GibsonSM_11 - Chapter 11 Expanded Analysis TO THE NET 1....

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Unformatted text preview: Chapter 11 Expanded Analysis TO THE NET 1. Cooper Tire & Rubber a. Cooper Tire & Rubber Company (Cooper or the Company) is a leading manufacturer of replacement tires. b. December 31, 2003 2004 1. Inventory at December 31 (Balance sheet numbers) (Balance sheet numbers) $189,718,000 $248,782,000 2. Inventory reserve at December 31 $ 60,976,000 $ 85,954,000 Note: Inventories (Dollar amounts in thousands) Under the LIFO method, inventories have been reduced by approximately $60,976 and $85,954 at December 31, 2003 and 2004, respectively, from current cost which would be reported under the first-in, first-out method. c. 2004 Net Income $201,372,000 d. 2004 Effective Tax Rate Note: Income Taxes Effective Income Tax Rate of 2004 21.6% e. The approximate income for 2004 if inventory had been valued at approximate current cost 2004 Net Income $201,372,000 Net increase in inventory reserve: 2004 $ 85,954,000 2003 60,976,000 (a) 24,978,000 (b) Effective tax rate 21.6% (c) Change in taxes [(a) (b)] 5,395,248 (d) Net increase in income [(a) (c)] 19,582,752 Approximate income in 2004 if inventory had been valued at approximate current cost for 2003 and 2004 $220,954,752 50 2. a. Amerada Hess Corporation (the Registrant) is a Delaware corporation, incorporated in 1920. b. Net earnings for 2004 $977,000,000 c. Estimate of increase in earnings 2004 Net Income $977,000,000 Decrease cost of products Sold (a) $20,000,000 (Per Note 4 inventories) Tax rate (b) 37.8% (Per Note 12) Increase in taxes (c) $ 7,560,000 [(a) (b)] Increase in net income after tax [(a) (c)] $12,440,000 51 QUESTIONS 11-1. Based on the study reported in the text, liquidity and debt ratios are regarded as the most significant ratios by commercial loan officers. 11-2. (a) Debt/equity, current ratio (b) Debt/equity, current ratio 11-3. The dividend payout ratio does not primarily indicate liquidity, debt, or profitability. It is a ratio that is of interest to investors because it indicates the percentage of earnings that is being paid out in dividends. From a view of controlling a loan and preventing the stockholders from being paid before the bank is paid, the dividend payout ratio can be used as an effective ratio. 11-4. Based on the study reported in the text, financial executives do regard profitability ratios as the most significant ratios. 11-5. 1) Earnings per Shareprofitability 2) Debt/Equitydebt 3) Return on Equityprofitability 4) Current Ratioliquidity 5) Net Profit Marginprofitability 11-6. The CPAs gave the highest significance rating to two liquidity ratios. These ratios are the current ratio and the accounts receivable turnover days. The highest-rated profitability ratio was after-tax return on equity, while the highest-rated debt ratio was debt/equity....
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GibsonSM_11 - Chapter 11 Expanded Analysis TO THE NET 1....

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