NAME_____________________________________________________________ Financial Statement Analysis Exam 1 1. The 2011 financial statements for Leggett & Platt, Inc. report the following information: Year ended December 31, 2011 2010 (In millions) Depreciation and amortization expense $ 98.1 $ 103.0 Property and equipment, net 580.6 624.2 Land 45.2 48.5 Accumulated depreciation and amortization 1,193.2 1.173.9 a. By what percentage are the assets ‘used up’ at the year-end 2011? What implication does this ratio have for future cash flows at Leggett & Platt? b. Estimate the useful life on average for the Leggett & Platt depreciable assets. 2. Leggett & Platt, Inc. reported net sales of $3,636.0 million in 2011 and $3,359.1 million in 2010. The asset side of the balance sheet follows, below. Use this information to answer the required. LEGGETT & PLATT, INCORPORATED Consolidated Balance Sheets December 31 2011 2010 (in millions) Cash and cash equivalents $ 236.3 $ 244.5 Accounts and other receivables, net of allowance of $24.3 and $22.1 503.6 478.9 Finished goods 261.3 241.1 Work in process 41.5 47.7 Raw materials and supplies 223.9 218.2 LIFO reserve (85.7) (71.7) Total inventories, net 441.0 435.3 Other current assets 43.1 60.4 Total current assets 1,224.0 1,219.1 Machinery and equipment 1,120.1 1,136.6 Buildings and other 608.5 613.0 Land 45.2 48.5 Total property, plant and equipment 1,773.8 1,798.1 Less accumulated depreciation 1,193.2 1,173.9 Net property, plant and equipment 580.6 624.2 Goodwill 926.6 930.3 Other intangibles, less accumulated amortization of $76.9 and $65.9 at December 31, 2008 and 2007, respectively 116.6 152.3 Sundry 67.3 75.1 TOTAL ASSETS $2,915.1 $3,001.0 Required: a. What is the company’s gross amount of receivables at the end of 2011 and 2010? b. Compute the common-sized gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. c. Compute the allowance for doubtful accounts to gross accounts receivable, for both years. Interpret the year-over-year change in this ratio. d. Based on the ratios you calculated, form an opinion about the quality of the company’s accounts receivable. 3. Use the following selected balance sheet and income statement data for Mattel Inc. (in $ thousands) to compute: a. return on equity b. profit margin (PM) c. asset turnover (AT) d. financial leverage (FL) for fiscal 2011. Show that ROE = PM × AT × FL. (in thousands) 2011 2010 Net sales $ 6,266,037 $ 5,856,195 Operating income 1,041,101 901,902 Interest expense 75,332 64,839 Net income 768,508 684,863 Total assets 5,671,638 5,417,733 Total liabilities 3,061,035 2,789,149 4. Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the requirements. Snap-On Incorporated Cons.

1. NAME_______________________________________________
______________
Financial Statement Analysis
Exam 1
1. The 2011 financial statements for Leggett & Platt, Inc. report
the following information:
Year ended December 31,
2011
2010
(In millions)
Depreciation and amortization expense
$ 98.1
$ 103.0
Property and equipment, net
580.6
624.2
Land
45.2
48.5
Accumulated depreciation and amortization
1,193.2
1.173.9
a. By what percentage are the assets ‘used up’ at the year-end
2011? What implication does this ratio have for future cash

2. flows at Leggett & Platt?
b. Estimate the useful life on average for the Leggett & Platt
depreciable assets.
2. Leggett & Platt, Inc. reported net sales of $3,636.0 million in
2011 and $3,359.1 million in 2010. The asset side of the
balance sheet follows, below. Use this information to answer
the required.
LEGGETT & PLATT, INCORPORATED

3. Consolidated Balance Sheets
December 31
2011
2010
(in millions)
Cash and cash equivalents
$ 236.3
$ 244.5
Accounts and other receivables, net of allowance of $24.3 and
$22.1
503.6
478.9
Finished goods
261.3
241.1
Work in process
41.5
47.7
Raw materials and supplies
223.9
218.2
LIFO reserve
(85.7)
(71.7)
Total inventories, net
441.0
435.3
Other current assets

4. 43.1
60.4
Total current assets
1,224.0
1,219.1
Machinery and equipment
1,120.1
1,136.6
Buildings and other
608.5
613.0
Land
45.2
48.5
Total property, plant and equipment
1,773.8
1,798.1
Less accumulated depreciation
1,193.2
1,173.9
Net property, plant and equipment
580.6
624.2
Goodwill
926.6
930.3
Other intangibles, less accumulated amortization of $76.9 and
$65.9 at December 31, 2008 and 2007, respectively
116.6
152.3
Sundry
67.3
75.1

5. TOTAL ASSETS
$2,915.1
$3,001.0
Required:
a. What is the company’s gross amount of receivables at the end
of 2011 and 2010?
b. Compute the common-sized gross accounts receivable, for
both years. Interpret the year-over-year change in this ratio.
c. Compute the allowance for doubtful accounts to gross
accounts receivable, for both years. Interpret the year-over-year
change in this ratio.

6. d. Based on the ratios you calculated, form an opinion about
the quality of the company’s accounts receivable.
3. Use the following selected balance sheet and income
statement data for Mattel Inc. (in $ thousands) to compute:
a. return on equity
b. profit margin (PM)
c. asset turnover (AT)
d. financial leverage (FL) for fiscal 2011. Show that ROE = PM
× AT × FL.
(in thousands)
2011
2010
Net sales
$ 6,266,037
$ 5,856,195
Operating income
1,041,101
901,902
Interest expense
75,332
64,839
Net income
768,508
684,863

7. Total assets
5,671,638
5,417,733
Total liabilities
3,061,035
2,789,149
4. Income statements and balance sheets follow for Snap-On
Incorporated. Refer to these financial statements to answer the
requirements.
Snap-On Incorporated
Consolidated Statements of Earnings
(Amounts in millions)
For the fiscal year ended
2011
2010
Net sales
$ 2,854.2
$ 2,619.2
Cost of goods sold
(1,516.3)
(1,408.1)
Gross profit
1,337.9
1,211.1
Operating expenses
(953.7)
(894.1)
Operating earnings before financial services
384.2
317.0

8. Financial services revenue
124.3
62.3
Financial services expenses
(51.4)
(47.9)
Operating income from financial services before arbitration
settlement
72.9
14.4
Arbitration settlement
18.0
--
Operating income from financial services
90.9
14.4
Operating earnings
475.1
331.4
Interest expense
(61.2)
(54.8)
Other income (expense) -- net
(1.0)
0.8
Earnings before income taxes and equity earnings
412.9
277.4
Income tax expense
(133.7)
(87.6)
Earnings before equity earnings
279.2

9. 189.8
Equity earnings, net of tax
4.6
3.2
Net earnings
283.8
193.0
Net earnings attributable to noncontrolling interests
(7.5)
(6.5)
Net earnings attributable to Snap-on Incorporated
$ 276.3
$ 186.5
Snap-On Incorporated
Consolidated Balance Sheets
Fiscal Year End
(Amounts in millions)
2011
2010
Cash and cash equivalents
$ 185.6
$ 572.2
Trade and other accounts receivable - net
463.5
443.3
Finance receivables - net
277.2
215.3
Contract receivables - net
49.7

10. 45.6
Inventories - net
386.4
329.4
Deferred income tax assets
92.6
87.0
Prepaid expenses and other assets
75.7
72.7
Total current assets
1,530.7
1,765.5
Property and equipment - net
352.9
344.0
Deferred income tax assets
125.2
91.5
Long-term finance receivables - net
431.8
345.7
Long-term contract receivables - net
165.1
119.3
Goodwill
795.8
798.4
Other intangibles - net
188.3
192.8
Other assets
83.1
72.2
Total assets
$ 3,672.9

11. $ 3,729.4
Notes payable and current maturities of long-term debt
$ 16.2
$ 216.0
Accounts payable
124.6
146.1
Accrued benefits
48.8
45.0
Accrued compensation
91.0
86.7
Franchisee deposits
47.3
40.4
Other accrued liabilities
255.9
346.9
Total current liabilities
583.8
881.1
Long-term debt
967.9
954.8
Deferred income tax liabilities
108.1
94.4
Retiree health care benefits
52.8
59.6
Pension liabilities
317.7

12. 246.1
Other long-term liabilities
95.3
89.0
Total liabilities
2,125.6
2,325.0
Preferred stock
–
–
Common stock
67.3
67.3
Additional paid-in capital
181.4
169.2
Retained earnings
1,843.7
1,644.1
Accumulated other comprehensive income (loss)
(174.6)
(104.8)
Treasury stock at cost
(386.9)
(387.3)
Total shareholders’ equity attributable to Snap-on Inc.
1,530.9
1,388.5
Noncontrolling interests
16.4
15.9
Total shareholders’ equity
1,547.3

13. 1,404.4
Total liabilities and shareholders’ equity
$ 3,672.9
$ 3,729.4
Required:
a. Compute net operating profit after tax (NOPAT) for 2011 and
2010. Assume that combined federal and state statutory tax
rates are 37.7% for fiscal 2011 and 37.5% for fiscal 2010.
b. Compute net operating assets (NOA) for 2011 and 2010.
c. Compute return on net operating assets (RNOA) for 2011 and
2010. Net operating assets are $1,673.0 million in 2009.

14. d. Disaggregate RNOA into profitability and asset turnover
components (NOPM and NOAT, respectively). Remember to
include both net sales and financial services revenue in total
revenue. What explains the year-over-year change in RNOA?
5. Income statements and balance sheets follow for Microsoft
Corporation. Refer to these financial statements to answer the
requirements.
Microsoft Corporation
Income Statements
Year ended June 30,
(in millions)
2011
2010
Revenue
69,943
62,484
Cost of revenue

15. 15,577
12,395
Research and development
9,043
8,714
Sales and marketing
13,940
13,214
General and administrative
4,222
4,063
Total operating expenses
42,782
38,386
Operating income
27,161
24,098
Other income
910
915
Income before income taxes
28,071
25,013
Provision for income taxes
4,921
6,253
Net income
23,150
18,760
Microsoft Corporation
Balance Sheets

16. As of June 30,
($ millions)
2011
2010
Cash and cash equivalents
$ 9,610
$ 5,505
Short-term investments
43,162
31,283
Accounts receivable, net
14,987
13,014
Inventories
1,372
740
Deferred income taxes
2,467
2,184
Other current assets
3,320
2,950
Total current assets
74,918
55,676
Property plant and equipment, net
8,162
7,630
Equity and other investments
10,865
7,754
Goodwill

17. 12,581
12,394
Intangible assets, net
744
1,158
Other long-term assets
1,434
1,501
Total assets
$108,704
$86,113
Table continued next page
Microsoft Corporation
Balance Sheets (continued)
As of June 30,
($ millions)
2011
2010
Accounts payable
$ 4,197
$ 4,025
Short-term debt
0
1,000
Accrued compensation
3,575
3,283
Income taxes
580
1,074
Short-term unearned revenue
15,722
13,652

18. Securities lending payable
1,208
182
Other
3,492
2,931
Current liabilities
28,774
26,147
Long-term debt
11,921
4,939
Long-term unearned revenue
1,398
1,178
Deferred income taxes
1,456
229
Other long-term liabilities
8,072
7,445
Total liabilities
51,621
39,938
Common stock and paid-in capital
63,415
62,856
Retained deficit
(6,332)
(16,681)
Total equity
57,083
46,175

19. Total liabilities and equity
$108,704
$ 86,113
Required:
a. Compute net nonoperating expenses (NNE) for 2011 and
2010. Assume that combined federal and state statutory tax
rates are 35% for both years.
b. Compute net nonoperating obligations (NNO) for 2011 and
2010.

20. c. Compute Spread for 2011 and 2010. Return on net operating
assets (RNOA) is 136.9% and 117.0% in 2011 and 2010,
respectively. NNO were $(24,017) million in 2009.
d. Compute FLEV for 2011 and 2010. In 2009, net nonoperating
obligations (assets) were $(24,017) million and shareholders’
equity was $39,558 million.

21. e. Calculate return on equity (ROE) for both years. Show that
ROE = RNOA + (FLEV × Spread). Interpret the year-over-year
change in ROE.)
10