long-Term Planning 81 ros82361_ch03.indd ros82361_ch03.indd 81 7/7/08 3:59:08 PM Confirming Pages www.mhhe.com/rwj 5. Sales and Growth The most recent financial statements for Carpenter Co. are shown here: INCOME STATEMENT Sales Costs Taxable income Taxes (34%) Net income $68,000 39,500 $28,500 9,690 $18,810 Current assets Fixed assets Total BALANCE SHEET $ 21,000 146,000 $167,000 Long-term debt Equity Total $ 61,000 106,000 $167,000 Assets and costs are proportional to sales. The company maintains a constant 30 percent dividend payout ratio and a constant debt-equity ratio. What is the maximum increase in sales that can be sustained assuming no new equity is issued? 6. Sustainable Growth If the SGS Corp. has a 17 percent ROE and a 20 percent payout ratio, what is its sustainable growth rate? 7. Sustainable Growth Assuming the following ratios are constant, what is the sustainable growth rate? Total asset turnover Profit margin...
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