The document provides financial statement data and ratios for Computron Corporation for the years 2003-2005. It analyzes the company's performance and financial position over this period using various ratio, percentage change, and common-size analyses. Key points include: projected ratios in 2005 show improvement but many are still below industry averages, particularly liquidity and inventory turnover; the use of debt has boosted ROE while lowering ROA; and total asset growth exceeds sales growth, indicating room for better asset utilization.
Time lines
Future value / Present value of lump sum
FV / PV of annuity
Perpetuities
Uneven CF stream
Compounding periods
Nominal / Effective / Periodic rates
Amortization
Time lines
Future value / Present value of lump sum
FV / PV of annuity
Perpetuities
Uneven CF stream
Compounding periods
Nominal / Effective / Periodic rates
Amortization
Solution manual for Financial Accounting 4th Edition by Kemp and Waybrightremorter
link full download: https://www.testbankfire.com/download/solution-manual-for-financial-accounting-4th-edition-by-kemp-and-waybright/
Language: English
ISBN-10: 0134125053
ISBN-13: 978-0134125053
ISBN-13: 9780134125053
This slide set is a work in progress and is embedded in my Principles of Finance course that I teach to computer scientists and engineers.
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I am Bianca H. I am an Accounting Exam Helper at liveexamhelper.com. I hold a Masters' Degree in Accounting from, University of Nottingham, UK. I have been helping students with their exams for the past 10 years. You can hire me to take your exam in Accounting.
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Solution manual for Financial Accounting 4th Edition by Kemp and Waybrightremorter
link full download: https://www.testbankfire.com/download/solution-manual-for-financial-accounting-4th-edition-by-kemp-and-waybright/
Language: English
ISBN-10: 0134125053
ISBN-13: 978-0134125053
ISBN-13: 9780134125053
This slide set is a work in progress and is embedded in my Principles of Finance course that I teach to computer scientists and engineers.
http://financefortechies.weebly.com/
I am Gill H. I am a Finance Exam Helper at liveexamhelper.com. I hold a Masters' Degree in Finance from, University of Texas, USA. I have been helping students with their exams for the past 14 years. You can hire me to take your exam in Finance.
Visit liveexamhelper.com or email info@liveexamhelper.com.
You can also call on +1 678 648 4277 for any assistance with the Finance exam.
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Full download : https://alibabadownload.com/product/accounting-principle-6th-edition-weygandt-test-bank/ Accounting Principle 6th Edition Weygandt Test Bank , Accounting Principle,Weygandt,6th Edition,Test Bank
I am Bianca H. I am an Accounting Exam Helper at liveexamhelper.com. I hold a Masters' Degree in Accounting from, University of Nottingham, UK. I have been helping students with their exams for the past 10 years. You can hire me to take your exam in Accounting.
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You can also call on +1 678 648 4277 for any assistance with Accounting.
1
CHAPTER 3
Analysis of Financial Statements
2
Topics in Chapter
Ratio analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
3
Value = + + +
FCF1
FCF2
FCF∞
(1 + WACC)1
(1 + WACC)∞
(1 + WACC)2
Free cash flow
(FCF)
Market interest rates
Firm’s business risk
Market risk aversion
Firm’s debt/equity mix
Cost of debt
Cost of equity
Weighted average
cost of capital
(WACC)
Net operating
profit after taxes
Required investments
in operating capital
−
=
Determinants of Intrinsic Value:
Using Ratio Analysis
...
For value box in Ch 3 ratios FM13.
4
Overview
Ratios facilitate comparison of:
One company over time
One company versus other companies
Ratios are used by:
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk
Managers to identify areas of weakness and strength
5
Income Statement20102011ESales$5,834,400 $7,035,600COGS4,980,000 5,800,000Other expenses720,000 612,960Deprec.116,960 120,000 Tot. op. costs5,816,960 6,532,960 EBIT17,440 502,640Int. expense176,000 80,000 EBT(158,560)422,640Taxes (40%)(63,424)169,056Net income($ 95,136)$ 253,584
6
Balance Sheets: Assets20102011ECash$ 7,282 $ 14,000S-T invest.20,000 71,632AR632,160 878,000Inventories1,287,360 1,716,480 Total CA1,946,802 2,680,112 Net FA939,790 836,840Total assets$2,886,592 $3,516,952
7
Balance Sheets: Liabilities & Equity20102011EAccts. payable$ 324,000 $ 359,800Notes payable720,000 300,000Accruals284,960 380,000 Total CL1,328,960 1,039,800Long-term debt1,000,000 500,000Common stock460,000 1,680,936Ret. earnings97,632 296,216 Total equity557,632 1,977,152Total L&E$2,886,592 $3,516,952
8
Other Data20102011EStock price$6.00$12.17# of shares100,000 250,000EPS-$0.95$1.01DPS$0.11$0.22Book val. per sh.$5.58$7.91Lease payments$40,000$40,000Tax rate0.40.4
9
Liquidity Ratios
Can the company meet its short-term obligations using the resources it currently has on hand?
10
Forecasted Current and Quick Ratios for 2011.
CR10 = = = 2.58.
QR10 =
= = 0.93.
CA
CL
$2,680
$1,040
$2,680 - $1,716
$1,040
CA - Inv.
CL
11
Comments on CR and QR2011E20102009Ind.CR2.581.462.32.7QR0.930.50.81.0
Expected to improve but still below the industry average.
Liquidity position is weak.
12
Asset Management Ratios
How efficiently does the firm use its assets?
How much does the firm have tied up in assets for each dollar of sales?
13
Inventory Turnover Ratio vs. Industry Average
Inv. turnover =
= = 4.10.
Sales
Inventories
$7,036
$1,716
2011E 2010 2009 Ind.
Inv. T. 4.1 4.5 4.8 6.1
14
Comments on Inventory Turnover
Inventory turnover is below industry average.
Firm might have old inventory, or its control might be poor.
No improvement is currently forecasted.
.
Analysis of Financial Statements.(Ratio analysis, Du Pont system ,Effects of ...Tanjin Tamanna urmi
Five Categories of Fin. Ratios
Liquidity: Ability to meet current obligations
Asset Mgmt: Proper & effective use of assets
Asset utilization (i.e., Total Asset Turnover Ratio:
TAT = Sales / T. Assets
Debt Mgmt: extent of debt & level of safety afforded creditors
Debt utilization (i.e., Equity Multiplier:
EM = T. Assets / T. Eqty
Profitability: reflects effects of liquidity, asset mgmt, & debt on operating results
Expense Control: Profit Margin:
PM = Net Income / Sales
Market Value: indicators of what investors think of firm’s past results & future prospects
SFW - FOFA implications, Sum of parts valuation, possible acquirers George Gabriel
This research note analyses potential acquirer of the SFW business, and looks at Future of Financial Advice (FOFA) reforms and values SFW on a sum of the parts basis (a relevant valuation methodology for any business with multiple business segments).
Financial services sector - implications of FOFA, possible acquires of SFW, S...George Gabriel
SFG Australia was an ASX listed financial stock. In this note, we analysed (i) the Future of Financial Advice (FOFA) laws; (ii) sum of the parts (SOTP) valuation of SFW; and (iii) possible acquirers of the business
1. (TCO A) Below you will find selected information (in millions) .docxhyacinthshackley2629
1. (TCO A) Below you will find selected information (in millions) from Coca-Cola Co.’s 2012 Annual Report.
Income Taxes Payable
$471
Short-term Investments and Marketable Securities
8,109
Cash
8,442
Other non-current Liabilities
10,449
Common Stock
1,760
Receivables
4,812
Other Current Assets
2,973
Long-term Investments
10,448
Other Non-current Assets
3,585
Property, Plant and Equipment
23,486
Trademarks
6,527
Other Intangible Assets
20,810
Allowance for Doubtful Accounts
53
Accumulated Depreciation
9,010
Accounts Payable
8,680
Short Term Notes Payable
17,874
Prepaid Expenses
2,781
Other Current Liabilities
796
Long-Term Liabilities
14,736
Paid-in-Capital in Excess of Par Value
11,379
Retained Earnings
55,038
Inventories
3,264
Treasury Stock
35,009
Other information taken from the Annual Report.
Sales Revenue for 2012
$48,017
Cost of Goods Sold for 2012
19,053
Net Income for 2012
9,019
Inventory Balance on 12/31/11
3,092
Net Accounts Receivable Balance on 12/31/11
4,920
Total Assets on 12/31/11
79,974
Equity Balance on 12/31/11
31,921
Required: 1: Using the information provided prepare a Balance Sheet. Separate the current assets from non-current assets and provide a total for each. Also, separate the current liabilities from the non-current liabilities and provide a total for each.
2: Using the Balance Sheet from your answer above, calculate the Current Ratio and Return on common stockholders’ equity. (Points : 36)
Question 2.2. (TCO B) The following selected data was retrieved from the Walmart, Inc. financial statements for the year ending January 31, 2013.
Accounts Payable
$38,080
Accounts Receivable
6,768
Cash
7,781
Common Stock
3,952
Cost of Goods Sold
352,488
Income Tax Expense
7,981
Interest Expense
2,064
Membership Revenues
3,048
Net Sales
466,114
Operating, Selling and Administrative Expenses
88,873
Retained Earnings
72,978
Required: 1: Using the information provided above, prepare a multiple-step income statement.
2: Calculate the Profit Margin, and Gross profit rate for the company. Be sure to provide the formula you are using, show your calculations, and discuss your findings and results.(Points : 36)
Question 3.3. 45. (TCO C) Please review the following real-world Hewlett Packard Statement of Cash flows and address the two questions below.
Cash flow from operating activities
In millions
In millions
For the year ended 2012
For the year ended 2011
Net (loss) earnings
$(12,650)
$7,074
Depreciation and amortization
5,095
4,984
Impairment of goodwill and purchased intangible assets
18,035
885
Stock-based compensation expense
635
685
Provision for doubtful accounts
142
81
Provision for inventory
277
217
Restructuring charges
2,266
645
Deferred taxes on earnings
(711)
166
Excess tax benefit from stock-based competition
(12)
(163)
Other, net
265
(46)
Accounts and financing receivables
1,269
(227)
Inventory
890
(1,252)
Accounts payable
(1,414)
275
Taxes on earnings
(320)
610
Restructuring
(840)
(1,002)
Other asse.
(TCO A) Which one of the following is an advantage of corporations.docxmercysuttle
(TCO A) Which one of the following is an advantage of corporations relative to partnerships and sole proprietorships? (Points : 5)
Reduced legal liability for investors
Harder to transfer ownership
Lower taxes
Most common form of organization
Question 2.2. (TCO A) The Dividends account _____. (Points : 5)
appears on the income statement along with the expenses of the business
must show transactions every accounting period
is increased with debits and decreased with credits
is considered a long-term asset of the firm
Question 3.3. (TCOs A, B) Below is a partial list of account balances for Denton Company:
Cash $7,000
Prepaid insurance 700
Accounts receivable 3,500
Accounts payable 2,800
Notes payable 4,200
Common stock 1,400
Dividends 700
Revenues 21,000
Expenses 17,500
What did Denton Company show as total credits? (Points : 5)
$30,100
$29,400
$28,700
$30,800
Question 4.4. (TCOs B, E) Under the accrual basis of accounting, _____. (Points : 5)
cash must be received before revenue is recognized
net income is calculated by matching cash outflows against cash inflows
events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles
Question 5.5. (TCO D) Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using _____. (Points : 5)
LIFO will have the highest ending inventory
FIFO will have the highest cost of goods sold
FIFO will have the highest ending inventory
LIFO will have the lowest cost of goods sold
Question 6.6. (TCO A, E) Equipment was purchased for $17,000 on January 1, 2006. Freight charges amounted to $700 and there was a cost of $2,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $3,000 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2007, if the straight-line method of depreciation is used? (Points : 5)
$6,680
$3,340
$2,860
$5,720
Question 7.7. (TCOs D, G) Lopez Corporation issues 500 ten-year, 8%, $1,000 bonds dated January 1, 2007, at 96. The journal entry to record the issuance will show a _____. (Points : 5)
debit to Cash of $500,000
credit to Discount on Bonds Payable for $20,000
credit to Bonds Payable for $480,000
debit to Cash for $480,000
Question 8.8. (TCO C) Accounts receivable arising fro ...
Similar to Fm11 ch 13 analysis of financial statements (20)
Fm11 ch 14 financial planning and forecasting pro forma financial statements
Fm11 ch 13 analysis of financial statements
1. 13 - 1
Ratio analysis
Du Pont system
Effects of improving ratios
Limitations of ratio analysis
Qualitative factors
CHAPTER 13
Analysis of Financial Statements
5. 13 - 5
Other Data
2004 2005E
Stock price $6.00 $12.17
# of shares 100,000 250,000
EPS -$0.95 $1.01
DPS $0.11 $0.22
Book val. per share $5.58 $7.91
Lease payments 40,000 40,000
Tax rate 0.4 0.4
6. 13 - 6
Standardize numbers; facilitate
comparisons
Used to highlight weaknesses and
strengths
Why are ratios useful?
7. 13 - 7
Liquidity: Can we make required
payments as they fall due?
Asset management: Do we have
the right amount of assets for the
level of sales?
What are the five major categories of
ratios, and what questions do they
answer?
(More…)
8. 13 - 8
Debt management: Do we have the
right mix of debt and equity?
Profitability: Do sales prices exceed
unit costs, and are sales high
enough as reflected in PM, ROE, and
ROA?
Market value: Do investors like what
they see as reflected in P/E and M/B
ratios?
9. 13 - 9
Calculate the firm’s forecasted current
and quick ratios for 2005.
CR05 = = = 2.58x.
QR05 =
= = 0.93x.
CA
CL
$2,680
$1,040
$2,680 - $1,716
$1,040
CA - Inv.
CL
10. 13 - 10
Expected to improve but still below
the industry average.
Liquidity position is weak.
Comments on CR and QR
2005E 2004 2003 Ind.
CR 2.58x 1.46x 2.3x 2.7x
QR 0.93x 0.5x 0.8x 1.0x
11. 13 - 11
What is the inventory turnover ratio as
compared to the industry average?
Inv. turnover =
= = 4.10x.
Sales
Inventories
$7,036
$1,716
2005E 2004 2003 Ind.
Inv. T. 4.1x 4.5x 4.8x 6.1x
12. 13 - 12
Inventory turnover is below
industry average.
Firm might have old inventory, or
its control might be poor.
No improvement is currently
forecasted.
Comments on Inventory Turnover
13. 13 - 13
Receivables
Average sales per day
DSO is the average number of days
after making a sale before receiving
cash.
DSO =
= =
= 45.5 days.
Receivables
Sales/365
$878
$7,036/365
14. 13 - 14
Appraisal of DSO
Firm collects too slowly, and
situation is getting worse.
Poor credit policy.
2005 2004 2003 Ind.
DSO 45.5 39.5 37.4 32.0
15. 13 - 15
Fixed Assets and Total Assets
Turnover Ratios
Fixed assets
turnover
Sales
Net fixed assets
=
= = 8.41x.$7,036
$837
Total assets
turnover
Sales
Total assets
=
= = 2.00x.$7,036
$3,517 (More…)
16. 13 - 16
FA turnover is expected to exceed
industry average. Good.
TA turnover not up to industry
average. Caused by excessive
current assets (A/R and inventory).
2005E 2004 2003 Ind.
FA TO 8.4x 6.2x 10.0x 7.0x
TA TO 2.0x 2.0x 2.3x 2.5x
17. 13 - 17
Total liabilities
Total assetsDebt ratio =
= = 43.8%.
$1,040 + $500
$3,517
EBIT
Int. expense
TIE =
= = 6.3x.$502.6
$80
Calculate the debt, TIE, and EBITDA
coverage ratios.
(More…)
18. 13 - 18
All three ratios reflect use of debt, but
focus on different aspects.
EBITDA
coverage
= EC
= =
5.5x.
EBIT + Depr. & Amort. + Lease payments
Interest Lease
expense pmt.+ + Loan pmt.
$502.6 + $120 + $40
$80 + $40 + $0
19. 13 - 19
Recapitalization improved situation,
but lease payments drag down EC.
How do the debt management ratios
compare with industry averages?
2005E 2004 2003 Ind.
D/A 43.8% 80.7% 54.8% 50.0%
TIE 6.3x 0.1x 3.3x 6.2x
EC 5.5x 0.8x 2.6x 8.0x
20. 13 - 20
Very bad in 2004, but projected to
meet industry average in 2005.
Looking good.
Profit Margin (PM)
2005E 2004 2003 Ind.
PM 3.6% -1.6% 2.6% 3.6%
PM = = = 3.6%.
NI
Sales
$253.6
$7,036
21. 13 - 21
BEP =
= = 14.3%.
Basic Earning Power (BEP)
EBIT
Total assets
$502.6
$3,517
(More…)
22. 13 - 22
BEP removes effect of taxes and
financial leverage. Useful for
comparison.
Projected to be below average.
Room for improvement.
2005E 2004 2003 Ind.
BEP 14.3% 0.6% 14.2% 17.8%
23. 13 - 23
Return on Assets (ROA)
and Return on Equity (ROE)
ROA =
= = 7.2%.
Net income
Total assets
$253.6
$3,517
(More…)
24. 13 - 24
ROE =
= = 12.8%.
Net income
Common equity
$253.6
$1,977
2005E 2004 2003 Ind.
ROA 7.2% -3.3% 6.0% 9.0%
ROE 12.8% -17.1% 13.3% 18.0%
Both below average but improving.
25. 13 - 25
ROA is lowered by debt--interest
expense lowers net income, which
also lowers ROA.
However, the use of debt lowers
equity, and if equity is lowered
more than net income, ROE would
increase.
Effects of Debt on ROA and ROE
26. 13 - 26
Calculate and appraise the
P/E, P/CF, and M/B ratios.
Price = $12.17.
EPS = = = $1.01.
P/E = = = 12x.
NI
Shares out.
$253.6
250
Price per share
EPS
$12.17
$1.01
27. 13 - 27
Industry P/E Ratios
Industry Ticker* P/E
Banking STI 17.6
Software MSFT 33.0
Drug PFE 31.7
Electric Utilities DUK 13.7
Semiconductors INTC 57.5
Steel NUE 28.1
Tobacco MO 12.3
Water Utilities CFT 21.8
S&P 500 30.4
*Ticker is for typical firm in industry, but P/E ratio is for the
industry, not the individual firm.
28. 13 - 28
NI + Depr.
Shares out.
CF per share =
= = $1.49.$253.6 + $120.0
250
Price per share
Cash flow per share
P/CF =
= = 8.2x.
$12.17
$1.49
29. 13 - 29
Com. equity
Shares out.
BVPS =
= = $7.91.$1,977
250
Mkt. price per share
Book value per share
M/B =
= = 1.54x.
$12.17
$7.91
30. 13 - 30
P/E: How much investors will pay
for $1 of earnings. High is good.
M/B: How much paid for $1 of book
value. Higher is good.
P/E and M/B are high if ROE is high,
risk is low.
2005E 2004 2003 Ind.
P/E 12.0x -6.3x 9.7x 14.2x
P/CF 8.2x 27.5x 8.0x 7.6x
M/B 1.5x 1.1x 1.3x 2.9x
31. 13 - 31
Common Size Balance Sheets:
Divide all items by Total Assets
Assets 2003 2004 2005E Ind.
Cash 0.6% 0.3% 0.4% 0.3%
ST Invest. 3.3% 0.7% 2.0% 0.3%
AR 23.9% 21.9% 25.0% 22.4%
Invent. 48.7% 44.6% 48.8% 41.2%
Total CA 76.5% 67.4% 76.2% 64.1%
Net FA 23.5% 32.6% 23.8% 35.9%
TA 100.0% 100.0% 100.0% 100.0%
32. 13 - 32
Divide all items by
Total Liabilities & Equity
2003 2004 2005E Ind.
AP 9.9% 11.2% 10.2% 11.9%
Notes pay. 13.6% 24.9% 8.5% 2.4%
Accruals 9.3% 9.9% 10.8% 9.5%
Total CL 32.8% 46.0% 29.6% 23.7%
LT Debt 22.0% 34.6% 14.2% 26.3%
Total eq. 45.2% 19.3% 56.2% 50.0%
Total L&E 100.0% 100.0% 100.0% 100.0%
33. 13 - 33
Analysis of Common Size Balance
Sheets
Computron has higher proportion of
inventory and current assets than
Industry.
Computron now has more equity
(which means LESS debt) than
Industry.
Computron has more short-term debt
than industry, but less long-term debt
than industry.
35. 13 - 35
Analysis of Common Size Income
Statements
Computron has lower COGS (86.7)
than industry (84.5), but higher other
expenses. Result is that Computron
has similar EBIT (7.1) as industry.
36. 13 - 36
Percentage Change Analysis: Find
Percentage Change from First Year (2003)
Income St. 2003 2004 2005E
Sales 0.0% 70.0% 105.0%
COGS 0.0% 73.9% 102.5%
Other exp. 0.0% 111.8% 80.3%
Depr. 0.0% 518.8% 534.9%
EBIT 0.0% -91.7% 140.4%
Int. Exp. 0.0% 181.6% 28.0%
37. 13 - 37
Analysis of Percent Change Income
Statement
We see that 2005 sales grew 105%
from 2003, and that NI grew 188%
from 2003.
So Computron has become more
profitable.
38. 13 - 38
Percentage Change Balance Sheets
Assets 2003 2004 2005E
Cash 0.0% -19.1% 55.6%
ST Invest. 0.0% -58.8% 47.4%
AR 0.0% 80.0% 150.0%
Invent. 0.0% 80.0% 140.0%
Total CA 0.0% 73.2% 138.4%
40. 13 - 40
Analysis of Percent Change Balance
Sheets
We see that total assets grew at a
rate of 139%, while sales grew at a
rate of only 105%. So asset
utilization remains a problem.
41. 13 - 41
Explain the Du Pont System
The Du Pont system focuses on:
Expense control (PM)
Asset utilization (TATO)
Debt utilization (EM)
It shows how these factors combine
to determine the ROE.
42. 13 - 42
( )( )( )= ROE
Profit
margin
TA
turnover
Equity
multiplier
NI
Sales
Sales
TA
TA
CE
2003 2.6% x 2.3 x 2.2 = 13.2%
2004 -1.6% x 2.0 x 5.2 = -16.6%
2005 3.6% x 2.0 x 1.8 = 13.0%
Ind. 3.6% x 2.5 x 2.0 = 18.0%
The Du Pont System
x x = ROE.
43. 13 - 43
What are some potential problems and
limitations of financial ratio analysis?
Comparison with industry averages
is difficult if the firm operates many
different divisions.
“Average” performance is not
necessarily good.
Seasonal factors can distort ratios.
(More…)
44. 13 - 44
Window dressing techniques can make
statements and ratios look better.
Different accounting and operating
practices can distort comparisons.
Sometimes it is difficult to tell if a ratio
value is “good” or “bad.”
Often, different ratios give different
signals, so it is difficult to tell, on
balance, whether a company is in a
strong or weak financial condition.
45. 13 - 45
What are some qualitative factors
analysts should consider when
evaluating a company’s likely future
financial performance?
Are the company’s revenues tied to a
single customer?
To what extent are the company’s
revenues tied to a single product?
To what extent does the company
rely on a single supplier? (More…)
46. 13 - 46
What percentage of the company’s
business is generated overseas?
What is the competitive situation?
What does the future have in store?
What is the company’s legal and
regulatory environment?