Busn233Ch03

Chapter 3: Working With Financial Statements TopicsWhy Work With Financial Statements?Problems with Financial Statement Analysis.Calculating Ratios and Analyzing with Ratios.Why do we use Ratios to Analyze Financial Statements

Example 1: What is a Ratio?CA = $ 200.00 CL = $ 100.00 CA/CL = Meaning:CA/CL =

Example 2: Common Sized Financial Statements.I/S I/S

Net Sales 100 Net SalesCOGS 25 COGSOther Ex 15 Other ExEBIT 60 EBITInt 10 IntTax 17 TaxNI 33 NI

Example 3: Ratios allow us to see relationships between numbers.Net Sales = $ 5,000.00 Net Income = $ 200.00 NI/NS = Meaning: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.MFST Cash = 23 B.MFST TA = 63 B.GOOG Cash = 11 B.GOOG TA = 19 B.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 = Meaning:Company 1 TA/E =Company 2 TA/E =

Example 4: We can see trends over time without the distortions of different number sizes.

Example 5: We can compare small and big companies without the distortions of different number sizes.

Example 1: What is a Ratio?CA = $ 200.00 CL = $ 100.00 CA/CL = $2CA/$1CL Meaning: For every $1 of CL we have $2 of CA.CA/CL = 2

Example 2: Common Sized Financial Statements.I/S I/S

Net Sales 100 Net Sales 100% $1.00 COGS 25 COGS 25% $0.25 Other Ex 15 Other Ex 15% $0.15 EBIT 60 EBIT 60% $0.60 Int 10 Int 10% $0.10 Tax 17 Tax 17% $0.17 NI 33 NI 33% $0.33

Example 3: Ratios allow us to see relationships between numbers.Net Sales = $ 5,000.00 Net Income = $ 200.00 NI/NS = $0.04 NI/ $1 Sales Meaning: For every $1 that comes in the door, $0.04 is the profitNI/NS = 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%

2008 Cash/TA = 12.00% Meaning:

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%

GOOG Cash/TA = 58% 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

Although cash is 3 times bigger in 2008, as a percent of total assets in 2001 it was 10%, but in 2008 it was only 12%.

Although MSFT has twice as much cash as GOOG, MSFT has only 37% of its assets in cash, compared to GOOG's 58%

Company 1 TA/E = $2 Assets / $1 EquityCompany 2 TA/E = Meaning: Both companies are equally leveraged = 2 asset for 1 equityCompany 1 TA/E = 200%Company 2 TA/E = 200%

£2 Assets / £1 Equity

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

For every $1 that comes in the door, $0.04 is the profit

Example 4: We can see trends over time without the distortions of different number sizes.

Example 5: We can compare small and big companies without the distortions of different number sizes.

Although cash is 3 times bigger in 2008, as a percent of total assets in 2001 it was 10%, but in 2008 it was only 12%.

Although MSFT has twice as much cash as GOOG, MSFT has only 37% of its assets in cash, compared to GOOG's 58%

Both companies are equally leveraged = 2 asset for 1 equity

Wholefoods MarketIncome Statement ($000)

PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % TermsNet Sales 5,607,376.00 4,701,289.00 COGS 3,647,734.00 3,052,184.00 Selling General and Administrative 1,484,410.00 1,285,613.00 Depreciation and Amortization 156,223.00 133,759.00 Income from Continuing Operations 319,009.00 229,733.00 Total Other Income/Expenses Net 20,736.00 9,623.00 Earnings Before Interest And Taxes 339,745.00 239,356.00 Interest Expense 32.00 2,223.00 Income Before Tax 339,713.00 237,133.00 Income Tax Expense 135,885.00 100,782.00 Net Income 203,828.00 136,351.00

Dividends 358,075Add To Retained Earnings (154,247.00)

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

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

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

PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005Net Sales 5,607,376.00 100.00% 4,701,289.00 COGS 3,647,734.00 65.05% 3,052,184.00 Selling General and Administrative 1,484,410.00 26.47% 1,285,613.00 Depreciation and Amortization 156,223.00 2.79% 133,759.00 Income from Continuing Operations 319,009.00 5.69% 229,733.00 Total Other Income/Expenses Net 20,736.00 0.37% 9,623.00 Earnings Before Interest And Taxes 339,745.00 6.06% 239,356.00 Interest Expense 32.00 0.00% 2,223.00 Income Before Tax 339,713.00 6.06% 237,133.00 Income Tax Expense 135,885.00 2.42% 100,782.00 Net Income 203,828.00 3.63% 136,351.00

SafewayIncome Statement ($000)

PERIOD ENDING Dec 31, 2006 % Terms Dec 31, 2005Net Sales 40,185,000.00 100.00% 38,416,000.00 COGS 28,604,000.00 71.18% 27,303,100.00 Selling General and Administrative 8,989,800.00 22.37% 8,965,500.00 Depreciation and Amortization 991,400.00 2.47% 932,700.00 Income from Continuing Operations 1,599,800.00 3.98% 1,214,700.00 Total Other Income/Expenses Net 36,300.00 0.09% 36,900.00 Earnings Before Interest And Taxes 1,563,500.00 3.89% 1,177,800.00 Interest Expense 132,033.33 0.33% 134,200.00 Income Before Tax 1,431,466.67 3.56% 1,043,600.00 Income Tax Expense 486,699.00 1.21% 354,824.00 Net Income 944,767.67 2.35% 688,776.00

Dividends 96,000Add To Retained Earnings 848,767.67

% Terms Sep 26, 2004 % Terms100.00% 3,864,950.00 100.00%

64.92% 2,523,816.00 65.30%27.35% 1,004,089.00 25.98%

2.85% 115,157.00 2.98%4.89% 221,888.00 5.74%0.20% 6,456.00 0.17%5.09% 228,344.00 5.91%0.05% 7,249.00 0.19%5.04% 221,095.00 5.72%2.14% 88,438.00 2.29%2.90% 132,657.00 3.43%

SafewayIncome Statement ($000)

% Terms Dec 31, 2004 % Terms100.00% 35,822,900.00 100.00%

71.07% 25,227,600.00 70.42%23.34% 8,527,900.00 23.81%

2.43% 894,600.00 2.50%3.16% 1,172,800.00 3.27%0.10% 32,300.00 0.09%3.07% 1,140,500.00 3.18%0.35% 137,066.67 0.38%2.72% 1,003,433.33 2.80%0.92% 341,167.00 0.95%1.79% 662,266.33 1.85%

PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % TermsAssets

Current Assets 623,981 30.54% 672,529 35.60%Net Fixed Assets 1,419,015 69.46% 1,216,767 64.40%Total Assets 2,042,996 100.00% 1,889,296 100.00%

LiabilitiesCurrent Liabilities 509,770 24.95% 418,383 22.14%Long Term Debt 129,083 6.32% 105,237 5.57%Total Liabilities 638,853 31.27% 523,620 27.72%

Stockholders' Equity Common stock and paid-in surplus 1,054,883 51.63% 879,377 46.55%Retained Earnings 349,260 17.10% 486,299 25.74%Total Stockholder Equity 1,404,143 68.73% 1,365,676 72.28%Total Stockholder Equity and Total Liabilities 2,042,996 100.00% 1,889,296 100.00%

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 21.64%244,111 15.77%579,061 37.41%

537,160 34.71%431,495 27.88%968,655 62.59%

1,547,716 100.00%1

PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % TermsAssets

Current Assets 623,981 30.54% 672,529 35.60%Net Fixed Assets 1,419,015 69.46% 1,216,767 64.40%Total Assets 2,042,996 100.00% 1,889,296 100.00%

LiabilitiesCurrent Liabilities 509,770 24.95% 418,383 22.14%Long Term Debt 129,083 6.32% 105,237 5.57%Total Liabilities 638,853 31.27% 523,620 27.72%

Stockholders' Equity Common stock and paid-in surplus 1,054,883 51.63% 879,377 46.55%Retained Earnings 349,260 17.10% 486,299 25.74%Total Stockholder Equity 1,404,143 68.73% 1,365,676 72.28%Total Stockholder Equity and Total Liabilities 2,042,996 100.00% 1,889,296 100.00%

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 21.64%244,111 15.77%579,061 37.41%

537,160 34.71%431,495 27.88%968,655 62.59%

1,547,716 100.00%1

PERIOD ENDING Sunday, September 24, 2006Net Sales 5,607,376.00 COGS 3,647,734.00 Selling General and Administrative 1,484,410.00 Depreciation and Amortization 156,223.00 Income from Continuing Operations 319,009.00 Total Other Income/Expenses Net 20,736.00 Earnings Before Interest And Taxes 339,745.00 Interest Expense 32.00 Income Before Tax 339,713.00 Income Tax Expense 135,885.00 Net Income 203,828.00

Wholefoods MarketBalance Sheet ($000)

PERIOD ENDING Sunday, September 24, 2006Assets

Cash 256,164Account Receivable 82,137Inventory 203,727Other 81,953

Total Current Assets 623,981Net Fixed Assets 1,419,015Total Assets 2,042,996

LiabilitiesAccounts Payable 121,857Other 387,913

Total Current Liabilities 509,770Long Term Debt 129,083Total Liabilities 638,853

Stockholders' Equity Common stock and paid-in surplus 1,054,883Retained Earnings 349,260Total Stockholder Equity 1,404,143Total Stockholder Equity and Total Liabilities 2,042,996

Wholefoods Market 9/24/2006 9/25/2005Income Statement ($000) Current Ratio CA/CL

Sunday, September 25, 2005 Quick Ratio (CA-INV)/CL 4,701,289.00 Cash Ratio Cash/CL 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

81,668.00

Sunday, September 25, 2005

345,44666,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

Wholefoods Market 9/24/2006 9/25/2005Income Statement ($000) Current Ratio CA/CL 1.2240 1.6074

Sunday, September 25, 2005 Quick Ratio (CA-INV)/CL 0.8244 1.1895

4,701,289.00 Cash Ratio Cash/CL 0.5025 0.8257

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

81,668.00

345,44666,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

Chapter 3 Homework - Current Ratio

a purchase inv.No change if paid with cash.

Before Buy Inventory After Buy Inventory Decrease Cash

CA 4 1CL 2 CLCA/CL= 2 CA/CL=

If paid on credit and CA/CL >1, it goes down.Before Buy Inventory After Buy Inventory IncreaseCA 4 CA (Inventory goes up by $1) 1CL 2 CL (AP goes up by $1 dollar) 1CA/CL= 2 CA/CL=

If paid on credit and CA/CL < 1, it goes up.Before Buy Inventory After Buy Inventory IncreaseCA 5 CA (Inventory goes up by $1) 1CL 6 CL (AP goes up by $1 dollar) 1CA/CL= 0.833333333333333 CA/CL=

b supplier paid If CA/CL >1, goes up. If CA/CL < 1, goes down.

If supplier paid and CA/CL >1, goes up.

Before pay supplier After pay supplier Cash go down and AP go down

CA 4 CA (Cash go down by $1) 1

CL 2 CL (AP go down by $1) 1

CA/CL= 2 CA/CL=

If supplier paid and CA/CL < 1, goes down.

CA 5 CA (Cash go down by $1) 1

CL 6 CL (AP go down by $1) 1

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.

CA (Pay cash $1, but it goes right back into Inventory ($1) which is also a current asset)

CA/CL= 0.833333333333333 CA/CL=

c short term bank loan is paid If CA/CL >1, goes up. If CA/CL < 1, goes down.

If short term bank loan is paid and CA/CL >1, goes up.

Before CL loan is paid After CL loan is paid Cash go down and CL loan go downCA 4 CA (Cash go down by $1) 1CL 2 CL (CL loan go down by $1) 1CA/CL= 2 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 Cash go down and CL loan go downCA 5 CA (Cash go down by $1) 1CL 6 CL (CL loan go down by $1) 1CA/CL= 0.833333333333333 CA/CL=

d long-debt paid early If long-debt has not been classified as current liability, it will go downIf 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 $1CA 4 CA (Cash go down by $1) 1CL 2 CL (CL stay the same)CA/CL= 2 CA/CL= `

e AR is Paid No changeAR 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 Cash go up by $1 CA 4 CA (Cash go up by $1, AR go down by $1) 1CL 2 CL (CL stay the same)CA/CL= 2 CA/CL=

f Inv sold at cost 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) 1

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.

CL 2 CL (CL stay the same)CA/CL= 2 CA/CL=

f Inv sold at profit Inv sold at profit, CA/CL will go up.

Before Inv sold at Profit After Inv sold at Profit Cash go up by $2CA 4 CA (Cash go up by $2, Inv by down by $1) 2CL 2 CL (CL stay the same)CA/CL= 2 CA/CL=

g 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 CL down $1CA 4 CA (No Change) 1CL 2 CL (CL down $1)CA/CL= 2 CA/CL=

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.

Long Term Debt Issued To Pay Off Short Term Debt

Increase Inventory

AR go down by $11

Inv go down by $11

Chapter 3 Homework - Current Ratio (an)

CA 4 4 1CL 2 CL 2CA/CL= 2 CA/CL= 2

If paid on credit and CA/CL >1, it goes down.Before Buy Inventory After Buy Inventory IncreaseCA 4 CA (Inventory goes up by $1) 5 1CL 2 CL (AP goes up by $1 dollar) 3 1CA/CL= 2 CA/CL= 1.666667

If paid on credit and CA/CL < 1, it goes up.Before Buy Inventory After Buy Inventory IncreaseCA 5 CA (Inventory goes up by $1) 6 1CL 6 CL (AP goes up by $1 dollar) 7 1CA/CL= 0.833333333333333 CA/CL= 0.857143

CA 4 CA (Cash go down by $1) 3 1

CL 2 CL (AP go down by $1) 1 1

CA/CL= 2 CA/CL= 3

CA/CL= 0.833333333333333 CA/CL= 0.8

Before CL loan is paid After CL loan is paid Cash go down and CL loan go downCA 4 CA (Cash go down by $1) 3 1CL 2 CL (CL loan go down by $1) 1 1CA/CL= 2 CA/CL= 3

If short term bank loan is paid and CA/CL <1, goes down.Before CL loan is paid After CL loan is paid Cash go down and CL loan go downCA 5 CA (Cash go down by $1) 4 1CL 6 CL (CL loan go down by $1) 5 1CA/CL= 0.833333333333333 CA/CL= 0.8

Before LTD loan is paid After LTD loan is paid Cash go down by $1CA 4 CA (Cash go down by $1) 3 1CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 1.5 `

Before AR collected After AR collected Cash go up by $1 CA 4 CA (Cash go up by $1, AR go down by $1) 4 1CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2

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 1

CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2

Before Inv sold at Profit After Inv sold at Profit Cash go up by $2CA 4 CA (Cash go up by $2, Inv by down by $1) 5 2CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2.5

g 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 CL down $1CA 4 CA (No Change) 4 1CL 2 CL (CL down $1) 1CA/CL= 2 CA/CL= 4

Long Term Debt Issued To Pay Off Short Term Debt

Increase Inventory

AR go down by $11

Inv go down by $11

Wholefoods MarketIncome Statement ($000) Sales

Sunday, September 25, 2005 A 4,701,289.00 COGS 3,052,184.00 Inv 1,285,613.00 AR 133,759.00 AP 229,733.00 9,623.00 239,356.00 Asset Turnover Sales/Assets 2,223.00 237,133.00 Inv Turnover COGS/INV 100,782.00 Days holding Inv 365/Inv Turnover 136,351.00 AR Turnover Sale/AR

Days until collect AR 365/AR Turnover54,683 AP Turnover COGS/AP

81,668.00 Days until pay 365/AP TurnoverOperating Cycle in Days Days holding Inv+Days until collect AR

Wholefoods Market Cash Cycle in Days Operating Cycle in Days - Days until payBalance Sheet ($000)

Sunday, September 25, 2005 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 Numbers

345,446 If you are looking backward (into past, like accounting aoften does), it may be best to use (End + Beg)/2, an average amount.66,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

2006 2005 5,607,376.00 4,701,289.00

2,042,996 1,889,296 3,647,734.00 3,052,184.00

203,727 174,84882,137 66,682

121,857 103,348

2006 2005

If you are looking forward (into future, like finance does), it may be best to use End NumbersIf you are looking backward (into past, like accounting aoften does), it may be best to use (End + Beg)/2, an average amount.

Wholefoods MarketIncome Statement ($000) Sales

Sunday, September 25, 2005 A 4,701,289.00 COGS 3,052,184.00 Inv 1,285,613.00 AR 133,759.00 AP 229,733.00 9,623.00 239,356.00 Asset Turnover Sales/Assets 2,223.00 237,133.00 Inv Turnover COGS/INV 100,782.00 Days holding Inv 365/Inv Turnover 136,351.00 AR Turnover Sale/AR

Days until collect AR 365/AR Turnover54,683 AP Turnover COGS/AP

81,668.00 Days until pay 365/AP TurnoverOperating Cycle in Days Days holding Inv+Days until collect AR

Wholefoods Market Cash Cycle in Days Operating Cycle in Days - Days until payBalance Sheet ($000)

Sunday, September 25, 2005 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 Numbers

345,446 If you are looking backward (into past, like accounting aoften does), it may be best to use (End + Beg)/2, an average amount.66,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

2006 2005 5,607,376.00 4,701,289.00

2,042,996 1,889,296 3,647,734.00 3,052,184.00

203,727 174,84882,137 66,682

121,857 103,348

2006 2005 2.74 2.49

17.9050 17.4562

20.3854 20.9095

68.2686 70.5031

5.3465 5.1771

29.9345 29.5331

12.1933 12.3590

25.7319 26.0865

13.5386 13.7275

If you are looking forward (into future, like finance does), it may be best to use End NumbersIf you are looking backward (into past, like accounting aoften does), it may be best to use (End + Beg)/2, an average amount.

Wholefoods Market 2006 2005Income Statement ($000) Total Liability = TL = D

Sunday, September 25, 2005 Total Assets = TA = A 4,701,289.00 Total Equity = TE = E 3,052,184.00 EBIT 1,285,613.00 Interest 133,759.00 229,733.00 2006 9,623.00 Debt Ratio D/A 239,356.00 TL/E = D/E D/E 2,223.00 Equity Multiplier A/E = 1 + D/E 237,133.00 Times Interest Earned EBIT/Interest 100,782.00 Cash Coverage Ratio EBDIT/Interest 136,351.00

If you know this:54,683 D/A = 0.2

81,668.00 Find these:A =

Wholefoods Market D =Balance Sheet ($000) E =

Sunday, September 25, 2005 D/E =A/E =

345,446 A/E = 1 + D/E =66,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

Wholefoods Market 2006 2005Income Statement ($000) Total Liability = TL = D 638,853 523,620

Sunday, September 25, 2005 Total Assets = TA = A 2,042,996 1,889,296 4,701,289.00 Total Equity = TE = E 1,404,143 1,365,676 3,052,184.00 EBIT 339,745.00 239,356.00 1,285,613.00 Interest 32.00 2,223.00 133,759.00 229,733.00 2006 9,623.00 Debt Ratio D/A 0.31

239,356.00 TL/E = D/E D/E 0.45

2,223.00 Equity Multiplier A/E = 1 + D/E 1.45

237,133.00 Times Interest Earned EBIT/Interest 10617.03

100,782.00 Cash Coverage Ratio EBDIT/Interest 15499.00

136,351.00 1.45If you know this:

54,683 D/A = 0.2 0.2 81,668.00 Find these:

A = 10Wholefoods Market D = 2

Balance Sheet ($000) E = 8Sunday, September 25, 2005 D/E = 0.25

A/E = 1.25345,446 A/E = 1 + D/E =

66,682174,848

85,553672,529

1,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

20050.28

107.67

167.84

9/24/2006 9/25/2005Total Stockholder Equity 1,404,143.00 1,365,676.00 Total Liabilities 638,853.00 523,620.00 Total Assets 2,042,996.00 1,889,296.00 Net Sales 5,607,376.00 4,701,289.00 Net Income 203,828.00 136,351.00

Profit Margin = NI/SalesReturn On Asset = NI/AReturn On Equity = NI/E

Profit Margin Asset TurnOver Equity MultiplierNI/Sales Sales/Asset Asset/Equity ROE Product ROE

9/25/20059/24/2006

ROA Product ROA ROE Product9/25/20059/24/2006

ROA 1+D/E ROE Product9/25/20059/24/2006

9/24/2006 9/25/2005Total Stockholder Equity 1,404,143.00 1,365,676.00 Total Liabilities 638,853.00 523,620.00 Total Assets 2,042,996.00 1,889,296.00 Net Sales 5,607,376.00 4,701,289.00 Net Income 203,828.00 136,351.00

Profit Margin = NI/Sales 0.036349979 0.029002896865Return On Asset = NI/A 0.0997691625 0.072170268714Return On Equity = NI/E 0.1451618532 0.099841397227

Profit Margin Asset TurnOver Equity MultiplierNI/Sales Sales/Asset Asset/Equity ROE Product

9/25/2005 0.0290028969 2.488381386506 1.3834145141307 0.0998413979/24/2006 0.036349979 2.744682808973 1.4549771640068 0.145161853

ROA Product ROA ROE Product9/25/2005 0.0721702687149/24/2006 0.099769162544

ROA 1+D/E9/25/2005 0.0721702687138 1.3834145149/24/2006 0.0997691625436 1.454977164

ROE Product0.0998413970.145161853

PERIOD ENDING Sunday, September 24, 2006Net Sales 5,607,376.00 COGS 3,647,734.00 Selling General and Administrative 1,484,410.00 Depreciation and Amortization 156,223.00 Income from Continuing Operations 319,009.00 Total Other Income/Expenses Net 20,736.00 Earnings Before Interest And Taxes 339,745.00 Interest Expense 32.00 Income Before Tax 339,713.00 Income Tax Expense 135,885.00

Net Income 203,828.00

Wholefoods Market NI 2006Income Statement ($000) Div Paid in 2006

Sunday, September 25, 2005 Book Value Equity 2006 4,701,289.00 3,052,184.00 1,285,613.00 ROA 133,759.00 ROE 229,733.00 b 2005 9,623.00 Internal Growth Rate 239,356.00 Sustainable Growth Rate 2,223.00 237,133.00 Shares outstanding on Sep 24, 2006 100,782.00 MV 1 share on Sep 24, 2006

136,351.00 EPS =Price-earnings ratio (Surrogate for Growth)

54,683 Dividends per share = 81,668.00 Market-to-Book Ratio

345,44666,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

203,828.00 358,075

1,404,143

2006 2005NI/Assets 0.072170 NI/Equity 0.0998414 (add to RE)/NI 59.90%(ROA*b)/(1-ROA*b) Max company can grow with no external financing(ROE*b)/(1-ROE*b) Max company can grow with no external financing except to keep constant D/E ratio

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)

Max company can grow with no external financingMax company can grow with no external financing except to keep constant D/E ratio

PERIOD ENDING Sunday, September 24, 2006Net Sales 5,607,376.00 COGS 3,647,734.00 Selling General and Administrative 1,484,410.00 Depreciation and Amortization 156,223.00 Income from Continuing Operations 319,009.00 Total Other Income/Expenses Net 20,736.00 Earnings Before Interest And Taxes 339,745.00 Interest Expense 32.00 Income Before Tax 339,713.00 Income Tax Expense 135,885.00

Net Income 203,828.00

Wholefoods Market NI 2006Income Statement ($000) Div Paid in 2006

Sunday, September 25, 2005 Book Value Equity 2006 4,701,289.00 3,052,184.00 1,285,613.00 ROA 133,759.00 ROE 229,733.00 b 2005 9,623.00 Internal Growth Rate 239,356.00 Sustainable Growth Rate 2,223.00 237,133.00 Shares outstanding on Sep 24, 2006 100,782.00 MV 1 share on Sep 24, 2006

136,351.00 EPS =Price-earnings ratio (Surrogate for Growth)

54,683 Dividends per share = 81,668.00 Market-to-Book Ratio

345,44666,682

174,84885,553

672,5291,216,7671,889,296

103,348315,035418,383105,237523,620

879,377486,299

1,365,6761,889,296

203,828.00 358,075

1,404,143

2006 2005NI/Assets 0.072170 NI/Equity 0.0998414 (add to RE)/NI 59.90%(ROA*b)/(1-ROA*b) 4.52% Max company can grow with no external financing(ROE*b)/(1-ROE*b) 6.36% Max company can grow with no external financing except to keep constant D/E ratio

139,607$59.290

NI/Shares outstanding on Sep 24, 2006 = 1.46 (MV per share)/EPS = 40.609234404Div/Shares outstanding 2.5648785519(MV per share)/(Book value per share) 5.894911722

Max company can grow with no external financingMax company can grow with no external financing except to keep constant D/E ratio

Grocery Store Industry Statistics 2006 WholeFoods mrq = most recent quarterPrice / Earnings: 17.5 40.609234403517Price / Book: 6 5.8949117219542Net Profit Margin (mrq): 1.80% 3.63%Return on Equity: 13.10% 0.1451618531731Total Debt / Equity: 1 0.4549771640068

Market Cap P/E ROE % Sector: Services 3471.1B 28.08 14.59 1.51Industry: Grocery Stores (More Info) 72.0B 17.5 13.1 1.04CompaniesArden Group Inc. (ARDNA) 449.5M 17.27 30.63 0.01Blue Square Israel Ltd. (BSI) 601.2M 11.68 22.57 1.2Casey's General Stores Inc. (CASY) 1.5B 19.67 13.43 0.39Delhaize Group (DEG) 9.5B 19.37 11.06 0.8Diedrich Coffee Inc. (DDRX) 19.9M NA -15.81 NADistribution y Servicio S.A. (DYS) 3.4B 36.76 9.04 0.87Ingles Markets Inc. (IMKTA) 710.3M 12.69 17.63 1.63Kroger Co. (KR) 19.6B 17.09 25.03 1.34Pantry Inc. (PTRY) 616.8M 12.91 14.1 3.24Pathmark Stores Inc. (PTMK) 672.9M NA -23.77 6.11Publix Super Markets Inc. (PUSH.OB) NA NA 23.5 NARuddick Corp. (RDK) 1.6B 21.09 11.29 0.4Safeway Inc. (SWY) 14.5B 16.86 14.99 0.97SUPERVALU Inc. (SVU) 7.7B 14.78 9.48 1.65Susser Holdings Corporation (SUSS) 349.1M 942.73 0.19 0.72The Great Atlantic & Pacific T (GAP) 1.3B NA 1.91 0.57Village Super Market Inc. (VLGEA) 339.8M 17.36 12.48 0.17Weis Markets Inc. (WMK) 1.1B 20.13 9.04 NAWhole Foods Market Inc. (WFMI) 7.0B 38.03 13.11 0Winn-Dixie Stores Inc. (WINN) 949.7M 5.14 108.9 0.03

P/E ROE % Lowest Quartile 15.3 9.15 0.395Median 17.43 13.105 0.87Highest Quartile 20.85 16.97 1.425Wholefoods 40.609234404 0.1451618532 0.454977164

Description upLong-Term Debt to Equity

Long-Term Debt to Equity

-6.07 6.656.01 1.8

4.8 5.422.1 2.21

2.45 2.331.85 1.690.86 -18.813.29 2.72

2.1 2.673.98 1.651.67 0.76.56 -1.88

NA 5.422.25 2.32.33 2.221.36 1.11

2.1 0.912.32 -2.172.08 1.911.78 3.144.87 3.241.19 1.23

1.78 1.142.1 2.06

3.29 2.70755.894911722 0.036349979

Price to Book Value

Net Profit Margin % (mrq)

Price to Book Value

Net Profit Margin % (mrq)

Homework chapter 3 ST 1, 2, 3 (T)

Question 1:

Question 2:

Wildhack Corp. Wildhack Corp. Current Ratio CA/CL

Income Statement ($ in millions) Balance Sheet ($ in millions) Quick Ratio (CA-INV)/CL

For The Year Ended 2010 As of December 31, 2009 and December 31, 2010 Cash Ratio Cash/CL

Sales $3,756 2009 2010 Inv Turnover COGS/INV

COGS 2453 Assets Days holding Inv 365/Inv Turnover

Depreciation $490 Current assets AR Turnover Sale/AR

EBIT $813 Cash $120 $88 Days until collect AR 365/AR Turnover

Interest Paid $613 Accounts receivable 224 192 AP Turnover COGS/AP

Taxable income $200 Inventory 424 368 Days until pay 365/AP Turnover

Taxes (34%) $68 Total current assets $768 $648 Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover

Net Income $132 Fixed assets Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover

Dividends $46 Net plant and equipment 5228 5354 Debt Ratio TL/TA

Addition to RE $86 Total assets $5,996 $6,002 D/E Ratio D/E

Dividends payout rate = PO = 34.85% Liabilities and Owners' Equity Equity Multiplier A/E = 1 + D/E

Addition to RE payout rate = b = 65.15% Current liabilities Times Interest Earned EBIT/Interest

Accounts payable 124 144 Cash Coverage Ratio EBDIT/Interest

Notes payable 1412 1039

Wildhack Corp. Total current liabilities $1,536 $1,183 Profit Margin NI/Sales

Income Statement ($ in millions) Long-term debt 1804 2077 Asset Turnover Sales/Assets

For The Year Ended 2010 Total liabilities $3,340 $3,260 ROA Product

Sales Owners' equity Equity Multiplier Assets/Equity

COGS Common stock and paid-in surplus 300 300 ROE Product

Depreciation Retained earnings 2356 2442

EBIT Total owners' equity $2,656 $2,742 ROA

Interest Paid Total liabilities and owners' equity $5,996 $6,002 ROE

Taxable income b

Taxes (34%) Internal Growth Rate

Net Income Wildhack Corp. Sustainable Growth Rate

Dividends Balance Sheet ($ in millions)

Addition to RE As of December 31, 2009 and December 31, 2010

Homework chapter 3 ST 1, 2, 3 (an)

Question 1: Standardized 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.

Question 2: The percentage of each dollar earned that goes to COGS is 65.3%.

Wildhack Corp.

Income Statement ($ in millions)

For The Year Ended 2010

Sales $3,756

COGS 2453

Depreciation $490

EBIT $813

Interest Paid $613

Taxable income $200

Taxes (34%) $68

Net Income $132

Dividends $46

Addition to RE $86

Dividends payout rate = PO = 34.85%

Addition to RE payout rate = b = 65.15%

Wildhack Corp.

Sales 100.0%COGS 65.3%Depreciation 13.0%EBIT 21.6%Interest Paid 16.3%

Taxable income 5.3%Taxes (34%) 1.8%Net Income 3.5%Dividends 1.2%Addition to RE 2.3%

Standardized 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.

The percentage of each dollar earned that goes to COGS is 65.3%.

Wildhack Corp. Current Ratio

Balance Sheet ($ in millions) Quick Ratio

As of December 31, 2009 and December 31, 2010 Cash Ratio

2009 2010 Inv Turnover

Assets Days holding Inv

Current assets AR Turnover

Cash $120 $88 Days until collect AR

Accounts receivable 224 192 AP Turnover

Inventory 424 368 Days until pay

Total current assets $768 $648 Operating Cycle in Days

Fixed assets Cash Cycle in Days

Net plant and equipment 5228 5354 Debt Ratio

Total assets $5,996 $6,002 D/E Ratio

Liabilities and Owners' Equity Equity Multiplier

Current liabilities Times Interest Earned

Accounts payable 124 144 Cash Coverage Ratio

Notes payable 1412 1039

Total current liabilities $1,536 $1,183 Profit Margin

Long-term debt 1804 2077 Asset Turnover

Total liabilities $3,340 $3,260 ROA

Owners' equity Equity Multiplier

Common stock and paid-in surplus 300 300 ROE

Retained earnings 2356 2442

Total owners' equity $2,656 $2,742 ROA

Total liabilities and owners' equity $5,996 $6,002 ROE

Internal Growth Rate

Wildhack Corp. Sustainable Growth Rate

Balance Sheet ($ in millions)

As of December 31, 2009 and December 31, 2010

2009 2010

AssetsCurrent assets

Cash 2.00% 1.47%

Accounts receivable 3.74% 3.20%Inventory 7.07% 6.13%

Total current assets 12.81% 10.80%Fixed assets

Net plant and equipment 87.19% 89.20%

Total assets 100.00% 100.00%

Liabilities and Owners' EquityCurrent liabilities

Accounts payable 2.07% 2.40%Notes payable 23.55% 17.31%

Total current liabilities 25.62% 19.71%Long-term debt 30.09% 34.61%

Total liabilities 55.70% 54.32%Owners' equity

Common stock and paid-in surplus 5.00% 5.00%Retained earnings 39.29% 40.69%

Total owners' equity 44.30% 45.68%Total liabilities and owners' equity 100.00% 100.00%

Standardized 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.

The percentage of each dollar earned that goes to COGS is 65.3%.

CA/CL 0.5478

(CA-INV)/CL 0.2367

Cash/CL 0.0744

COGS/INV 6.6658

365/Inv Turnover 54.7574 days

Sale/AR 19.5625

365/AR Turnover 18.6581 days

COGS/AP 17.0347

365/AP Turnover 21.4268 days

365/Inv Turnover + 365/AR Turnover 73.4156

Operating Cycle in Days - 365/AP Turnover 56.3809 days

TL/TA 0.5432

D/E 1.1889

A/E = 1 + D/E 2.1889

EBIT/Interest 1.3263

EBDIT/Interest 2.1256

NI/Sales 0.03514377

Sales/Assets 0.6257914

Product 0.02199267

Assets/Equity 2.1889132

Product 0.04814004

0.02199267

0.04814004

65.15%

Homework chapter 3 ST 4 (T)

Assumptions

Name Corwin

Net Income = 231Dividends Paid = 77Total Assets = 1400

Total Equity = 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)

Homework chapter 3 ST 4 (an)

Assumptions

Name Corwin

Net Income = 231Dividends Paid = 77Total Assets = 1400

Total Equity = 1200

Addition To Retained Earnings 154

Corwin ROA 0.165

Corwin ROE 0.1925

Corwin b 0.6666666667

Corwin Internal Growth Rate (ROA*b)/(1-ROA*b) 12.36%

Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b) 14.72%

Chapter 3 Homework - Critical Thinking 3.1 (T)

Chapter 3 Homework - Critical Thinking 3.1 (an)

CA 4 4 1CL 2 CL 2CA/CL= 2 CA/CL= 2

If paid on credit and CA/CL >1, it goes down.Before Buy Inventory After Buy Inventory IncreaseCA 4 CA (Inventory goes up by $1) 5 1CL 2 CL (AP goes up by $1 dollar) 3 1CA/CL= 2 CA/CL= 1.666667

If paid on credit and CA/CL < 1, it goes up.Before Buy Inventory After Buy Inventory IncreaseCA 5 CA (Inventory goes up by $1) 6 1CL 6 CL (AP goes up by $1 dollar) 7 1CA/CL= 0.833333333333333 CA/CL= 0.857143

CA/CL= 2 CA/CL= 3

CA/CL= 0.833333333333333 CA/CL= 0.8

Before CL loan is paid After CL loan is paid Cash go down and CL loan go downCA 4 CA (Cash go down by $1) 3 1CL 2 CL (CL loan go down by $1) 1 1CA/CL= 2 CA/CL= 3

If short term bank loan is paid and CA/CL <1, goes down.Before CL loan is paid After CL loan is paid Cash go down and CL loan go downCA 5 CA (Cash go down by $1) 4 1CL 6 CL (CL loan go down by $1) 5 1CA/CL= 0.833333333333333 CA/CL= 0.8

Before LTD loan is paid After LTD loan is paid Cash go down by $1CA 4 CA (Cash go down by $1) 3 1CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 1.5 `

Before AR collected After AR collected Cash go up by $1 CA 4 CA (Cash go up by $1, AR go down by $1) 4 1CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2

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 1

CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2

Before Inv sold at Profit After Inv sold at Profit Cash go up by $2CA 4 CA (Cash go up by $2, Inv by down by $1) 5 2CL 2 CL (CL stay the same) 2CA/CL= 2 CA/CL= 2.5

Increase Inventory

AR go down by $11

Inv go down by $11

#9COGS =AP =Days to pay of AP =What does a large value imply?

#33Net LossSalesProgit Margin =Does the currency type make a difference?

Net IncomeSalesProgit Margin =

#941682

8917days

#33-£14,537.00£176,460.00

$317,628.00 -0.0823812762099059

#9COGS = 41682AP = 8917Days to pay of AP = 78.0841850199127

What does a large value imply?

#33Net Loss -£14,537.00Sales £176,460.00Progit Margin = -0.0823812762099059

No, because when you do the division, the units cancel out.

Net Income -$26,166.60Sales $317,628.00 Progit Margin = -0.0823812762099059

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).

Does the currency type make a difference?

Chapter 3 Homework - PR 19, 32

19Tom's ToupeesProfit Margin = NI/Sales 0.08

Sales 23,000,000 Debt 9,500,000 TA 24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets =

32Fenton CompanyROE 0.17Sales $1,950,000.00 D/TA 0.60Debt $75,000.00

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/ENI = ROE*E = 0.17*50000 =ROA = NI/TA = 8500/125000 =

Chapter 3 Homework - PR 19, 32 (an)

19Tom's ToupeesProfit Margin = NI/Sales 0.08

Sales 23,000,000 Debt 9,500,000 TA 24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets = 0.0767

32Fenton CompanyROE 0.17Sales $1,950,000.00 D/TA 0.60Debt $75,000.00

TA = Debt/(D/TA) = $75,000/0.6 = $125,000.00 Equity = A - L = $50,000.00

ROE = ROA*(1+D/E)ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) = 0.0680

ROE = NI/ENI = ROE*E = 0.17*50000 = $8,500.00 ROA = NI/TA = 8500/125000 = 0.0680

Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.

Sales $87,480

COGS 56820

Depreciation 3,217

EBIT $27,443

Interest Paid 2,064

Taxable income $25,379

Taxes (34%) 8,629

Net Income $16,750

Dividends $4,800

Addition to RE $11,950

Smolira Golf Corp.

Sales 100.00%

COGS 64.95%

Depreciation 3.68%

EBIT 31.37%

Interest Paid 2.36%

Taxable income 29.01%

Taxes (34%) 9.86%

Net Income 19.15%

Dividends 5.49%

Addition to RE 13.66%

Smolira Golf Corp.

2005 2006

Cash $2,612 $2,783

Accounts receivable 3,108 3,780

Inventory 9,840 10,970

Total current assets $15,560 $17,533

Fixed assets

Net plant and equipment 29,650 41,323

Total assets $45,210 $58,856

Accounts payable 1,975 2,190

Notes payable 1,386 1,438

Other 80 179

Total current liabilities $3,441 $3,807

Long-term debt 12,510 13,840

Total liabilities $15,951 $17,647

Owners' equity

Common stock and paid-in surplus 25,000 25,000

Retained earnings 4,259 16,209

Total owners' equity $29,259 $41,209

Total liabilities and owners' equity $45,210 $58,856

Smolira Golf Corp.

2005 2006

Cash 5.78% 4.73%

Accounts receivable 6.87% 6.42%

Inventory 21.77% 18.64%

Total current assets 34.42% 29.79%

Fixed assets

Total assets 100.00% 100.00%

Accounts payable 4.37% 3.72%

Other 0.18% 0.30%

Total current liabilities 7.61% 6.47%

Long-term debt 27.67% 23.52%

Total liabilities 35.28% 29.98%

Owners' equity

Common stock and paid-in surplus 55.30% 42.48%

Retained earnings 9.42% 27.54%

Total owners' equity 64.72% 70.02%

Total liabilities and owners' equity 100.00% 100.00%

2005 2006

Current Ratio CA/CL 4.52 4.61

Quick Ratio (CA-INV)/CL 1.66 1.72

Cash Ratio Cash/CL 0.76 0.73

Asset Turnover Sales/Assets 1.49

Inv Turnover COGS/INV 5.18

Days holding Inv 365/Inv Turnover 70.47

AR Turnover Sale/AR 23.14

Days until collect AR 365/AR Turnover 15.77

AP Turnover COGS/AP 25.95

Days until pay 365/AP Turnover 14.07

Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover 86.24

Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover 72.17

Debt Ratio TL/TA 0.35 0.30

D/E Ratio D/E 0.55 0.43

Equity Multiplier A/E = 1 + D/E 1.55 1.43

Times Interest Earned EBIT/Interest 13.30

Cash Coverage Ratio EBDIT/Interest 14.85

2005 2006

Profit Margin NI/Sales 19.15%

ROA Product 28.46%

Equity Multiplier Assets/Equity 1.43

ROE Product 40.65%

ROA 28.46%

ROE 40.65%

b 71.34%

Internal Growth Rate 25.48%

Sustainable Growth Rate 40.84%

2005 2006

Shares outstanding 10,000

MV 1 share end 2006 $24

EPS = NI/Shares outstanding = $1.68

Price-earnings ratio (MV per share)/EPS = $14.33

Dividends per share = $0.48

(MV per share)/(Book value per share) 5.82

Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.

Sales $87,480

COGS 56820

Depreciation 3,217

EBIT $27,443

Interest Paid 2,064

Taxable income $25,379

Taxes (34%) 8,629

Net Income $16,750

Dividends $4,800

Addition to RE $11,950

Smolira Golf Corp.

Sales 100.00%

COGS 64.95%

Depreciation 3.68%

EBIT 31.37%

Interest Paid 2.36%

Taxable income 29.01%

Taxes (34%) 9.86%

Net Income 19.15%

Dividends 5.49%

Addition to RE 13.66%

Smolira Golf Corp.

2005 2006

Cash $2,612 $2,783

Inventory 9,840 10,970

Fixed assets

Total assets $45,210 $58,856

Accounts payable 1,975 2,190

Other 80 179

Owners' equity

Smolira Golf Corp.

2005 2006

Cash 5.78% 4.73%

Inventory 21.77% 18.64%

Fixed assets

Total assets 100.00% 100.00%

Other 0.18% 0.30%

Owners' equity

2005 2006

Inv Turnover COGS/INV 5.18

Days holding Inv 365/Inv Turnover 70.47

AR Turnover Sale/AR 23.14

Days until collect AR 365/AR Turnover 15.77

AP Turnover COGS/AP 25.95

Days until pay 365/AP Turnover 14.07

Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover 86.24

Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover 72.17

D/E Ratio D/E 0.55 0.43

Times Interest Earned EBIT/Interest 13.30

Cash Coverage Ratio EBDIT/Interest 14.85

2005 2006

Profit Margin NI/Sales 19.15%

ROA Product 28.46%

ROE Product 40.65%

ROA 28.46%

ROE 40.65%

b 71.34%

Internal Growth Rate 25.48%

Sustainable Growth Rate 40.84%

2005 2006

Shares outstanding 10,000

MV 1 share end 2006 $24

EPS = NI/Shares outstanding = $1.68

Price-earnings ratio (MV per share)/EPS = $14.33

Dividends per share = $0.48

(MV per share)/(Book value per share) 5.82

Homework chapter 3 PR 37

Dispersion of Industry numbersLowest Quartile Median Highest Quartile Smolira 2006 Ratios

Current Ratio 1.2 2.4 4.7Asset Turnover 1.5 2.6 3.8D/E 0.25 0.4 0.6Profit Margin 8.4% 11.9% 16.3%

Smolira Golf performance

Homework chapter 3 PR 37

Homework chapter 3 PR 37 (an)

Dispersion of Industry numbersLowest Quartile Median Highest Quartile Smolira 2006 Ratios

Current Ratio 1.2 2.4 4.7 4.61Asset Turnover 1.5 2.6 3.8 1.49D/E 0.25 0.4 0.6 0.43Profit Margin 8.4% 11.9% 16.3% 19.15%

Smolira Golf is well above average when it comes to the current ratio. Their current ration is near the highest quartile. Perhaps Smolira Golf is 1) building up working capital to acquire some profitable assets, or perhaps 2) they have current

assets that could become obsolete or 3) they have extra cash that is potentially not earning a return as much as profitable long term assets could. In addition, suppliers and bankers could view this as a sign that they could pay bills.

Their asset turn over is in the lowest quartile. Compared to their industry they are generating fewer dollars in sales from each asset than others in the industry. In comparison, they are not using the assets efficiently. Or perhaps they have

bought new assets that have not been depreciated much and thus the ratio is low.

Their debt to equity ratio has gone down a small bit over the year. In comparison to the industry they are near the median when it comes to debt. Smolira is well leveraged in line with the industry.

Smolira's profit margin is in the highest quartile. The ratio of Expenses to sales is amazing. Perhaps they are 1) excellent at managing expenses, or perhaps they have 2) a superior product that can capture a high price, or perhaps it is 3) just

obfuscating accounting tricks! On the downside, it could be that they are charging too much, and although this would yield a high profit margin, it would almost certainly mean that Net Income is lower than it would be at a lower profit

margin.

Homework chapter 3 PR 37 (an)

Smolira Golf is well above average when it comes to the current ratio. Their current ration is near the highest quartile. Perhaps Smolira Golf is 1) building up working capital to acquire some profitable assets, or perhaps 2) they have current

assets that could become obsolete or 3) they have extra cash that is potentially not earning a return as much as profitable long term assets could. In addition, suppliers and bankers could view this as a sign that they could pay bills.

Their asset turn over is in the lowest quartile. Compared to their industry they are generating fewer dollars in sales from each asset than others in the industry. In comparison, they are not using the assets efficiently. Or perhaps they have

bought new assets that have not been depreciated much and thus the ratio is low.

Their debt to equity ratio has gone down a small bit over the year. In comparison to the industry they are near the median when it comes to debt. Smolira is well leveraged in line with the industry.

Smolira's profit margin is in the highest quartile. The ratio of Expenses to sales is amazing. Perhaps they are 1) excellent at managing expenses, or perhaps they have 2) a superior product that can capture a high price, or perhaps it is 3) just

obfuscating accounting tricks! On the downside, it could be that they are charging too much, and although this would yield a high profit margin, it would almost certainly mean that Net Income is lower than it would be at a lower profit

margin.

Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp. Bethesda Mining Corp.

Income Statement Balance Sheet

For The Year Ended 2006 As of December 31, 2005 and December 31, 2006

Sales $1,728,347 2005 2006

Net Income $148,320 AssetsCurrent assets

Cash $19,250 $21,386

Inventory 109,831 119,834

Fixed assets

Total assets $788,294 $893,230

Accounts payable $157,832 $141,368

Owners' equity

Bethesda Mining Corp.

Balance Sheet

2005 2006

Accounts receivable

Inventory

Total current assets

Fixed assets

Net plant and equipment

Total assets

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

2005 2006

Current Ratio CA/CL

Quick Ratio (CA-INV)/CL

Cash Ratio Cash/CL

Debt Ratio TL/TA

D/E Ratio D/E

Equity Multiplier A/E = 1 + D/E

Profit Margin NI/Sales

Asset Turnover Sales/Assets

ROA Product

Equity Multiplier Assets/Equity

ROE Product

Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp. Bethesda Mining Corp.

Income Statement Balance Sheet

For The Year Ended 2006 As of December 31, 2005 and December 31, 2006

Sales $1,728,347 2005 2006

Net Income $148,320 AssetsCurrent assets

Cash $19,250 $21,386

Inventory 109,831 119,834

Fixed assets

Total assets $788,294 $893,230

Accounts payable $157,832 $141,368

Owners' equity

Bethesda Mining Corp.

Balance Sheet

2005 2006

Cash 2.44% 2.39%

Inventory 13.93% 13.42%

Fixed assets

Total assets 100.00% 100.00%

Notes payable 9.25% 11.14%

Owners' equity

2005 2006

D/E Ratio D/E 1.2046 1.2202

Profit Margin NI/Sales 0.0858161006

ROA Product 0.1660490579

ROE Product 0.3686626781

ROA 0.1660490579

ROE 0.3686626781

Busn233Ch03

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Transcript of Busn233Ch03

I Am a Holocaust Denier and I Am Unafraid

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