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Chapter 14 - End-of-Chapter Questions 1 What is the...

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Unformatted text preview: End-of-Chapter Questions 1. What is the accounting identity? 2. What does analyzing companies over time tell a f'mancial manager? 3. What does restating financial statements into common-size financial statements allow a finance manager or financial analyst to do? 4. What are liquidity ratios? Give an example of a liquidity ratio and how it helps evaluate a company’s performance or future performance from an outsider’s view. 5. What are solvency ratios? Which ratio would be of most interest to a banker considering a debt loan to a company? Why? 6. What are asset management ratios? For retail firms, what is one of the key management ratios? Why? 7. What does the PE ratio tell an outsider about a company? Why might this ratio not provide very compelling evidence on the performance of a firm? 8. What are the three components of the DuPont identity? What do they analyze? 9. What does analyzing companies against their industry tell a finance manager or financial analyst? 10. What does analyzing a company against firms in other industries tell a finance manager or financial analyst? l. Incomes statement. Fill in the missing numbers on the following annual income statements for Barron Pizza Inc. Year Ending 200-? Year Ending ZWE Year Ending 2005 Revenue $9 l 13 78 $946.2 l 9 Cost ofgoods sold $669,382 $656,215 Gross profit 5169.441 $315.01? Selling. genera|.and administrative expenses $ H1505 $193,000 Researchanddevelopment $ 5.469 $ ?.129 $ 3,521 Depreciation $ 34.5?9 6 35,?13 Operatingincome S 60.541] 3 81,42? Otherinceme $ 672 15 1,958 EBIT $ 82,553 $ 84,?41 Interest expense $ 6,851 $ 8,357 Income before tax $ 74,3316 $ 35,384 Taxes $ 20,385 $ 28,0?9 M s «mm 5 2.?3 Shares outstanding [6340.000 163-10300 Earnings per share 3 2,03 2. Income statement. Construct the Barron Pins Inc. income statement for the year ending 2005' with the following information: Shares outstanding: 16,?40,030 Tax rate: 315% Interest expense: $6,] 14 Revenue: $389,416 Depreciation: $31,354 Selling, general, and administrative expense: $77,572 Other income: $1,253 Research and development: $4,196 Cost of goods sold: $75031 l 3. Balance sheet. Fill in the missing information on the annual balance sheets statements for Barron Pizza Inc. 5 ”.609 5 24.46? $ 66.209 5 25.8.7? 5 12.559 3 2.021 5 26.26? S $0.91? $ 215702 5 61.010 _ $347M 5 11.5943 1‘» 62,453 $ 5?,433 $ 19.012 31854185 $ 20.288 $243,522 5203.518 5223.599 5 48,256 5 43.224 $ 13.259 t 13:31? 5 14.091 'I'OTALLIABILITIES massm $342,214 $365,469 $332,439 ANDOWN'ERS’BQUI $102.42] $101.10? $ 13.525 4. Balance sheet. Construct the Barron Pizza Inc. balance sheet statement for December 31, 2007, with the following information: Retained earnings: $43,743 Accounts payable: $74,633 Accounts receivable: $34, 836 Common stock: $119,901 Cash: $8,344 Short-term debt: $210 Inventory: $23,455 Goodwill: $43,343Ir Long-tent: debt: $80,203Ir Other noncorrent liabilities: $42,580 Plant, property, and equipment: $192,465 Other noncurrent assets: $16,838 Long-tent: investments: $22,331 Other current assets: $14,658 5. Hedieting net income. Below is an abbreviated income statement for Wal-Mart. Predict the net income for the period ending January 31, 2010, by determining the growth rates of sales, COGS, SG&A, and interest expense. Use a tax rate of 37%. li31f2003 U3U2009 $343.60 33303399 $405.60? 1!?! 112010 Sales Cost ofgoods sold 5264.152 $286,515 $306,158 Selling, general. and administrative expenses $ 63.?2] .‘F 69,983 $ 76.36? EBI'T Interest expense Taxes 6. Predicting net income. Below is an abbreviated income statement for Starbucks. Predict the net income for the period ending September 30, 2009, by determining the growth rates of sales, COGS, depreciation, and SG&A. Use a tax rate of 37%. Then look up the numbers for Starbucks for 2009 and see hovtr you did. (Note: COGs for year ending morzoos is correct here at $4,654.) Account 91309006 91"303200? 9330f2003 9f30i2009 Sales $7.736 $9,411 $10,383 Cost of goods sold $3.1?9 $3,999 35 4.654 Selling, general, and administrative expenses $3,?01 54,356 $ 5,216 EBIT Interest expense 7. Common-sizefinoncial statements. Prepare common-size income statements for Wal-Mart and Starbucks ulng the January 2009 and September 2008 information provided in Problems 5 and 6. Which company is doing a better job of getting sales dollars to net income? ‘Where is the one company having an advantage over the other company in turning revenue into net income? 8. Common-sizefimnciai statements. Below is the balance sheet information on two companies. Prepare a common-size balance sheet for each company. Review the percentage of total assets for each company. Are these companies operating with similar philosophies or in similar industries? What appears to he the major difference in financing for these two companies? WMIUTJES mm For Problems 9 through 1'2, use thefolloning data: Revenue Cost. ofgoods sold Selling, general, and administrative expenses Depreciation EBlT Interest expense $14,146,7m 6 3,449,103 $ 999,320 5 1,498,900 5 3,199,300 $ 375,000 5 1,093,300 $13,566,400 16 8,131,300 S 982,160 $ 1,423,240 $ 2,929,200 S 356,100 $ 1,041,500 Note: 1,630,100 $ 3,052,000 $ 5,498,900 $349, 000 $ 1, 159, 300 200'.ll and $1,532,100 for 2006. Please note thefollowh'ig changes to the balance sheet on page441 of the teat: total current assets = $1,630,200 for 200'.ll and total assets 2 $14,689,400 for 2001'. Debt 2 $3,653,400 for 2001I and $2,934,400 for2006. Total liabilities = $1 1,922,700 for 200?. Total liabilities and owners’ equity = $14,689,400 for 2001'. 5 1,731,100 5 188,900 3 12 1,300 $ 630,400 $ 563,600 5 1,504,700 35 2,32 2,911] $ 5,481,500 S 343, 200 3 956, 700 TOTAL HABEJTIES TOTAL ASSETS $14,639 $14,119.51]! AN D OWNER? EQUITY $14,689,400 Please note the following changes to the income statement on page 441 oftlle text: net income is $1,231,100 for 5 1,582,100 5 1,545,200 5 511,500 3 1,857,200 $ 1,455.10!) 5 332.600 3 1,787,200 S 3.653.400 S 1.462.100 $11,922,200 6 1,457,900 6 1,,253 300 _ 2,711,200 5 2,934,400 $ 1.345.100 $11,062,200 s 1,453.400 5 1,593,900 $ 3,052,300 $14,119,500 9. Financial ratios: liquidity. Calculate the current ratio, quick ratio, and cash ratio for Tyler Toys for 2006 and 2000'. Should any of these ratios or the change in a ratio warrant concern It). Financiai ratios: Financial leverage. Calculate the debt ratio, times interest earned ratio, and cash coverage ratio for 2.006 and 21007 for Tyler Toys. Should any of these ratios or the change 11. for the managers of Tyler Toys or the shareholders? in a ratio warrant concern for the managers of Tyler Toys or the shareholders? Financiai ratios: Asset management. Calculate the inventoly turnover, days’ sales in inventory, receivables turnover, days’ sales in receivables, and total asset turnover ratios for 2006 and 2007 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the shareholders? 12. Financiai ratios: Pmfitabiiign Calculate the profit margin, return on assets, and return on equity for 2006 and 2007 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the shareholders? Mini-Case Cranston Dispensers lne.: Part 2, Financial Statement Analysis Cranston’s common-size income statements and balance sheets for 21])?“ and 2MB are given below. Prepare common size statements for 2009. Income Statements 2009 2008 2007 Sales 100.00% 100.00% 100.00% Cost of Goods Sold 67.86% 67.83% 67.25% Gross Profit 32.14% 32.17% 32.75% Selling. General. and Admin. Expenses 14.53% 14.93% 14.71% Depreciation 6.53% 7.18% 7.25% EBIT l 1.07% 10.06% 10.80% Interest Expense (net of interest income) 0.54% 0.77% 0.52% Earnings Before Taxes 10.53% 9.28% 10.28% Taxes 3. 16% 2.79% 3.08% Net Income 7.37% 6.50% 7.20% Balance Sheets 2009 2008 2007 Assets Cash 9.80% 8.84% 9.38% Accounts Receivable 20.75% 20.57% 12.72% Inventory 17. 10% 16.40% 15.42% Total Current Assets 47.64% 45.82% 37.52% Net Fixed Assets 52.36% 54.18% 62.48% Total Assets 100.00% 100.00% 100.00% Liabilities and Equity Accounts Payable 9.54% 9.23% 8.11% Accrued Expenses 9.86% 10.73% 7.63% Short-Term Debt (notes payable) 14.45% 15.73% 9.66% Current Liabilities 33.85% 35.69% 25.40% Long Term Debt 1 1.44% 10.38% 1 1.49% Other Liabilities 6.87% 4.93% 5.84% Total Liabilities 52.16% 51.01% 42.73% Common Equity 21.98% 20.15% 21.50% Total Stockholders‘ Equity 47.84% 48.99% 57.27% Total Liabilities 8: Equity 100.03% 103.03% lm.m% ...
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