Exam 4: Profitability Analysis

The statutory tax rate differs from a firm's average tax rate due to which of the following reasons

Firms and industries characterized by heavy fixed capacity costs and lengthy periods required to add new capacity operate under a ___________________________________.

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.

Which of the following are better indicated by percentage change statements than common-size statements?

Which of the following is not a way a company can achieve a low-cost position

Accounts receivable turnover is calculated by dividing ________________________________________ by average net accounts receivable.

Firms with high operating leverage have a higher proportion of _________________________ in their cost structure.

Hall and Porter argue that firms have two generic alternative strategies for any particular product. These strategies are

Return on assets will likely differ across firms and across time. Three elements of risk that will help explain these differences are ________________________________________, cyclicality of sales and stage and length of product life cycle.

Economic theory suggests that higher levels of ____________________ in any activity should lead to higher levels of ___________________________________.

When an analyst uses measures of past profitability to forecast the firm's future profitability the expectation is that those revenues, gains, expenses and losses that will ____________________.

Grundig Technologies is a manufacturer. Below are the company's two most recent balance sheets and its most recent income statement. Use this information to answer the following questions: a. Calculate the rate of return on assets (ROA) for 2011. Disaggregate ROA into the profit margin for ROA and total assets turnover components. b. Calculate the rate of return on common stockholders’ equity (ROCE) for 2011. Disaggregate ROCE into the profit margin for ROCE, total assets turnover and capital structure leverage components. c. Did financial leverage work to the advantage of the common shareholders during 2011? Explain.

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%. BALANCE SHEETS $\text { ASEETS (\$in thousands) }$ Fiscal year end Cash Marketable securities Receivables Inventories Other current assets Total current assets Property, plant \& equipment Intangibles Deposits \& other assets Total assets 2011 \ 875,650 6,560 771,580 1,320,150 3,222,940 1,118,750 263,050 2010 \ 571,250 0 775,250 1,254,600 2,832,300 1,100,300 241,000 2009 \ 154,230 0 902,000 1,418,500 2,704,630 1,122,400 215,600 $\text { LIABLIIES ( \$ in thousands) }$ Fiscal year end Accounts payable Current long term debt Acculed expenses Income taxespayable Other curent liabilities Total current liabilities Long term debt Other long term liabilities Total liabilities Preferred stock Common stock net Adchtional Paid-in Capital Retained earnings Treasuy stock Shareholders' equity Total Liab \& Equity 2011 \ 1,178,540 18,100 664,100 138,900 1,999,640 478,250 2,491,240 850,000 4,000 869,000 1,430,500 2010 \ 1,061,100 316,500 615,900 108,400 2,101,900 378,400 2,480,300 850,000 3,950 758,000 1,055,000 2009 \ 1,138,250 150,900 585,400 38,200 1,912,750 599,630 2,512,380 550,000 3,800 689,500 1,245,050 $\text { INCOME S'TATEMENTS (\$ in thousands) }$ Fiscal year end Net sales Cost of Goods Sold Grosspiofit Selling, general \& admin. Exp. Income before deprec. \& amort. Depreciation \& amortization Interest expense Income before tax Provision for income taxes Minority interest Net income Outstanding shares(in thousands) Preferred Dividends (in thousands) 2011 \ 11,455,500 3,429,050 1,592,650 (785,250) 761,205 (157,725) 308,515 \8 5,000 2010 \ 11,082,100 3,142,035 1,352,835 (757,250) 552,245 (112,290) 303,095 \8 5,000 - Refer to the information for Net Devices Inc. What is the inventory turnover for Net Devices for 2011?

Rattigan Industries reported net income (amounts in thousands) for Year 4 of $60,615 on sales of $1,560,235. It declared preferred dividends of $22,100. Preferred shareholders' equity totaled $265,750 at both the beginning and end of Year 4. Common shareholders' equity totaled $298,150 at the beginning of Year 4 and $365,000 at the end of Year 4. Rattigan had no minority interest in its equity. Total assets were $1,440,000 at the beginning of Year 4 and $1,550,000 at the end of Year 4.

Another term for earnings power is

Carl Industries has condensed balance sheets as shown: 2011 2010 2009 Assets: Curent assets \ 55,000 \ 56,500 \ 70,000 Plant \& equipment net 495,000 410,000 440,000 Intangible assets, net 20,000 27,500 40,000 Total assets \ 570,000 \ 494,000 \ 550,000 Liabilities \& Stckckolders' Equity: Curent liabilities \ 40,000 \ 35,000 \ 32,500 Long term liabilities 395,000 310,000 375,000 Stoclcholders' equity 135,000 149,000 142,500 Total liabilities \& equity \ 570,000 \ 494,000 \ 550,000 - Refer to the information for Carl Industries. In a percentage change balance sheet over the period of 2009 to 2011, what is the change in current assets?

The ____________________ effect of interest expense on net income equals one minus the marginal tax rate times the interest expense.

Sensitron and Douglas Tools manufacture and market power tools and accessories. Sensitron targets customers in the professional contractor market, while Douglas Tools focuses on home users and professionals. Both firms use the same cost flow assumption for valuing inventories and cost of goods sold. Selected financial data for the companies appears below. Senstion Cost of Goods Sold Average Inventory Change in Sales from previous year Douglas Tools Cost of Goods Sold Average Inventory Change in Sales from previous year \ 1,144,200 372,550 0.64\% \ 2,876,100 730,550 3.50\% \ 1,134,100 397,050 -3.68\% \ 2,846,600 778,100 -5.12\% \ 1,169,400 436,870 11.83\% \ 2,889,000 797,500 0.59\% Required: 1. Calculate the inventory turnover ratio for each firm for year 2010, 2009, 2008. 2. Suggest reasons for the differences in the Inventory turnover ratios for these two firms.

Use the following information about Sanibel Corporation to calculate the following ratios for 2011 (assume an effective tax rate of 35%): a. Return on Assets b. Profit margin for ROA c. Assets Turnover d. Return on Common Shareholders’ Equity e. Profit Margin for ROCE f. Accounts Receivable Turnover g. Inventory Turnover h. Fixed Asset Turnover