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chapter 5 homework (1)

chapter 5 homework (1) - 3 Decompose Inditex’s return on...

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Financial Reporting and Analysis 2010/4/29 Student No. Name¸ bonus points ° Exercise 1 Comparative income statements for 2010 and 2009 follow. Sales Cost of Sales Gross Profit Operating Expenses Operating Income Interest Expense Earnings Before Tax Income Taxes Net Income Required: a. Prepare a vertical common-size analysis of this statement for each year, using sales as the base. b. Comment briefly on the changes between the two years, based on the vertical common-size statement. Exercise 3 ROE decomposition According to the financial statements 1. Calculate Inditex’s net operating profit after taxes, operating working capital, net noncurrent assets, net debt and net assets in 2007 and 2008. (Use the effective tax rate [tax expense/profit before taxes] to calculate NOPAT.) 2. Decompose Inditex’s return on equity in 2007 and 2008 using the traditional approach.
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Unformatted text preview: 3. Decompose Inditex’s return on equity in 2007 and 2008 using the alternative approach. What explains the difference between Inditex’s return on assets and its operating return on assets? 4. Analyze the underlying drivers of the change in Inditex’s return on equity. What explains the decrease in return on equity? (e.g. address issues of store productivity, cost control, pricing and leverage….) Exercise 2 Toledo Toy, a manufacturer of infants’ blocks, presented the following data in its last annual report. This trend analysis begins with the year of formation, 2007. Sales Cost of Sales Net Income Required: a. Using 2007 as the base year, perform a horizontal, common-size analysis. b. Comment on the results of the horizontal analysis....
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  • Spring '08
  • Generally Accepted Accounting Principles, Inditex, raditional Income Taxes, decomposition Comparative income, Operating Income NOPAT, Sales noncurrent assets

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