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Question1Work through the Web Exercise at the end of the chapt.docx
- 1. Question1 Work through the Web Exercise at the end of the chapter. Comment on your most interesting findings on Johnson and Johnson (JNJ). StrIS'tgOUd 6dcuetctge eqtr sI 1eqid 'c 'lq8le leuotltsod lseleer8 3o repro u1 'q 't {8le leuotltsod }seleerB :Je{eeJqeIJ 'qse1 Eurrrrollo; lsoluJo Jepro uI 'e :se1ru Bur,r,ro11o; eql Eursn suorlels{ro o1 (selnurur ur ere serutl) ruer8erp ecuepecerd 3ur,{ued ^.-trlocce eqt ur uroqs s1se1 eql u8rssy'moq olnuru-09 e suor'r doqs eqt eumssY'slpm 7gglo ln4"o lf ) .(1moq ue elerqce pue 'elgrssod se ,(lluercrge se suorlel$lJo1( 01 s{sq uEtsse o1 sluerrr re8eueulV V eselnuru 91 (g) 6sepuru 6 (1) sr sturl e1c,(c eqlgr lFser IILA lepuelod 1ndlo 1eq16 'e - 6.&p red slpn SZI;o elur 1nd1no ue epnord III^ eurq e1c,fu 1eq16 'p 6lq8nos eq o1 sr eler 1nd1no umrulxelr eqlJl pepeeu
- 2. suollel$lJo/(Jo Jegumu umlulurrr eql sI 1Bt1 'c eeull oql roy elqrssod ,ll€cltreroeql sr lnd1no;o e8uur 1eq16 'q iseu4 e1c,(c umlulxeru puB lunr[Iulrr eqtr er€ leqr 'e 'fep red selnuru 0S, roJ eleredo IILu oull eql 'selnuru 8 I sI s{s?l IIe roJ erurllsloleqlpue.selnunuT.TsrlsellsesuolerlJ'pecrrBl€qeqolsrslse llI,ill^euq,(lquresseuy'1 6ssecord ecr,Jes e JoJ $lsu eql eJB leq4 issecord uorlcnpord e Eurleurolne Jo $lsIJ eql eJ€ }?tL{& '€ .ere ugrsep lnofel JoJ suorleJeplsuoc de1 eArJ Jo moJ oql lsq r{cee rog ureldxe pue'sruelt relurts Jeqlo Jo 6NII sgl ruo{: srue}r luoJergrp eeJql }celes 'secllop cruo.qcele Jeqlo pue srelnduroc eprsut slueuodruocgo tueure8uerre eql pue selrqouolneJo srolJelur eql se qcns slcnpord suosSo uEtssp eq1 ur luegodrul osle sr 1no.(e1 'suoqclDl pue 'se8ereE pu€ slol Euqred'slleru ol'sesnoqerelll pue'serols luen4redep .secrgo 'sleryerutedns 'serrolce3: ruo+ 'sollllrceJ;o etuer epv( e lceJ? suolslsep lrt]lod.e1 '7 '(1 reldeq3 ees) e1e1or.t feql seldrcuud
- 3. I€crqle eql pue .1no,(u1 o] pelBIeJ o^l puB uorlceles ssecord o1 peluler sJol^Bqeq Ieclqle1m o.t] eureN 'I isuorsrcep lno{e1 lcedur ,(Eolouqcel uec ,^doH .uollceles ssecord uo lceduu u€ eleq ,(Eolouqcel seop s,(e.u lsqllr uI 6uErsep 1no,fuI ut pe^lo^w eq ol speeu orl iuol1celes ssecord ur pe IoAuI eq ol speeu oqr! leu11 ,(lqruesse uB ocu€leqeJ ol ueuo.troq Surprcep ueq.& peAIoAuI ere sgo-ep€4 l€ql[ '9 'n 'c ,Z 'uoqcales ssecord ut sgo-eper1 ro[eu eeJq] oureN 'I 'Eurcueleg eu11 uo ,!1pqeu€A elull 1se1 go secuenbesuoc eql ureldxg '97 ;,(Eolouqcel dnor8 sr $qN, 'rZ esuorleuull pue slrJeueq uI?Iu slr er? 1eq16 63uun1ce;nueru rBlnllec q leqll[ 'tz ,tprllcnpord repulrl Jo dleq uec 1no,fu1 e leql sfe.tr eluos orrreN 'ZZ
- 4. 'Jec pe{cera eql lcn4suocer otr pelnber esoql pue rec luru8rro eqt elqruesw ol pesn sessecord eql;o srrJel uI dcuedercsrp e8rel srql roJ suoseor eql uleldxg 'loloJleq3 pe{3eJna e }sn4suoceJ 01 Joq€l pue slred ur ecud eseqcrnd 1eu -rEuo eq1 sorurl eerqt ueql eroru slsoc r 'sremsul uecgourvJo ocuelllv eql {q.{pnls e o1 Eurproccy asluauruoJl^ue ecl^Jes ur lecrd,Qe qno,(e1 lcnpord ere .(q16 2,s1no,fu1 turu8rsep ur pesn feql ere ,(qtr pue 'seqceordde crlslJneq oJe lBtL! 'sle4reuuedns ur punoJ ,(luoururoc tuerudrnba Surypueqleueleur qled-e1qeue,r pue qled-pexlJ eql ,gquepl i,srue1s,(s sng pue ,(e,,rtqns eqlJo suogelltull pue se8elue,rpe eql ere leql['re$?ru srq] uo Iostmoc rno,( slees eegluruoc eql pue 'luerudmbe Eullpueqleueleu Iped-elqeuu^ pue qled-pexlJ ]n0^El ^llllcel puP uo[calos ssaco]d 4s le]dEqc sSsrcuf x3 cNlvNrHl lVSulHC vcors cNlxvt
- 5. 'tz '02 '6I LLZ '8I 226 Part 2 Analysis and Valuation of Equity Securities extraordinary gains and losses 223 forward price-earnings ratio 213 income statemerrt 2OO inflation-adjusted accounting 221, liquidity ratios 2L-1. price ratios ztz profitabilityratios 2O8 statement of cash flows 2O3 trailing price-earnings ratio 273 trend analysis 217
- 6. al j / L ffi PRAcrtcE pRoBLEMS AND solurtoNs 1. Given the following financial data: Net income/Sales : 4 percent; Sales/Total assets : 2.8 times; Debt/Total assets : 40 percent; compute: ct. Return on assets. b. Return on equity. c. If the Debt/Total assets ratio were 70 percent, what would Return on equity be? ffi KEY woRDs AND coNcEPTs asset-utilization ratios 21O balance sheet 2Ol debt-utilization ratios 21'1, dividend-payout ratio 21.4 dividendyield 214
- 7. ffi DlscusstoN ouEsrroNs @oo", abalance sheet that is dated year-end 2007 reflect only transacrions for that year? /an (])Explain why the statement of cash flows is particularly relevanr in light of the fact that the accruai method of accounting is used in the income statement and balance sheet. () aur-, we automatically assume that afirm that has an operating loss on the income statement has reduced the cash flows for the firm during the period? X4tat ratios are likely to be of greatest interest to the banker or trade creditor? To the bondholder? p ff a firm's operating margin and after-tax margin are almost the same (an unusual case), what can we say about the firm? 6. comment on the heary capital goods industry and the food- processing indus- try in terms of performance under the DuPont system of analysis. 7. In computing return on assets, how does the age of the assets influence the interpretation of the values?
- 8. 8. If a firm's return on equity is substantially higher than the firm's return on assets, what can the analyst infer about the firm? 9. How do the asset-utilization ratios relate to the liquidity ratios? LO. Can public utility firms better justify the use of high debt than firms in the auto- mobile or airline industry? Comment. LL. Vhy will the fixed-charge-coverage ratio always be equal to or /ess than times interest earned? 12. what might a high dividend-payout rario suggesr ro an analyst about a compa- ny's growth prospects? lJ. Explain the probable impact of replacement-cost accounting on the ratios of return on assets, debt to total assets, and times interest earned for a firm that has substantial old fixed assets. DuPont analysis .ur€",pue'000.0s?$ro":ntii{;!:f"'J;:ffi Til:f ffi ;fi [tiilf,f x53]fffi 1,L*jHlulelule., reqlre u€c rurrJ eql ,qBH sr pueuepJl 000,00r$ eq IIr,^ slsoo Burplrng ro; Burlcnpep regeenle't lueserd 1eu eq1 "tto1
- 9. sr pueurep pun ,{ltttrri J1"*r n spFq rr JI .slcnpord ^eu eq} ecnpord o1&1lceg e8rel e ro II€us e plrnq ol reqteq r eprcep tsnu eu4 lcnpord stl puedxe o1 sueld l?ql urrJ v ., lpuedxg etseq eq Burqlou Buropgo e^lteuretle eql ppo,no (q8g)a;o e8uer 1eq.u *^o1ffilffiHuo srs'(1uue '(lr^rrrsues ruro,red o1 no,( .1qru.lp^'1*q1 qarra n lrn-rrru ., li"i ,s.,,argord o1 reJeu .t ;e8pe1'uou1 sq] esn rolc€.uuoc eql prnor,roH 'uorleurJoJur lcegredgo en1e,t pelcedxe eq1 elnduo3 .c eq] uo e^rleuretrs r{c,eJo 1r30rd pelcedxe eql.^aorrs .eer1 uorsrcep e Sursn ruelqord.q, "rrp"# .q 1'(q16 ;1seq sr e^rreurelre qcrq .e^rleurelre qcse Jo 1r10rd pepedxe eq] eururJelecr .?.2. : (qBU)a pw €. = (,uo1[ :pueurep qElq pue.rolJo seqrtrg€qor-cetgns o1 rtqn rr rorrr+u"oc eq1 'uorssncsrpJo lunoru, ureuec e.rerye esoddng , trltlllllilfJillpl oL or '0""'ll3,iill'o','d oB 0Z puedx3 09$ -oq$ bultlrou oo - q6!H /vlo'l ONVW]O S,UV]ADGN
- 10. o,rlleurollv iler8e; xerururl4l ieceldel eulurxeJ^l 6xelurxew 'p 'c 'q ,e su{31goud erqel eql ur u.{r.or{s ,, ",, "j;:j:"'j:;#:il:ffJ'jffiffl:';l#,:,,i,.'t',',J]x,,;#.,;#r-1"J::lxeu JoJ 'Qrcedec uo uorsrcep e e{e.,,rou lsn., Jo}c,Jruoc eq1 ,filcedec qrurrJ eql pepeecxe serlru-qroddo {ro'& qcFl,'' ur sree.( e,rsseccns o.rrr1 pecueuedx. rpu"r.i ,nq rorrnrio, Burplnq Ileus y lecrqle eqr pue srs.(1eue uorsrcep or pelerer suorrceu r" rr"ll#'#rr'fr,n'IiTj,ojt:ffi'fiiJjil sr.roH 'se^rr,urerre ue.es er{}Jo o,r} uee,^^leg or} Ieru-rh € sr ereq};r*XiH."ffi;ilflT:ff# eq1 ur pue uorsrcep ,4ycedec e Surleur ros .r.rq n ,, Nalg runurrxeru Sursn sr rcEeuerue esoddnS eesec e qcns ur srs,{1euu dlr,trlrsui esn lq8rur nod ,(e,r ego *r* no, u€J au.ro,Iun ereernt?uJo selels eqlJo se4l.gegord eqlJr re{€.,, uorsir.p "ql
- 11. ot elqelr€^e ere suorldo 1eq16 iruelqorde;:o srs'(1eue enleur.- pelcedxe ue ruro;red or JepJo ur'peeu Jersru uorsrcop 3 seop uorleruJoJ,I l€q^ 'I 'tl 'uor]errrJoJur 1ce;redgo en1e,t pelcedxg .p 'en1e,t pelcedxg .c 'ler8er xeruruttr4l .q uouelrrc aceldel .e :surJel eseqlJo qcee eurJop,ro ureldxg .6y ueIL! euorrelrJc uorsrcop e se eledordde en1e,t ,{releuou pelcedxe ., ,rr,rrrr;?::;1";i*:ffi , 6elepdordde qcee sr secuelsumcJrs req,r Jepun .ser3e1e4s uorsrcep ur.,rxe.,, pu€ xe.,rx?.,, rse4uoJ .g t,Je)elu uorsrcep e 01 Iruesn eq 1r ue3,^tror{ pu€ ,srsfleue.(1ra,r1rsuss sr leqr! ./ ;e1qe1go,(ed e ur peureluoc sr uorleruroJur leq,{& .9 asuorsroep roodro; suoseer eqlJo eruos eJs leql6 .S .uottoztturtdoqns rurel eql ureldxg .y '{41ouot1ru papunoq Lurel eq1 ureldxg .g 'ssecord Eurleur-uorsrcep eq1 ur sdels eql lsr.J .Z T.,re8eueur suorleredo eqlJo elorJelqc oqt sr 1€q/& .l
- 12. fuoeql uorsrceg erul lageqg ol lueuelddng sNotrssno /rAglAltU ONV NOlSSncstg LZZ 208 DISCUSSION AND REVIEW QUESTIONS TAKING STOCK Q wr,.tarethemajortrade- offsincapacityplanning? Q) Wt o needs to be involved in capacity planning? @ln what ways does technology have an impact on capacity planning? CRITICAL THINKING EXERCISES 1. A computer repair service has a design capacity of80 repairs per day. Its effective capacity, how- eveq is 64 repairs per day, and its actual output is 62 repairs per day. The manager would like to increase the number of repairs per day. Which of the following factors would you recommend that the manager investigate: quality problems, absenteeism, or scheduling and balancing? Explain your
- 13. reasoning. 2. Compared to manufacturing, service requirements tend to be more time dependent, location depen- dent, and volatile. In addition, service quality is often directly observable by customers. Find a recent article in a business magazine that describes how a service organization is struggling with one or more of these issues and make recommendations on what an organization needs to do to overcome these difficulties. 3. Identifi, four potential unethical actions or inactions related to capacity planning, and the ethical principle each violates (see Chapter 1). 1. Determine the utilization and the efficiency for each of these situations: a. A loan processing operation that processes an average of 7 loans per day. The operation has a design capacity of 10 loans per day and an effective capacity of 8 loans per day. b. A furnace repair team that services an average of four furnaces a day if the design capacity is six furnaces a day and the effective capacity is five furnaces a day. c. Would you say that systems that have higher efficiency ratios than other systems will always have higher utilization ratios than those other systems? Explain. PROBLEMS Ghapter Five Strategic Capacity Planning for Products and Services
- 14. 1. Contrast design capacity and effective capacity. 2. List and briefly explain three factors that may inhibit capacity utilization. 3. How do long-term and short-term capacity considerations differ? 4. Give an example of a good and a service that exhibit these seasonal demand patterns: a. Annual b. Monthly c. Weekly d. Daily 5. Give some examples of building flexibility into system design. 6. Why is it important to adopt a big-picture approach to capacity planning? 7. What is meant by "capacity in chunks," and why is that a factor in capacity planning? 8. What kinds of capacity problems do many elementary and secondary schools periodically experi- ence? What are some alternatives to deal with those problems? 9. How can a systems approach to capacity planning be useful? 1 0. How do capacity decisions influence productivity? 11. Why is it important to match process capabilities with product requirements?
- 15. 12. Briefly discuss how uncertainty affects capacity decisions. 13. Discuss the importance of capacity planning in deciding on the number of police officers or fire trucks to have on duty at a given time. 14. Why is capacity planning one of the most critical decisions a manager has to make? 15. Why is capacity planning for services more challenging than it is for goods production? 16. What are some capacity measures for each of the following? a. University b. Hospital c. Computer repair shop d. Farm 17. What is the benefit to a business organization of having capacity measures? L9'rv$ : 90'/ot zg : (50 _ tr.')/os.z$ : (3 _ "y1fr61 : o4 .D .I suo!lnlos anr,A ruesard aqr aunu-,arap or a puv q sujd ruo,u senr,A "r,
- 16. ,JilH"?T# t'tuac;acl 0I lE sr,a,{ eeJLIl JoJ p ura ,r, punoJ anl,^ eqt yr,q lunorsr. [email protected] - 'x)/7o : €a, 's,uolloJ se !-L Elnrurod as;1 .rca.r( prlgt aqt JO pue 1Il,E eq rua' puq nod enr,A luesard aq1 'puap1a1p s,read rIunoJ aql qlrao. Suru-ut8aq 'spuaptatp aJnlnJ IIE Jo anlr^ tuasa;d rql pug ol g_l,TnuJoc asll .p'(o) rca, qunoJ aqt roJ puaptatp aqt nalor4 :)'t uvd ur spuepr^rp aql Jo a,_rp,, irarara "qr prll ; r,rurrap aqr;o rq31.r aqr or saceld oA10r r,"o['J]T*:Jli,ljji::ilrllT:$'1uaal8 Apyeqe sr read tsru aql) g qarlorql 1 s;zad roJ spuaprllp nalo;4 .n e re ruasa;d or yJEq parunoJsrp ae or aru *":;,?#fif ,;,f"ili:#i::rrigj '4uecjruor rqr sE rEJ su luac;ad 1 1e aro,r8 or papadra;; ,p;;;ip ,g .rza.r( ragy'(qurorS.go srea-,( oarl s,1zqr) g _tea.[, So pua aq] plun rzad ;ad tuacrad 71 Aq ,xoti-or paroadxa arE pu, a;Es rad gs.tg a-,e 1 ,nr.igo p", i;;"rprapr^Ig .spuep-r^rp roJ u;aned qulo;3 ruersuoruou e satedr.rrlue ""pir"ar5c [a,!sog aqJ .z -uJEa yr quror' eqr es,errep ro as,arrur sqr [rd ,,:ii#T":rX'.ilr'#ltj-?i#jrnodzd puapr^rp aql sas'arrur ruJU E 3' 'j"po* qraro;' arq,Ur'rsns rql uo pas,g .6r duatq u;oJ areudo,ddz aq ppo^a Iapou qlno,ra alq,Ur,lsns "rr;ffiYf;,lr:: .r, E uo
- 17. "anr,A,, due aroqs lou rq'ru r,r{l lass, arq,nr,^ n 3o "10*n13'xi 3,'H.f-l ,, ;sa,uzd,uor'1ilffi ::,' ,,";;;j,frT: Jlll"ff J",,":H #* g 2>llols qraror8 e puu durdruoo quo.o"r8 E uaaa.taq aluaJaJJrp ,r, ,, ,rqo .ffi Jo poqrau rueurarurs aruo)ur perEr^eJqq, uE orur oB sruaurar"r""ff'r'r?ff.n, leu{puaJl sa;znbs tseal E Jo JrlsrJalJEJErlJ Iertuassa aql sI lEq,4N .zI lsollzr f,/d lsaq8rq aql furo ot pual sarrtsnpu 1o adft rru^ fri'[a,tt sE sro]f,EJ Jeqto Jo raqunu e lsaBBnS iq)ots lt2nptrlpul;;XroJ orr,r g/d aql Surcuangur q t,rruod*r rsoru dlqzqord"a;i, ,"r"rE o,tu reg-a* otrJa'utpralsru aq .IIEJ a/d luJJrnJ aqr lq'rur,,(qar ,saruzduoc yzcrlcdc ro.{ @ eruanuur srorrp.J quro.r' pu, suorr,raprsuor';JJ:Tr[Ji::X,:]i:r"i,?l?fif O drqsuo n erar a qr ua a q s Eq rE qa.,,rrf :i' ;y:fJff :'#'r:ft lT;]?i,J: r::;fj Xl ;2paz[1eue aq qlrno;8 ]uelsuoJuou qrrao. saruzduroJ uEJ ^ou .i ;991 a'ed uo S_L EInuJoC asn ol ,,ressacau er, suonrpuo) o^al lEr{,4A. .s lepotu puapl^rp qyvror6 luelsuocuoN
- 18. 16t rull lenpt^rpul ot1l lo uorlenlpn 2 .raldeqg 190 Part 2 Analysis and Valuation of Equity Securities ffi suMMARy This-chapter presents severar common stock valuation dends and earnings per share. For the valuation to be earnings and dividends needs to be correct. free cash flow 1g5 growth companies 775 growth stock 775 hidden assets 189 least squares trend analysis 185 price-earnings ratio 177 models that rely on divi- accurate, the forecast of required rate of return 165 retention ratio 174 risk-free rate 165 sustainable growth model 173 valuation 164 Firms can be varued_in many ways, and, afianalyst may use severar methods tosubstantiate estimates. varuation mojels
- 19. based pri^"rrty on airia"rrds rook atfuture prol'ections of diviclends and the associated present values of the dividends.Assumptions must be made as to whether the divii""a gro-tn paftern is constant,accelerating. or decreasing. . calculating the p.op"i rare of return for the valuation of a company,s stock isimportant. The capital Asset pricing Model is used ^ u--"thoa'"r.rr."irtr"sreturn. 7e also discuss the problemi with heta and the ;di;y risk premium. Analternate return methocl is presented where the company,s corporate bond yield isused as a baseline for the iequired rate of return. The analysis of a firm's growth rate is a very important part of the valuationprocess' sre discuss the various ways of analyzingg.o*.tn i".riamg the sustainablegrowth model and the.rerationship berween thJ lriving fo.c.s of growth. Thesedriving forces of growth are a function of sales g.o*f,; ire ,,u.io* reration_ships between profit margins, payout ratios, and number of shares outstanding.valuation using the earnings method requires that a price-earnings ratio be usedas a multiplier of Eps. price-earnings ratios are influenc"a ny lrlrrry variables such asgrowth, risk, capital stnrcture, dividend poriry, revel of the market in general, in<lustryfactors, and more. A careful study of eaih situation must be concludecl before choos- ing the appropriate P/E. The price-earnings ratio is a function of two fluctuating vari-ables-earnings and price. The two variab"les combine to form a ratiothat is primarilyfuture oriented' High price-earnings ratios usually indicate positive expectations of thefuture, whereas low price-earning-s ratios connote negative expectations. To choose ap/Ethat is reasonable, the analyst must have some idea about theexpected grou.th rate in earnings per share.- Investors may find earnings estimates ininvestmenr advisory se.ices, in itatisticar forecasrs t;;;.rge houses, throughtheir own time series statisticar regression anarysis,
- 20. ", "1y "r;;;h'" income statementmethod' Growth stocks were clisc-ussed more with the view oialerting the student towhat to look for when trying ro identig/ a growth stock or ;o_prrry than with theconcept of valuation' The previously developed methods of valuailon can be used ongrowth stocks as long as care is taken to evaluate the durationu.ra t"r."t of growth.we also presenred some basic ideas about rhe varue ;i;;;;r".s basecl nor ontheir earmngs or dividend stream but on their assets such as cash or natural resources. ffi KEY woRDs AND coNcEprs beta 165 dividend valuation models '1,65 earnings valuation model 165 EBITDA 185 equity risk premium (ERP) 55 ffi DrscusstoN ouEsrtoNs L' To determine the required rate of return, K", what factor is aclcled to the risk_free rate? (Use FormulaT_2 on page f66.) [Q Whar does beta represenr? I What does the equiry risk premium (ERp) represent? 4- How is value interpreted under the dividend valuation model?