Exam 10: Analysis of Financial Statements

The current ratio,receivables turnover and total asset turnover are measures of internal liquidity.

Which of the following ratios is not a measurement of the firm's liquidity?

Exhibit 10.9 Use the Information Below for the Following Problem(S) You are provided with the following year end information for All Systems Corporation. Income Statement Data Sales Operating Income Depreciation Interest Expense Pretax Income Income Taxes Net Income after tax Balance Sheet Data Fixed Assets Total Assets Working Capital Total Debt Equity 800 280 85 48 147 52 95 810 1050 85 640 410 -Refer to Exhibit 10.9.The industry norms for profit margin (PM),total asset turnover (TAT),and financial leverage are 10.9%,1.2,and 1.0,respectively.Based on this information it appears that All Systems Corporation is

Financial risk is the uncertainty of operating income caused by the firm's industry.

A cross-sectional analysis compares a firm to a subset of industry firms comparable in size or characteristics.

Exhibit 10.1 Use the Information Below for the Following Problem(S) BMC CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2004 (DOLLARS IN THOUSANDS) Net Sales \ 1025 Cost of Goods Sold Gross Profit Margin 343 Depreciation 31 Operating Expense 103 Administrative Expense Operating Profit 82 Interest Profit Before Tax 55 Taxes Net Income \ 38 BMC CORPORATION BAIANCE SHEET FISCAL YEAR ENDING 12/31/2004 (DOLIARS IN THOUSANDS) Assets Cash Acctsrec Inventory Ttl cur assts Net fixed assets Total assets \6 1 286 354 701 802 \ 1503 Liabilities Notes payable Accounts payable Accruals Total current liabilities Long term debt Common stock ( \1 .50 par) Paid in surplus Retained earnings Total liabilities and Stockholders' equity \ 223 152 32 407 306 102 226 462 \ 1503 -Refer to Exhibit 10.1.What was BMC'S total asset turnover for 2004?

Exhibit 10.9 Use the Information Below for the Following Problem(S) You are provided with the following year end information for All Systems Corporation. Income Statement Data Sales Operating Income Depreciation Interest Expense Pretax Income Income Taxes Net Income after tax Balance Sheet Data Fixed Assets Total Assets Working Capital Total Debt Equity 800 280 85 48 147 52 95 810 1050 85 640 410 -Refer to Exhibit 10.9.Calculate the financial leverage ratio used in DuPont analysis.

Free cash flow = Cash flow from operations - Capital expenditures + Disposition of property and equipment.

DuPont Analysis breaks down return on equity into major areas that can be used to identify a firm's strengths or weaknesses with respect to

Exhibit 10.7 Use the Information Below for the Following Problem(S) You are provided with the following information for the Nelson Corporation. Net Income Depreciation Total Current Assets Total Current Liabilities \ 2003 \ 1500 \ 200 \ 700 \ 500 \ 2004 \2 000 \ 475 \ 900 \ 800 \ During 2004 Nelson Corp. made capital expenditures totaling $500 and disposed property worth $800. -Refer to Exhibit 10.7.The firm's cash flow from operating activities for the year 2004 is

The DuPont equation breaks down a firm's return on equity into three components,which are profit margin,total asset turnover,and financial leverage.

The income statement indicates the flow of sales,expenses,and earnings during a period of time.

Financial ratios are only useful when they are compared to other ratios.All of the following are useful means of examining relative performance except

Exhibit 10.5 Use the Information Below for the Following Problem(S) You are provided with the following information about Albermarle Corp. Income Statement Data Sales Operating Income Depreciation Interest Expense Pretax Income Income Taxes Net Income after tax Balance Sheet Data Fixed Assets Total Assets Working Capital Total Debt Equity 542 38 3 3 32 13 19 41 245 123 16 159 -Refer to Exhibit 10.5.Calculate the return on equity (ROE).

Traditional cash flow and Free cash flow are equivalent concepts.

A common-size balance sheet expresses all balance sheet items

Bond rating agencies include the analysis of financial ratios in arriving at corporate bond ratings.

Exhibit 10.3 Use the Information Below for the Following Problem(S) You are provided with the following information for a company. Net Annual Sales Average Receivables COGS Average Inventory Average Trade Payables 60000 1200 35000 3000 1500 -Refer to Exhibit 10.3.Calculate the payables turnover ratio.

Exhibit 10.8 Use the Information Below for the Following Problem(S) Zeco Company has the following financial statements for year ending 12/31/2008. Sales Cost of Goods Sold Gross Profit Depreciation Operating Expenses Administration Exp. Operating Profit 15,000 Interest Expense Profit Before Taxes Taxes Net Income Dividends 1,000,000 750,000 250,000 100,000 70,000 65,000 8,000 7,000 2,800 4,200 3,200 Assets Cash Accounts Receivable Inventory Total Current Assets Net Fixed Assets Total Assets 50,000 250,000 325,000 825,000 450,000 1,275,000 Liabilities Notes Payable Accounts Payable Total Current Liab. Long Term Debt Common Stock Retained Earnings Total Liab. \& Earnings 250,000 350,000 800,000 225,000 200,000 50,000 1,275,000 The Zeco Company's industry averages are as follows: Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/Equity = 1.5 -Refer to Exhibit 10.8.Based on this information what are the strengths and concerns of Zeco Company?

Operating performance is divided into which two subcategories of ratios?