Busn 233 CH 03

Chapter 3: Working With Financial Statements Topics
Why Work With Financial Statements? Problems with Financial Statement Analysis. Calculating Ratios and Analyzing with Ratios. Why do we use Ratios to Analyze Financial Statements
CA = CL = CA/CL = CA/CL =
Example 1: What is a Ratio? $ 200.00 $ 100.00 Meaning:
Net Sales COGS Other Ex EBIT Int Tax NI
Example 2: Common Sized Financial Statements. I/S I/S 100 Net Sales 25 COGS 15 Other Ex 60 EBIT 10 Int 17 Tax 33 NI Example 3: Ratios allow us to see relationships between numbers. $ 5,000.00 $ 200.00 Meaning:
Net Sales = Net Income = NI/NS = NI/NS =
Example 4: We can see trends over time without the distortions of different number sizes. Cash 2001 = $ 200.00 Total Assets 2001 = $ 2,000.00 Cash 2008 = $ 600.00 Total Assets 2008 = $ 5,000.00 2001 Cash/TA = 2008 Cash/TA = Meaning: Example 5: We can compare small and big companies without the distortions of different number sizes. 23 B. 63 B. 11 B. 19 B.
MFST Cash = MFST TA = GOOG Cash = GOOG TA = MFST Cash/TA = GOOG Cash/TA =
Meaning:
Example 6: We can compare Financial Statements that are in different currencies. Company 1 Equity = $ 1,018.74 Company 1 TA = $ 2,037.49 Company 2 Equity = 500.00 Company 2 TA = 1,000.00 Company 1 TA/E =
Company 2 TA/E = Company 1 TA/E = Company 2 TA/E =
Meaning:
nt number sizes.
CA = CL = CA/CL = CA/CL =
Example 1: What is a Ratio? $ 200.00 $ 100.00 $2CA/$1CL Meaning: 2 Example 2: Common Sized Financial Statements. I/S I/S 100 Net Sales 25 COGS 15 Other Ex 60 EBIT 10 Int 17 Tax 33 NI
For every $1 of CL we have $2 of CA.
Net Sales COGS Other Ex EBIT Int Tax NI
100% 25% 15% 60% 10% 17% 33%
$1.00 $0.25 $0.15 $0.60 $0.10 $0.17 $0.33
Net Sales = Net Income = NI/NS = NI/NS =
Example 3: Ratios allow us to see relationships between numbers. $ 5,000.00 $ 200.00 $0.04 NI/ $1 Sales Meaning: For every $1 that comes in the door, $0.04 is the pro 0.04
Example 4: We can see trends over time without the distortions of different number sizes. Cash 2001 = $ 200.00 Total Assets 2001 = $ 2,000.00 Cash 2008 = $ 600.00 Total Assets 2008 = $ 5,000.00 2001 Cash/TA = 10.00% Although cash is 3 times bigger in 2008, as a percent of total as 2008 Cash/TA = 12.00% Meaning: was 10%, but in 2008 it was only 12%.
Example 5: We can compare small and big companies without the distortions of different number sizes. MFST Cash = 23 B. MFST TA = 63 B. GOOG Cash = 11 B. GOOG TA = 19 B. MFST Cash/TA = 37% Although MSFT has twice as much cash as GOOG, MSFT has on GOOG Cash/TA = 58% Meaning: assets in cash, compared to GOOG's 58% Example 6: We can compare Financial Statements that are in different currencies. Company 1 Equity = $ 1,018.74 Company 1 TA = $ 2,037.49 Company 2 Equity = 500.00 Company 2 TA = 1,000.00 Company 1 TA/E = $2 Assets / $1 Equity
Company 2 TA/E = Company 1 TA/E = Company 2 TA/E =
2 Assets / 1 Equity Meaning: 200% 200%
Both companies are equally leveraged = 2 asset for 1 e
of CL we have $2 of CA.
$1.00
es in the door, $0.04 is the profit
n 2008, as a percent of total assets in 2001 it in 2008 it was only 12%.
nt number sizes.
ch cash as GOOG, MSFT has only 37% of its compared to GOOG's 58%
ally leveraged = 2 asset for 1 equity
PERIOD ENDING Net Sales COGS Selling General and Administrative Depreciation and Amortization Income from Continuing Operations Total Other Income/Expenses Net Earnings Before Interest And Taxes Interest Expense Income Before Tax Income Tax Expense Net Income Dividends Add To Retained Earnings
Sep 24, 2006 5,607,376.00 3,647,734.00 1,484,410.00 156,223.00 319,009.00 20,736.00 339,745.00 32.00 339,713.00 135,885.00 203,828.00 358,075 (154,247.00)
Wholefoods Market Income Statement ($000) % Terms Sep 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00
Common-Size Income Statement. Compute all line items as a percent of sales.
% Terms
Sep 26, 2004 % Terms 3,864,950.00 2,523,816.00 1,004,089.00 115,157.00 221,888.00 6,456.00 228,344.00 7,249.00 221,095.00 88,438.00 132,657.00
nt of sales.
Sep 24, 2006 5,607,376.00 3,647,734.00 1,484,410.00 156,223.00 319,009.00 20,736.00 339,745.00 32.00 339,713.00 135,885.00 203,828.00 358,075 (154,247.00)
Wholefoods Market Income Statement ($000) % Terms Sep 25, 2005 100.00% 4,701,289.00 65.05% 3,052,184.00 26.47% 1,285,613.00 2.79% 133,759.00 5.69% 229,733.00 0.37% 9,623.00 6.06% 239,356.00 0.00% 2,223.00 6.06% 237,133.00 2.42% 100,782.00 3.63% 136,351.00
Dec 31, 2006 40,185,000.00 28,604,000.00 8,989,800.00 991,400.00 1,599,800.00 36,300.00 1,563,500.00 132,033.33 1,431,466.67 486,699.00 944,767.67 96,000 848,767.67
Safeway Income Statement ($000) % Terms Dec 31, 2005 100.00% 38,416,000.00 71.18% 27,303,100.00 22.37% 8,965,500.00 2.47% 932,700.00 3.98% 1,214,700.00 0.09% 36,900.00 3.89% 1,177,800.00 0.33% 134,200.00 3.56% 1,043,600.00 1.21% 354,824.00 2.35% 688,776.00
% Terms 100.00% 64.92% 27.35% 2.85% 4.89% 0.20% 5.09% 0.05% 5.04% 2.14% 2.90%
Sep 26, 2004 % Terms 3,864,950.00 100.00% 2,523,816.00 65.30% 1,004,089.00 25.98% 115,157.00 2.98% 221,888.00 5.74% 6,456.00 0.17% 228,344.00 5.91% 7,249.00 0.19% 221,095.00 5.72% 88,438.00 2.29% 132,657.00 3.43%
% Terms 100.00% 71.07% 23.34% 2.43% 3.16% 0.10% 3.07% 0.35% 2.72% 0.92% 1.79%
Dec 31, 2004 % Terms 35,822,900.00 100.00% 25,227,600.00 70.42% 8,527,900.00 23.81% 894,600.00 2.50% 1,172,800.00 3.27% 32,300.00 0.09% 1,140,500.00 3.18% 137,066.67 0.38% 1,003,433.33 2.80% 341,167.00 0.95% 662,266.33 1.85%
PERIOD ENDING Assets Current Assets Net Fixed Assets Total Assets Liabilities Current Liabilities Long Term Debt Total Liabilities Stockholders' Equity Common stock and paid-in surplus Retained Earnings Total Stockholder Equity Total Stockholder Equity and Total Liabilities
Wholefoods Market Income Statement ($000) Sep 24, 2006 % Terms 623,981 30.54% 1,419,015 69.46% 2,042,996 100.00% 509,770 129,083 638,853 24.95% 6.32% 31.27%
Sep 25, 2005 % Terms 672,529 35.60% 1,216,767 64.40% 1,889,296 100.00% 418,383 105,237 523,620 22.14% 5.57% 27.72%
1,054,883 51.63% 349,260 17.10% 1,404,143 68.73% 2,042,996 100.00% TRUE
879,377 46.55% 486,299 25.74% 1,365,676 72.28% 1,889,296 100.00% TRUE
Common-Size Balance Sheet. Compute all accounts as a percent of total assets.
Sep 26, 2004 % Terms 485,572 31.37% 1,062,144 68.63% 1,547,716 100.00% 334,950 244,111 579,061 21.64% 15.77% 37.41%
537,160 34.71% 431,495 27.88% 968,655 62.59% 1,547,716 100.00% TRUE
PERIOD ENDING Assets Current Assets Net Fixed Assets Total Assets Liabilities Current Liabilities Long Term Debt Total Liabilities Stockholders' Equity Common stock and paid-in surplus Retained Earnings Total Stockholder Equity Total Stockholder Equity and Total Liabilities
Wholefoods Market Income Statement ($000) Sep 24, 2006 % Terms 623,981 30.54% 1,419,015 69.46% 2,042,996 100.00% 509,770 129,083 638,853 24.95% 6.32% 31.27%
Sep 25, 2005 % Terms 672,529 35.60% 1,216,767 64.40% 1,889,296 100.00% 418,383 105,237 523,620 22.14% 5.57% 27.72%
1,054,883 51.63% 349,260 17.10% 1,404,143 68.73% 2,042,996 100.00% TRUE
879,377 46.55% 486,299 25.74% 1,365,676 72.28% 1,889,296 100.00% TRUE
Common-Size Balance Sheet. Compute all accounts as a percent of total assets.
Sep 26, 2004 % Terms 485,572 31.37% 1,062,144 68.63% 1,547,716 100.00% 334,950 244,111 579,061 21.64% 15.77% 37.41%
537,160 34.71% 431,495 27.88% 968,655 62.59% 1,547,716 100.00% TRUE
Wholefoods Market Income Statement ($000) Sunday, September 24, 2006 5,607,376.00 3,647,734.00 1,484,410.00 156,223.00 319,009.00 20,736.00 339,745.00 32.00 339,713.00 135,885.00 203,828.00 358,075 (154,247.00) Wholefoods Market Balance Sheet ($000) Sunday, September 24, 2006
PERIOD ENDING Assets Cash Account Receivable Inventory Other Total Current Assets Net Fixed Assets Total Assets Liabilities Accounts Payable Other Total Current Liabilities Long Term Debt Total Liabilities Stockholders' Equity Common stock and paid-in surplus Retained Earnings Total Stockholder Equity Total Stockholder Equity and Total Liabilities
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
9/24/2006 9/25/2005 Sunday, September 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00
54,683
Current Ratio Quick Ratio Cash Ratio
CA/CL (CA-INV)/CL Cash/CL
81,668.00
Sunday, September 25, 2005 345,446 66,682 174,848 85,553 672,529 1,216,767 1,889,296 103,348 315,035 418,383 105,237 523,620 879,377 486,299 1,365,676 1,889,296 TRUE
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
9/24/2006 9/25/2005 Sunday, September 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00
54,683
Current Ratio Quick Ratio Cash Ratio
CA/CL (CA-INV)/CL Cash/CL
1.2240 0.8244 0.5025
1.6074 1.1895 0.8257
81,668.00
Chapter 3 Homework - Current Ratio
purchase inv.
Before Buy Inventory
No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up. No change if paid with cash. After Buy Inventory Decrease Cash CA (Pay cash $1, but it goes right back into 4 Inventory ($1) which is also a current asset) 2 CL 2 CA/CL= If paid on credit and CA/CL >1, it goes down. After Buy Inventory 4 CA (Inventory goes up by $1) 2 CL (AP goes up by $1 dollar) 2 CA/CL= If paid on credit and CA/CL < 1, it goes up. After Buy Inventory 5 CA (Inventory goes up by $1) 6 CL (AP goes up by $1 dollar) 0.833333333 CA/CL= If CA/CL >1, goes up. If CA/CL < 1, goes down. If supplier paid and CA/CL >1, goes up. After pay supplier 4 CA (Cash go down by $1) 2 CL (AP go down by $1) 2 CA/CL= If supplier paid and CA/CL < 1, goes down. Cash go down and AP go down 1 1
CA CL CA/CL=
Before Buy Inventory CA CL CA/CL=
Increase 1 1
Before Buy Inventory CA CL CA/CL= b supplier paid
Increase 1 1
Before pay supplier CA CL CA/CL=
After pay supplier 5 CA (Cash go down by $1) 6 CL (AP go down by $1) 0.833333333 CA/CL=
Cash go down and AP go down 1 1
Page 23 of 100
If CA/CL >1, goes up. If CA/CL < 1, goes down. short term bank loan is paid If short term bank loan is paid and CA/CL >1, goes up. After CL loan is paid 4 CA (Cash go down by $1) 2 CL (CL loan go down by $1) 2 CA/CL= Cash go down and CL loan go down 1 1
Before CL loan is paid CA CL CA/CL=
If short term bank loan is paid and CA/CL <1, goes down. Before CL loan is paid After CL loan is paid CA 5 CA (Cash go down by $1) CL 6 CL (CL loan go down by $1) CA/CL= 0.833333333 CA/CL= d
Cash go down and CL loan go down 1 1
If long-debt has not been classified as current liability, it will go down long-debt paid early If long-debt paid early, then it will CA/CL will go down. Before LTD loan is paid After LTD loan is paid Cash go down by $1 CA 4 CA (Cash go down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= ` No change AR is Paid AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change. Before AR collected After AR collected CA 4 CA (Cash go up by $1, AR go down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= e No change Inv sold at cost If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no change. Before Inv sold at cost After Inv sold at cost CA 4 CA (Cash go up by $1, Inv by down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= f
Cash go up by $1 1
Cash go up by $1 1
Page 24 of 100
Inv sold at profit, CA/CL will go up. f Inv sold at profit If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total CA go up. Before Inv sold at Profit After Inv sold at Profit Cash go up by $2 CA 4 CA (Cash go up by $2, Inv by down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL=
Long Term Debt Issued To Pay Off Short Term Debt LTD traded for CL, CA/CL goes up. Take out LTD for $1 to pay off CL of $1. Before LTD issued After LTD issued CA 4 CA (No Change) CL 2 CL (CL down $1) CA/CL= 2 CA/CL= g
CL down $1 1
Page 25 of 100
with cash. nd CA/CL Increase Inventory
Page 26 of 100
AR go down by $1 1
Inv go down by $1 1
Page 27 of 100
Inv go down by $1 1
Page 28 of 100
Chapter 3 Homework - Current Ratio (an)
purchase inv.
No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up. No change if paid with cash. After Buy Inventory Decrease Cash CA (Pay cash $1, but it goes right back into 4 Inventory ($1) which is also a current asset) 2 CL 2 CA/CL= If paid on credit and CA/CL >1, it goes down. After Buy Inventory 4 CA (Inventory goes up by $1) 2 CL (AP goes up by $1 dollar) 2 CA/CL= If paid on credit and CA/CL < 1, it goes up. After Buy Inventory 5 CA (Inventory goes up by $1) 6 CL (AP goes up by $1 dollar) 0.833333333 CA/CL=
CA CL CA/CL=
4 2 2
Increase 5 3 1.666667 1 1
Increase 6 7 0.857143 1 1
If CA/CL >1, goes up. If CA/CL < 1, goes down. If supplier paid and CA/CL >1, goes up. After pay supplier 4 CA (Cash go down by $1) 2 CL (AP go down by $1) 2 CA/CL= If supplier paid and CA/CL < 1, goes down. Cash go down and AP go down 3 1 3 1 1
Cash go down and AP go down 4 5 0.8 1 1
Page 29 of 100
If CA/CL >1, goes up. If CA/CL < 1, goes down. short term bank loan is paid If short term bank loan is paid and CA/CL >1, goes up. After CL loan is paid 4 CA (Cash go down by $1) 2 CL (CL loan go down by $1) 2 CA/CL= Cash go down and CL loan go down 3 1 3 1 1
Cash go down and CL loan go down 4 5 0.8 1 1
If long-debt has not been classified as current liability, it will go down long-debt paid early If long-debt paid early, then it will CA/CL will go down. Before LTD loan is paid After LTD loan is paid Cash go down by $1 CA 4 CA (Cash go down by $1) 3 CL 2 CL (CL stay the same) 2 CA/CL= 2 CA/CL= 1.5 ` No change AR is Paid AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change. Before AR collected After AR collected CA 4 CA (Cash go up by $1, AR go down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= e f
Cash go up by $1 4 2 2 1
No change Inv sold at cost If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no change. Before Inv sold at cost After Inv sold at cost Cash go up by $1 CA 4 CA (Cash go up by $1, Inv by down by $1) 4 CL 2 CL (CL stay the same) 2 CA/CL= 2 CA/CL= 2
Page 30 of 100
Inv sold at profit, CA/CL will go up. f Inv sold at profit If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total CA go up. Before Inv sold at Profit After Inv sold at Profit Cash go up by $2 CA 4 CA (Cash go up by $2, Inv by down by $1) 5 CL 2 CL (CL stay the same) 2 CA/CL= 2 CA/CL= 2.5
Long Term Debt Issued To Pay Off Short Term Debt LTD traded for CL, CA/CL goes up. Take out LTD for $1 to pay off CL of $1. Before LTD issued After LTD issued CA 4 CA (No Change) CL 2 CL (CL down $1) CA/CL= 2 CA/CL= g
CL down $1 4 1 4 1
Page 31 of 100
with cash. nd CA/CL Increase Inventory
Page 32 of 100
AR go down by $1 1
Inv go down by $1 1
Page 33 of 100
Inv go down by $1 1
Page 34 of 100
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
Sunday, September 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00
54,683
Sales A COGS Inv AR AP
Asset Turnover Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days
Sales/Assets COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover Days holding Inv+Days until collect AR Operating Cycle in Days - Days until pay
81,668.00
Note About Ratio Analysis For the B/S numbers: If you are looking forward (into future, like finance does), it may be best to use End Nu If you are looking backward (into past, like accounting aoften does), it may be best to
2006 5,607,376.00 2,042,996 3,647,734.00 203,727 82,137 121,857 2006
2005 4,701,289.00 1,889,296 3,052,184.00 174,848 66,682 103,348 2005
ay be best to use End Numbers does), it may be best to use (End + Beg)/2, an average amount.
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
54,683
Sales A COGS Inv AR AP
Asset Turnover Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days
Sales/Assets COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover Days holding Inv+Days until collect AR Operating Cycle in Days - Days until pay
81,668.00
Note About Ratio Analysis For the B/S numbers: If you are looking forward (into future, like finance does), it may be best to use End Nu If you are looking backward (into past, like accounting aoften does), it may be best to
2006 5,607,376.00 2,042,996 3,647,734.00 203,727 82,137 121,857 2006 2.74

17.9050 20.3854 68.2686 5.3465 29.9345 12.1933 25.7319 13.5386
2005 4,701,289.00 1,889,296 3,052,184.00 174,848 66,682 103,348 2005 2.49

17.4562 20.9095 70.5031 5.1771 29.5331 12.3590 26.0865 13.7275
ay be best to use End Numbers does), it may be best to use (End + Beg)/2, an average amount.
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
2006 Sunday, September 25, 2005 4,701,289.00 3,052,184.00 1,285,613.00 133,759.00 229,733.00 9,623.00 239,356.00 2,223.00 237,133.00 100,782.00 136,351.00
54,683
2005
Total Liability = TL = D Total Assets = TA = A Total Equity = TE = E EBIT Interest 2006 Debt Ratio TL/E = D/E Equity Multiplier Times Interest Earned Cash Coverage Ratio If you know this: D/A = Find these: A= D= E= D/E = A/E = A/E = 1 + D/E = D/A D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest
0.2
81,668.00
2005
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
54,683
Total Liability = TL = D Total Assets = TA = A Total Equity = TE = E EBIT Interest
2006 638,853 2,042,996 1,404,143 339,745.00 32.00
2005 523,620 1,889,296 1,365,676 239,356.00 2,223.00 2006
Debt Ratio TL/E = D/E Equity Multiplier Times Interest Earned Cash Coverage Ratio If you know this: D/A = Find these: A= D= E= D/E = A/E = A/E = 1 + D/E =
D/A D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest
0.31 0.45 1.45 10617.03 15499.00
1.45 0.2 10 2 8 0.25 1.25 0.2
81,668.00
2005
0.28 0.38 1.38 107.67 167.84
1.38
Total Stockholder Equity Total Liabilities Total Assets Net Sales Net Income Profit Margin = NI/Sales Return On Asset = NI/A Return On Equity = NI/E
9/24/2006 1,404,143.00 638,853.00 2,042,996.00 5,607,376.00 203,828.00
9/25/2005 1,365,676.00 523,620.00 1,889,296.00 4,701,289.00 136,351.00
Profit Margin NI/Sales 9/25/2005 9/24/2006
Asset TurnOver Sales/Asset
Equity Multiplier Asset/Equity
ROE Product
ROA Product 9/25/2005 9/24/2006
ROA
ROE Product
ROA 9/25/2005 9/24/2006
1+D/E
ROE
ROE Product
Total Stockholder Equity Total Liabilities Total Assets Net Sales Net Income Profit Margin = NI/Sales Return On Asset = NI/A Return On Equity = NI/E
9/24/2006 1,404,143.00 638,853.00 2,042,996.00 5,607,376.00 203,828.00 0.036349979 0.099769163 0.145161853
9/25/2005 1,365,676.00 523,620.00 1,889,296.00 4,701,289.00 136,351.00 0.029002897 0.072170269 0.099841397
Profit Margin Asset TurnOver Equity Multiplier NI/Sales Sales/Asset Asset/Equity ROE Product 9/25/2005 0.029002897 2.488381387 1.383414514 0.099841397 9/24/2006 0.036349979 2.744682809 1.454977164 0.145161853 ROA Product ROA 9/25/2005 0.072170269 9/24/2006 0.099769163 ROA 9/25/2005 9/24/2006 ROE Product
1+D/E 0.072170269 1.383414514 0.099769163 1.454977164
ROE
ROE Product 0.099841397 0.145161853
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
54,683
NI 2006 Div Paid in 2006 Book Value Equity 2006
ROA ROE b 2005 Internal Growth Rate Sustainable Growth Rate Shares outstanding on Sep 24, 2006 MV 1 share on Sep 24, 2006 EPS = Price-earnings ratio (Surrogate for Growth) Dividends per share = Market-to-Book Ratio
81,668.00
203,828.00 358,075 1,404,143 2006 NI/Assets NI/Equity (add to RE)/NI (ROA*b)/(1-ROA*b) (ROE*b)/(1-ROE*b) 139,607 $59.290 NI/Shares outstanding on Sep 24, 2006 = (MV per share)/EPS = Div/Shares outstanding (MV per share)/(Book value per share) 2005 0.072170 0.0998414 59.90%
Max company can grow with no external fina Max company can grow with no external fina
any can grow with no external financing any can grow with no external financing except to keep constant D/E ratio
256,164 82,137 203,727 81,953 623,981 1,419,015 2,042,996 121,857 387,913 509,770 129,083 638,853 1,054,883 349,260 1,404,143 2,042,996 TRUE
54,683
NI 2006 Div Paid in 2006 Book Value Equity 2006
ROA ROE b 2005 Internal Growth Rate Sustainable Growth Rate Shares outstanding on Sep 24, 2006 MV 1 share on Sep 24, 2006 EPS = Price-earnings ratio (Surrogate for Growth) Dividends per share = Market-to-Book Ratio
81,668.00
203,828.00 358,075 1,404,143 2006 NI/Assets NI/Equity (add to RE)/NI (ROA*b)/(1-ROA*b) (ROE*b)/(1-ROE*b) 139,607 $59.290 NI/Shares outstanding on Sep 24, 2006 = (MV per share)/EPS = Div/Shares outstanding (MV per share)/(Book value per share) 1.46 40.6092344 2.564878552 5.894911722 2005 0.072170 0.0998414 59.90% 4.52%
6.36%
Max company can grow with no external fina Max company can grow with no external fina
any can grow with no external financing any can grow with no external financing except to keep constant D/E ratio
Grocery Store Industry Statistics 2006 WholeFoods Price / Earnings: 17.5 40.6092344 Price / Book: 6 5.894911722 Net Profit Margin (mrq): 1.80% 3.63% Return on Equity: 13.10% 0.145161853 Total Debt / Equity: 1 0.454977164
mrq = most recent quarter
Description up Sector: Services Industry: Grocery Stores (More Info) Companies Arden Group Inc. (ARDNA) Blue Square Israel Ltd. (BSI) Casey's General Stores Inc. (CASY) Delhaize Group (DEG) Diedrich Coffee Inc. (DDRX) Distribution y Servicio S.A. (DYS) Ingles Markets Inc. (IMKTA) Kroger Co. (KR) Pantry Inc. (PTRY) Pathmark Stores Inc. (PTMK) Publix Super Markets Inc. (PUSH.OB) Ruddick Corp. (RDK) Safeway Inc. (SWY) SUPERVALU Inc. (SVU) Susser Holdings Corporation (SUSS) The Great Atlantic & Pacific T (GAP) Village Super Market Inc. (VLGEA) Weis Markets Inc. (WMK) Whole Foods Market Inc. (WFMI) Winn-Dixie Stores Inc. (WINN)
Market Cap 3471.1B 72.0B 449.5M 601.2M 1.5B 9.5B 19.9M 3.4B 710.3M 19.6B 616.8M 672.9M NA 1.6B 14.5B 7.7B 349.1M 1.3B 339.8M 1.1B 7.0B 949.7M
P/E 28.08 17.5 17.27 11.68 19.67 19.37 NA 36.76 12.69 17.09 12.91 NA NA 21.09 16.86 14.78 942.73 NA 17.36 20.13 38.03 5.14
ROE %
Long-Term Debt to Equity 14.59 1.51 13.1 1.04 30.63 22.57 13.43 11.06 -15.81 NA 9.04 17.63 25.03 14.1 -23.77 23.5 NA 11.29 14.99 9.48 0.19 1.91 12.48 9.04 NA 13.11 108.9 0.01 1.2 0.39 0.8 0.87 1.63 1.34 3.24 6.11 0.4 0.97 1.65 0.72 0.57 0.17 0 0.03
P/E
Lowest Quartile Median Highest Quartile
ROE % 9.15 13.105 16.97 0.145161853
Wholefoods
15.3 17.43 20.85 40.6092344
Long-Term Debt to Equity 0.395 0.87 1.425 0.454977164
Net Profit Price to Book Margin % Value (mrq) -6.07 6.65 6.01 1.8 4.8 2.1 2.45 1.85 0.86 3.29 2.1 3.98 1.67 6.56 NA 2.25 2.33 1.36 2.1 2.32 2.08 1.78 4.87 1.19 Price to Book Value 1.78 2.1 3.29 5.894911722 5.42 2.21 2.33 1.69 -18.81 2.72 2.67 1.65 0.7 -1.88 5.42 2.3 2.22 1.11 0.91 -2.17 1.91 3.14 3.24 1.23 Net Profit Margin % (mrq) 1.14 2.06 2.7075 0.036349979
Homework chapter 3 ST 1, 2, 3 (T)
Question 1: Question 2: Wildhack Corp. Income Statement ($ in millions) For The Year Ended 2010 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b = $46 $86 34.85% 65.15% $3,756 2453 $490 $813 $613 $200 $68 $132 Wildhack Corp. Balance Sheet ($ in millions) As of December 31, 2009 and December 31, 2010 2009 2010 Current Ratio Quick Ratio Cash Ratio Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days Debt Ratio D/E Ratio Equity Multiplier Times Interest Earned Cash Coverage Ratio Profit Margin Asset Turnover ROA Equity Multiplier 300 2356 $2,656 $5,996 300 2442 $2,742 $6,002 ROE ROA ROE b Wildhack Corp. Balance Sheet ($ in millions) As of December 31, 2009 and December 31, 2010 Internal Growth Rate Sustainable Growth Rate Assets/Equity Product CA/CL (CA-INV)/CL Cash/CL COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover 365/Inv Turnover + 365/AR Turnover Operating Cycle in Days - 365/AP Turnover TL/TA D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest NI/Sales Sales/Assets Product
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets $120 224 424 $768 5228 $5,996 $88 192 368 $648 5354 $6,002
Liabilities and Owners' Equity

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 124 1412 $1,536 1804 $3,340 144 1039 $1,183 2077 $3,260
Wildhack Corp. Income Statement ($ in millions) For The Year Ended 2010 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE
Page 62 of 100
Homework chapter 3 ST 1, 2, 3 (an)
Question 1: Standardized Net Income is the same as the Profit Margin Ra Question 2: The percentage of each dollar earned that goes to COGS is 6 Wildhack Corp. Income Statement ($ in millions) For The Year Ended 2010 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b = $46 $86 34.85% 65.15% $3,756 2453 $490 $813 $613 $200 $68 $132 W il B al A s
Wildhack Corp. Income Statement ($ in millions) For The Year Ended 2010 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE
100.0% 65.3% 13.0% 21.6% 16.3% 5.3% 1.8% 3.5% 1.2% 2.3%
W il B al A s
Page 63 of 100
Long-term debt Total liabilities Owners' equity Common stock and paid-in surplu Retained earnings Total owners' equity Total liabilities and owners' equity
Page 64 of 100
d Net Income is the same as the Profit Margin Ratio, NI/Sales. It tells us how much profit we make for every one dollar of sales we make. age of each dollar earned that goes to COGS is 65.3%. Wildhack Corp. Balance Sheet ($ in millions) As of December 31, 2009 and December 31, 2010 2009 2010 Current Ratio Quick Ratio Cash Ratio Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days Debt Ratio D/E Ratio Equity Multiplier Times Interest Earned Cash Coverage Ratio Profit Margin Asset Turnover ROA Equity Multiplier 300 2356 $2,656 $5,996 300 2442 $2,742 $6,002 ROE ROA ROE b Wildhack Corp. Balance Sheet ($ in millions) As of December 31, 2009 and December 31, 2010 2009 2010 Internal Growth Rate Sustainable Growth Rate
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets $120 224 424 $768 5228 $5,996 $88 192 368 $648 5354 $6,002

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 124 1412 $1,536 1804 $3,340 144 1039 $1,183 2077 $3,260
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets 2.00% 1.47%
3.74% 7.07% 12.81% 87.19% 100.00%
3.20% 6.13% 10.80% 89.20% 100.00%
Page 65 of 100

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity
2.07% 23.55% 25.62% 30.09% 55.70% 5.00% 39.29% 44.30% 100.00%
2.40% 17.31% 19.71% 34.61% 54.32% 5.00% 40.69% 45.68% 100.00%
Page 66 of 100
one dollar of sales we make.
CA/CL (CA-INV)/CL Cash/CL COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover 365/Inv Turnover + 365/AR Turnover Operating Cycle in Days - 365/AP Turnover TL/TA D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest NI/Sales Sales/Assets Product Assets/Equity Product
0.5478 0.2367 0.0744 6.6658 54.7574 19.5625 18.6581 17.0347 21.4268 73.4156 56.3809 0.5432 1.1889 2.1889 1.3263 2.1256 0.03514377 0.6257914 0.02199267 2.1889132 0.04814004 0.02199267 0.04814004 65.15% 1.45% 3.24% days days days days
Page 67 of 100
Homework chapter 3 ST 4 (T)

Assumptions Name Corwin
Net Income = Dividends Paid =

Total Assets = Total Equity =
231 77
1400 1200
Addition To Retained Earnings

Corwin ROA Corwin ROE Corwin b Corwin Internal Growth Rate (ROA*b)/(1-ROA*b) Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b)
Page 68 of 100
Homework chapter 3 ST 4 (an)

Assumptions Name Corwin
Net Income = Dividends Paid =

Total Assets = Total Equity =
231 77
1400 1200
Addition To Retained Earnings

Corwin ROA Corwin ROE Corwin b Corwin Internal Growth Rate (ROA*b)/(1-ROA*b) Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b)
154
0.165 0.1925 0.666666667 12.36% 14.72%
Page 69 of 100
Chapter 3 Homework - Critical Thinking 3.1 (T)
a b c d e f g
Page 70 of 100
Chapter 3 Homework - Critical Thinking 3.1 (an)
purchase inv.
No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes up. No change if paid with cash. After Buy Inventory Decrease Cash CA (Pay cash $1, but it goes right back into 4 Inventory ($1) which is also a current asset) 2 CL 2 CA/CL= If paid on credit and CA/CL >1, it goes down. After Buy Inventory 4 CA (Inventory goes up by $1) 2 CL (AP goes up by $1 dollar) 2 CA/CL= If paid on credit and CA/CL < 1, it goes up. After Buy Inventory 5 CA (Inventory goes up by $1) 6 CL (AP goes up by $1 dollar) 0.833333333 CA/CL=
CA CL CA/CL=
4 2 2
Increase 5 3 1.666667 1 1
Increase 6 7 0.857143 1 1
If CA/CL >1, goes up. If CA/CL < 1, goes down. If supplier paid and CA/CL >1, goes up. After pay supplier 4 CA (Cash go down by $1) 2 CL (AP go down by $1) 2 CA/CL= If supplier paid and CA/CL < 1, goes down. Cash go down and AP go down 3 1 3 1 1
Cash go down and AP go down 4 5 0.8 1 1
Page 71 of 100
If CA/CL >1, goes up. If CA/CL < 1, goes down. short term bank loan is paid If short term bank loan is paid and CA/CL >1, goes up. After CL loan is paid 4 CA (Cash go down by $1) 2 CL (CL loan go down by $1) 2 CA/CL= Cash go down and CL loan go down 3 1 3 1 1
Cash go down and CL loan go down 4 5 0.8 1 1
If long-debt has not been classified as current liability, it will go down long-debt paid early If long-debt paid early, then it will CA/CL will go down. Before LTD loan is paid After LTD loan is paid Cash go down by $1 CA 4 CA (Cash go down by $1) 3 CL 2 CL (CL stay the same) 2 CA/CL= 2 CA/CL= 1.5 ` No change AR is Paid AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change. Before AR collected After AR collected CA 4 CA (Cash go up by $1, AR go down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= e No change Inv sold at cost If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no change. Before Inv sold at cost After Inv sold at cost CA 4 CA (Cash go up by $1, Inv by down by $1) CL 2 CL (CL stay the same) CA/CL= 2 CA/CL= f
Page 72 of 100
Inv sold at profit, CA/CL will go up. f Inv sold at profit If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total CA go up. Before Inv sold at Profit After Inv sold at Profit Cash go up by $2 CA 4 CA (Cash go up by $2, Inv by down by $1) 5 CL 2 CL (CL stay the same) 2 CA/CL= 2 CA/CL= 2.5
Page 73 of 100
ith cash. If CA/CL >1, Increase Inventory
Page 74 of 100
AR go down by $1 1
Inv go down by $1 1
Page 75 of 100
Inv go down by $1 1
Page 76 of 100
#9 COGS = AP = Days to pay of AP = What does a large value imply? #33 Net Loss Sales Progit Margin = Does the currency type make a difference? Net Income Sales Progit Margin =
#9 41682 8917 days
#33 -14,537.00 176,460.00
$317,628.00 -0.082381276
#9 COGS = AP = Days to pay of AP = 41682 8917 78.08418502 It implies that they are having a hard time paying bills - probably because they are having a cash shortage problem. It could also mean that they have really large terms from their suppliers (unlikely, though). #33 Net Loss Sales Progit Margin = Does the currency type make a difference? Net Income Sales Progit Margin = -14,537.00 176,460.00 -0.082381276 No, because when you do the division, the units cancel out. -$26,166.60 $317,628.00 -0.082381276
What does a large value imply?
days
Chapter 3 Homework - PR 19, 32

19 Tom's Toupees Profit Margin = NI/Sales Sales Debt TA ROA = NI/Assets = NI/Sales*Sales/Assets = 32 Fenton Company ROE Sales D/TA Debt TA = Debt/(D/TA) = $75,000/0.6 = Equity = A - L = ROE = ROA*(1+D/E) ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) = ROE = NI/E NI = ROE*E = 0.17*50000 = ROA = NI/TA = 8500/125000 = 0.17 $1,950,000.00 0.60 $75,000.00 0.08
23,000,000 9,500,000 24,000,000
Page 81 of 100
Chapter 3 Homework - PR 19, 32 (an)

19 Tom's Toupees Profit Margin = NI/Sales Sales Debt TA ROA = NI/Assets = NI/Sales*Sales/Assets = 32 Fenton Company ROE Sales D/TA Debt TA = Debt/(D/TA) = $75,000/0.6 = Equity = A - L = ROE = ROA*(1+D/E) ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) = ROE = NI/E NI = ROE*E = 0.17*50000 = ROA = NI/TA = 8500/125000 = 0.17 $1,950,000.00 0.60 $75,000.00 $125,000.00 $50,000.00 0.08
23,000,000 9,500,000 24,000,000

0.0767
0.0680
$8,500.00 0.0680
Page 82 of 100
Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp. Balance Sheet ($ in As of December $87,480 56820 3,217 $27,443 2,064 $25,379 8,629 $16,750 $4,800 $11,950 28.66% 71.34%
Smolira Golf Corp. Income Statement ($ in millions) For The Year Ended 2006 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b =
Smolira Golf Corp. Income Statement ($ in millions) For The Year Ended 2006 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b = 5.49% 13.66% 28.66% 71.34% 100.00% 64.95% 3.68% 31.37% 2.36% 29.01% 9.86% 19.15% Smolira Golf Corp. Balance Sheet ($ in As of December
Page 83 of 100
Smolira Golf Corp. Balance Sheet ($ in millions) As of December 31, 2005 and December 31, 2006 2005 2006
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets $2,612 3,108 9,840 $15,560 29,650 $45,210 $2,783 3,780 10,970 $17,533 41,323 $58,856

Current liabilities Accounts payable Notes payable Other Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 1,975 1,386 80 $3,441 12,510 $15,951 25,000 4,259 $29,259 $45,210 TRUE 2,190 1,438 179 $3,807 13,840 $17,647 25,000 16,209 $41,209 $58,856 TRUE
Page 84 of 100
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets 5.78% 6.87% 21.77% 34.42% 65.58% 100.00% 4.73% 6.42% 18.64% 29.79% 70.21% 100.00%

Current liabilities Accounts payable Other Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 4.37% 0.18% 7.61% 27.67% 35.28% 55.30% 9.42% 64.72% 100.00% 3.72% 0.30% 6.47% 23.52% 29.98% 42.48% 27.54% 70.02% 100.00%
Page 85 of 100
Current Ratio Quick Ratio Cash Ratio Asset Turnover Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days Debt Ratio D/E Ratio Equity Multiplier Times Interest Earned Cash Coverage Ratio Profit Margin Asset Turnover ROA Equity Multiplier ROE ROA ROE b Internal Growth Rate Sustainable Growth Rate
CA/CL (CA-INV)/CL Cash/CL Sales/Assets COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover 365/Inv Turnover + 365/AR Turnover Operating Cycle in Days - 365/AP Turnover TL/TA D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest
2005 4.52 1.66 0.76
2006 4.61 1.72 0.73 1.49 5.18 70.47 23.14 15.77 25.95 14.07 86.24 72.17
0.35 0.55 1.55
0.30 0.43 1.43 13.30 14.85 2006 19.15% 1.49 28.46% 1.43 40.65% 28.46% 40.65% 71.34% 25.48% 40.84% 2006
2005 NI/Sales Sales/Assets Product Assets/Equity Product
2005 Shares outstanding MV 1 share end 2006 EPS = Price-earnings ratio NI/Shares outstanding = (MV per share)/EPS = Dividends per share = (MV per share)/(Book value per share) 10,000 $24
$1.68 $14.33 $0.48 5.82
Page 86 of 100
Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp. Balance Sheet ($ in As of December $87,480 56820 3,217 $27,443 2,064 $25,379 8,629 $16,750 $4,800 $11,950 28.66% 71.34%
Smolira Golf Corp. Income Statement ($ in millions) For The Year Ended 2006 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b =
Smolira Golf Corp. Income Statement ($ in millions) For The Year Ended 2006 Sales COGS Depreciation EBIT Interest Paid Taxable income Taxes (34%) Net Income Dividends Addition to RE Dividends payout rate = PO = Addition to RE payout rate = b = 5.49% 13.66% 28.66% 71.34% 100.00% 64.95% 3.68% 31.37% 2.36% 29.01% 9.86% 19.15% Smolira Golf Corp. Balance Sheet ($ in As of December
Page 87 of 100
Assets

Current liabilities Accounts payable Notes payable Other Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 1,975 1,386 80 $3,441 12,510 $15,951 25,000 4,259 $29,259 $45,210 TRUE 2,190 1,438 179 $3,807 13,840 $17,647 25,000 16,209 $41,209 $58,856 TRUE
Page 88 of 100
Assets

Current liabilities Accounts payable Other Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 4.37% 0.18% 7.61% 27.67% 35.28% 55.30% 9.42% 64.72% 100.00% 3.72% 0.30% 6.47% 23.52% 29.98% 42.48% 27.54% 70.02% 100.00%
Page 89 of 100
Current Ratio Quick Ratio Cash Ratio Asset Turnover Inv Turnover Days holding Inv AR Turnover Days until collect AR AP Turnover Days until pay Operating Cycle in Days Cash Cycle in Days Debt Ratio D/E Ratio Equity Multiplier Times Interest Earned Cash Coverage Ratio Profit Margin Asset Turnover ROA Equity Multiplier ROE ROA ROE b Internal Growth Rate Sustainable Growth Rate Shares outstanding MV 1 share end 2006 EPS = Price-earnings ratio
CA/CL (CA-INV)/CL Cash/CL Sales/Assets COGS/INV 365/Inv Turnover Sale/AR 365/AR Turnover COGS/AP 365/AP Turnover 365/Inv Turnover + 365/AR Turnover Operating Cycle in Days - 365/AP Turnover TL/TA D/E A/E = 1 + D/E EBIT/Interest EBDIT/Interest NI/Sales Sales/Assets Assets/Equity
2005 4.52 1.66 0.76
2006 4.61 1.72 0.73 1.49 5.18 70.47 23.14 15.77 25.95 14.07 86.24 72.17
0.35 0.55 1.55
0.30 0.43 1.43
13.30 14.85 2005 2006 19.15% 1.49 Product 28.46% 1.43 Product 40.65% 28.46% 40.65% 71.34% 25.48% 40.84% 2005 2006 10,000 $24
NI/Shares outstanding = (MV per share)/EPS = Dividends per share = (MV per share)/(Book value per share)
$1.68 $14.33 $0.48 5.82
Page 90 of 100
Homework chapter 3 PR 37
Dispersion of Industry numbers Lowest Quartile Median Highest Quartile Smolira 2006 Ratios Current Ratio 1.2 2.4 4.7 Asset Turnover 1.5 2.6 3.8 D/E 0.25 0.4 0.6 Profit Margin 8.4% 11.9% 16.3%
Smolira Golf performance
Page 91 of 100
Homework chapter 3 PR 37
olf performance
Page 92 of 100
Homework chapter 3 PR 37 (an)

Dispersion of Industry numbers Lowest Quartile Median Highest Quartile Smolira 2006 Ratios Current Ratio 1.2 2.4 4.7 4.61 Asset Turnover 1.5 2.6 3.8 1.49 D/E 0.25 0.4 0.6 0.43 Profit Margin 8.4% 11.9% 16.3% 19.15%
Smolira Golf performance
Smolira Golf is well above average when it comes to the current ratio. Their current ration is Perhaps Smolira Golf is 1) building up working capital to acquire some profitable assets, or pe assets that could become obsolete or 3) they have extra cash that is potentially not earning a long term assets could. In addition, suppliers and bankers could view this as a sign tha Their asset turn over is in the lowest quartile. Compared to their industry they are generating each asset than others in the industry. In comparison, they are not using the assets efficien bought new assets that have not been depreciated much and thus the rati Their debt to equity ratio has gone down a small bit over the year. In comparison to the indust when it comes to debt. Smolira is well leveraged in line with the indus
Smolira's profit margin is in the highest quartile. The ratio of Expenses to sales is amazing. P at managing expenses, or perhaps they have 2) a superior product that can capture a high p obfuscating accounting tricks! On the downside, it could be that they are charging too much, a a high profit margin, it would almost certainly mean that Net Income is lower than it would b
Page 93 of 100
Homework chapter 3 PR 37 (an)
olf performance
to the current ratio. Their current ration is near the highest orking capital to acquire some profitable assets, or perhaps obsolete or 3) they have extra cash that is potentially not assets could. In addition, suppliers and bankers could view hat they could pay bills. mpared to their industry they are generating fewer dollars in In comparison, they are not using the assets efficiently. Or ve not been depreciated much and thus the ratio is low. it over the year. In comparison to the industry they are near molira is well leveraged in line with the industry. he ratio of Expenses to sales is amazing. Perhaps they are ey have 2) a superior product that can capture a high price, ks! On the downside, it could be that they are charging too margin, it would almost certainly mean that Net Income is d be at a lower profit margin.
Page 94 of 100
Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp. Income Statement For The Year Ended 2006 Sales Net Income $1,728,347 $148,320 Bethesda Mining Corp. Balance Sheet As of December 31, 2005 and December 31, 2006 2005 2006
Assets

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity $157,832 72,891 $230,723 200,000 $430,723 175,000 182,571 $357,571 $788,294 TRUE $141,368 99,543 $240,911 250,000 $490,911 175,000 227,319 $402,319 $893,230 TRUE
Page 95 of 100

Bethesda Mining Corp. Balance Sheet As of December 31, 2005 and December 31, 2006 2005 2006
Assets
Current assets Cash Accounts receivable Inventory Total current assets Fixed assets Net plant and equipment Total assets

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity
Page 96 of 100

2005 Current Ratio Quick Ratio Cash Ratio Debt Ratio D/E Ratio Equity Multiplier Profit Margin Asset Turnover CA/CL (CA-INV)/CL Cash/CL TL/TA D/E A/E = 1 + D/E NI/Sales Sales/Assets 2006
ROA Product Equity Multiplier Assets/Equity ROE ROA ROE Product
Page 97 of 100
Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp. Income Statement For The Year Ended 2006 Sales Net Income $1,728,347 $148,320 Bethesda Mining Corp. Balance Sheet As of December 31, 2005 and December 31, 2006 2005 2006
Assets

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity $157,832 72,891 $230,723 200,000 $430,723 175,000 182,571 $357,571 $788,294 TRUE $141,368 99,543 $240,911 250,000 $490,911 175,000 227,319 $402,319 $893,230 TRUE
Page 98 of 100

Bethesda Mining Corp. Balance Sheet As of December 31, 2005 and December 31, 2006 2005 2006
Assets

Current liabilities Accounts payable Notes payable Total current liabilities Long-term debt Total liabilities Owners' equity Common stock and paid-in surplus Retained earnings Total owners' equity Total liabilities and owners' equity 20.02% 9.25% 29.27% 25.37% 54.64% 22.20% 23.16% 45.36% 100.00% 15.83% 11.14% 26.97% 27.99% 54.96% 19.59% 25.45% 45.04% 100.00%
Page 99 of 100

2005 0.7605 0.2845 0.0834 0.5464 1.2046 2.2046 2006 0.7909 0.2935 0.0888 0.5496 1.2202 2.2202 0.085816101 1.934940609 0.166049058 2.220203371 0.368662678 0.166049058 0.368662678
Current Ratio Quick Ratio Cash Ratio Debt Ratio D/E Ratio Equity Multiplier Profit Margin Asset Turnover
CA/CL (CA-INV)/CL Cash/CL TL/TA D/E A/E = 1 + D/E NI/Sales Sales/Assets
ROA Product Equity Multiplier Assets/Equity ROE ROA ROE Product
Page 100 of 100

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Chapter 3: Working With Financial Statements Topics

Example 1: What is a Ratio? $ 200.00 $ 100.00 Meaning:

Net Sales COGS Other Ex EBIT Int Tax NI

Net Sales = Net Income = NI/NS = NI/NS =

Company 2 TA/E = Company 1 TA/E = Company 2 TA/E =

For every $1 of CL we have $2 of CA.

Net Sales COGS Other Ex EBIT Int Tax NI

100% 25% 15% 60% 10% 17% 33%

$1.00 $0.25 $0.15 $0.60 $0.10 $0.17 $0.33

Net Sales = Net Income = NI/NS = NI/NS =

Company 2 TA/E = Company 1 TA/E = Company 2 TA/E =

2 Assets / 1 Equity Meaning: 200% 200%

Both companies are equally leveraged = 2 asset for 1 e

es in the door, $0.04 is the profit

n 2008, as a percent of total assets in 2001 it in 2008 it was only 12%.

ally leveraged = 2 asset for 1 equity

Common-Size Income Statement. Compute all line items as a percent of sales.

1,054,883 51.63% 349,260 17.10% 1,404,143 68.73% 2,042,996 100.00% TRUE

879,377 46.55% 486,299 25.74% 1,365,676 72.28% 1,889,296 100.00% TRUE

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.

537,160 34.71% 431,495 27.88% 968,655 62.59% 1,547,716 100.00% TRUE

1,054,883 51.63% 349,260 17.10% 1,404,143 68.73% 2,042,996 100.00% TRUE

879,377 46.55% 486,299 25.74% 1,365,676 72.28% 1,889,296 100.00% TRUE

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.

537,160 34.71% 431,495 27.88% 968,655 62.59% 1,547,716 100.00% TRUE

Current Ratio Quick Ratio Cash Ratio

CA/CL (CA-INV)/CL Cash/CL

Current Ratio Quick Ratio Cash Ratio

CA/CL (CA-INV)/CL Cash/CL

1.2240 0.8244 0.5025

1.6074 1.1895 0.8257

Chapter 3 Homework - Current Ratio

Before Buy Inventory

Before Buy Inventory CA CL CA/CL=

Before Buy Inventory CA CL CA/CL= b supplier paid

Before pay supplier CA CL CA/CL=

Before pay supplier CA CL CA/CL=

Cash go down and AP go down 1 1

Chapter 3 Homework - Current Ratio

Before CL loan is paid CA CL CA/CL=

Cash go down and CL loan go down 1 1

Chapter 3 Homework - Current Ratio

Chapter 3 Homework - Current Ratio

with cash. nd CA/CL Increase Inventory

Chapter 3 Homework - Current Ratio

Chapter 3 Homework - Current Ratio

Chapter 3 Homework - Current Ratio (an)

Before Buy Inventory

Before Buy Inventory CA CL CA/CL=

Before Buy Inventory CA CL CA/CL= b supplier paid

Before pay supplier CA CL CA/CL=

Before pay supplier CA CL CA/CL=

Cash go down and AP go down 4 5 0.8 1 1

Chapter 3 Homework - Current Ratio (an)

Before CL loan is paid CA CL CA/CL=

Cash go down and CL loan go down 4 5 0.8 1 1

Chapter 3 Homework - Current Ratio (an)

Chapter 3 Homework - Current Ratio (an)

with cash. nd CA/CL Increase Inventory

Chapter 3 Homework - Current Ratio (an)

Chapter 3 Homework - Current Ratio (an)

Sales A COGS Inv AR AP

2006 5,607,376.00 2,042,996 3,647,734.00 203,727 82,137 121,857 2006