Exam 4: Profitability Analysis

Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores. Selected Data for All Sports and Extreme Sports (amounts in millions) Sales Cost of Goods Sold Interest Expense Net Income Average A ccounts Receivable Average Inventory Average Fixed Assets Average Total Assets Average T ax Rate All Sports \ 5,320 3,897 138 212 114 998 1,163 2,472 40\% Extreine Sport \ 1,344 887 43 33 18 286 130 662 40\% Calculate the following ratios for All Sports and Extreme Sports: a. Return on assets b. Profit margin for ROA c. Assets turnover d. Accounts receivable turnover e. Inventory turnover f. Fixed asset turnover

All else being equal, firms with high levels of ________________________________________ incur more risk in their operations and should earn higher rates of return.

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 common size balance sheet for 2009, total liabilities and equity are expressed as

Which of the following scenarios is consistent with a increasing cost of goods sold to sales percentage and increasing inventory turnover

Extreme Sports Company and All Sports Corporation. Below is financial information for two sporting goods retailers. Extreme Sports Company operates a retail business and franchising business. At the end 2011, Extreme Sports had 263 Company-owned and 120 franchise-operated retail stores. Extreme's stores are located in suburban, strip mall and regional mall locations, the company operates in 32 states. All Sports Corporation sells sporting goods and related products at over 2,500 Company-operated retail stores. Selected Data for All Sports and Extreme Sports (amounts in millions) All Sports Extreine Sport Sales \ 5,320 \ 1,344 Cost of GoodsSold 3,897 887 Interest Expense 138 43 Net Income 212 33 Average Inventory 998 286 Average Fixed Assets 1,163 130 Average Total Assets 2,472 662 Average Tax Rate 40\% 40\% Refer to the information for Extreme Sports Company and All Sports Corporation. Compute the return on assets for Extreme Sports

Ramos Company included the following information in its annual report: 2011 2010 2009 Sales \ 178,400 \ 162,500 \ 155,500 Cost of goods sold 115,000 102,500 100,000 Operating expenses 50,000 50,000 45,000 Net incoume 13,400 10,000 10,500 - Refer to the information for Ramos Company. In a percentage change income statement over the period of 2009 to 2011, what is the change in net income?

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Balance Sheet 2011 2010 Assets: Cash \1 0,000 \6 ,000 Accounts Receivable (net) 6,000 1,500 Inventory 8,000 10,000 Long-lived assets 12,000 11,000 Less: Accumulated depreciation Total assets Liabilities and Stockholders' Equity: Accounts payable \5 ,000 \6 ,000 Deferred revenues 1,000 2,000 Long-term note payable 10,000 10,000 Less: Discount on note payable (800) (1,000) Common stock 12,000 6,000 Retained earnings Total liabilities and stockholders' equity Income Statement For the year ended December 31, 2011 Revenues \4 2,000 Cost of goods sold (24,000) Depreciation expense (2,000) Interest expense (3,000) Bad debt expense (2,000) Other expense (including income taxes) Net income - Refer to the information for Orca Industries. Orca's asset turnover is

Firms with simple capital structures can have which of the following?

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35% Balance Sheet 2011 2010 Assets: Cash \1 0,000 \6 ,000 Accounts Receivable (net) 6,000 1,500 Inventory 8,000 10,000 Long-lived assets 12,000 11,000 Less: Accumulated depreciation Total assets Liabilities and Stockholders' Equity: Accounts payable \5 ,000 \6 ,000 Deferred revenues 1,000 2,000 Long-term note payable 10,000 10,000 Less: Discount on note payable (800) (1,000) Common stock 12,000 6,000 Retained earnings Total liabilities and stockholders' equity Income Statement For the year ended December 31, 2011 Revenues \4 2,000 Cost of goods sold (24,000) Depreciation expense (2,000) Interest expense (3,000) Bad debt expense (2,000) Other expense (including income taxes) Net income - Refer to the information for Orca Industries. The return on common shareholders' equity for Orca Industries is

The ability of a firm to manage the level of investment in assets for a particular level of sales is measured by the ______________________________.

Raleigh Manufacturing reported net income (amounts in millions) of $1,166 on sales of $5,520 during Year 4. Interest expense totaled $75. The income tax rate was 30 percent. Average total assets were $7,135, and average common shareholders' equity was $3,405. The firm did not have preferred stock outstanding or minority interest in its equity. REQUIRED: a. Compute the rate of ROA. Disaggregate ROA into profit margin for ROA and assets turnover components. b. Compute the rate of ROCE. Disaggregate ROCE into profit margin for ROCE, assets turnover, and capital structure leverage ratio components. c. Calculate the amount of net income to common shareholders derived from the excess return on creditors' capital and the amount from the return on common shareholders' capital.

Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings?

Time-series analysis helps answer all of the following questions except:

Critics of EPS as a measure of profitability point out that it does not consider:

EPS is an ambiguous measure of profitability because it reflects operating performance in the numerator and ________________________________________ in the denominator.

Orca Industries Below are the two most recent balance sheets and most recent income statement for Orca Industries. The company has an effective tax rate of 35%. Balance Sheet 2011 2010 Assets: Cash \1 0,000 \6 ,000 Accounts Receivable (net) 6,000 1,500 Inventory 8,000 10,000 Long-lived assets 12,000 11,000 Less: Accumulated depreciation Total assets Liabilities and Stockholders' Equity: Accounts payable \5 ,000 \6 ,000 Deferred revenues 1,000 2,000 Long-term note payable 10,000 10,000 Less: Discount on note payable (800) (1,000) Common stock 12,000 6,000 Retained earnings Total liabilities and stockholders' equity Income Statement For the year ended December 31, 2011 Revenues \4 2,000 Cost of goods sold (24,000) Depreciation expense (2,000) Interest expense (3,000) Bad debt expense (2,000) Other expense (including income taxes) Net income - Refer to the information for Orca Industries. Orca's inventory turnover is

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%. $\text { INCOME STATEMENTS ( } \$ \text { in thousands) }$ Fiscal year end Net sales Cost of Goods Sold Gross profit 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 \ 85000 2010 \ 11,082,100 3,142,035 1,352,835 (757,250) 552,245 (112,290) 303,095 \ 85,000 - Refer to the information for Net Devices Inc. What is the accounts receivable turnover ratio for Net Devices for 2011?

Sustainable earnings represent

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%. $\text { INCOME STATEMENTS ( } \$ \text { in thousands) }$ Fiscal year end Net sales Cost of Goods Sold Gross profit 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 \ 85000 2010 \ 11,082,100 3,142,035 1,352,835 (757,250) 552,245 (112,290) 303,095 \ 85,000 - Refer to the information for Net Devices Inc. What is the rate of return on assets for Net Devices for 2011?

Which of the following is the primary objective in most financial statement analysis?