Exam 9: Reorganizing the Financial Statements

For a given leased asset using an operating lease,the rental expense will be $2,000 in the next period.The pretax cost of debt is 7.2 percent,and the asset has an expected life of six years.What is the estimated asset value in the current period?

Which of the following are sources of financing? I.Equity equivalents. II.Debt equivalents. III.Hybrid securities. IV.Noncontrolling interest.

If the company wants to capitalize R&D,they it will deduct that period's expense from their revenue in order to get to NOPLAT.

Which of the following are included in operating current assets? I.Inventory. II.Prepaid expenses. III.Marketable securities. IV.Accounts receivable.

Which metric is the best indicator of a company's operating performance?

In computing return on invested capital,operating liabilities should be subtracted from operating assets to determine invested capital.

In calculating free cash flows,which of the following is/are not NOT an investment that should be subtracted from gross cash flows?

Pension assets are considered an operating asset and part of invested capital.

$\text { Dolphin: Income Statement and Balance Sheet }$ $\$ \text { million }$ Ineome statement Last year Current year Revenues 1,100 1,210 Cost of sales (770) (871) Selling, general, and administrative (165) (182) Depreciation (33) (36) EBIT 132 121 Interest expense (15) (15) Gain/(loss) on sale of assets - (10) EBT 117 96 Taxes (35) (29) Net income 82 67 Dividends 33 27 Balance sheet Last year Current year Operating cash 22 24 Excess cash and marketable securities 91 74 Accounts receivable 220 242 Inventory 330 363 Current assets 663 703 Property, plant, and equipment 440 484 Equity investments 50 50 Total assets 1,153 1,237 Accounts payable 275 303 Short-term debt 90 90 Accrued expenses 165 182 Current liabilities 530 574 Long-term debt 210 210 Common stock 100 100 Retsined earnings 313 353 Total liabilities and equity 1,153 1,237 Refer to the preceding income statement and balances sheet for Dolphin, Inc. to answer the following question. Dolphin is a $600 million event promotion company that operates with a 30 percent operating tax rate. -What are Dolphin's NOPLAT and ROIC for the current year,using average invested capital?

Which of the following would result in a change in operating deferred-tax assets or liabilities? I.State income taxes. II.Changes in goodwill. III.Accrued self-insurance liabilities. IV.Accelerated inventory deduction.

Ratio Analysis: Consolidated Financial Statements $\$$ million Company A Company B Company C Income statement 150 Operating profit 120 100 (20) Interest 0 0 130 Earnings before taxes 120 100 (33) Taxes (30) (25) (33) net income 90 75 98 Operating tax rate 25.0\% 25.0\% 25.0\% Balance sheet Inventory 125 100 150 Property, plant, and equipment 400 400 365 Equity investments 0 50 0 Total assets 525 550 515 Accounts payable 50 50 50 Debt 0 0 190 Equity 475 500 275 Liabilities and equity 525 550 515 -Based on the above preceding table,what are the returns on assets (ROAs )for Companiesy A,B,and C,respectively?

To measure a company's ability to create value after paying acquisition premiums,which of the following adjustments should be made? I.Adjust reported goodwill upward to recapture historical amortization and impairments. II.Adjust acquired intangibles upward to recapture historical amortization and impairments. III.Add the hypothetical accrued interest of the notional goodwill principle.

Ratio Analysis: Consolidated Financial Statements $\$$ million Company A Company B Company C Income statement 150 Operating profit 120 100 (20) Interest 0 0 130 Earnings before taxes 120 100 (33) Taxes (30) (25) (33) net income 90 75 98 Operating tax rate 25.0\% 25.0\% 25.0\% Balance sheet Inventory 125 100 150 Property, plant, and equipment 400 400 365 Equity investments 0 50 0 Total assets 525 550 515 Accounts payable 50 50 50 Debt 0 0 190 Equity 475 500 275 Liabilities and equity 525 550 515 -Based on the above same table,what are the ROICs for Companiesy A,B,and C,respectively?

$\text { Dolphin: Income Statement and Balance Sheet }$ $\$ \text { million }$ Ineome statement Last year Current year Revenues 1,100 1,210 Cost of sales (770) (871) Selling, general, and administrative (165) (182) Depreciation (33) (36) EBIT 132 121 Interest expense (15) (15) Gain/(loss) on sale of assets - (10) EBT 117 96 Taxes (35) (29) Net income 82 67 Dividends 33 27 Balance sheet Last year Current year Operating cash 22 24 Excess cash and marketable securities 91 74 Accounts receivable 220 242 Inventory 330 363 Current assets 663 703 Property, plant, and equipment 440 484 Equity investments 50 50 Total assets 1,153 1,237 Accounts payable 275 303 Short-term debt 90 90 Accrued expenses 165 182 Current liabilities 530 574 Long-term debt 210 210 Common stock 100 100 Retsined earnings 313 353 Total liabilities and equity 1,153 1,237 Refer to the preceding income statement and balances sheet for Dolphin, Inc. to answer the following question. Dolphin is a $600 million event promotion company that operates with a 30 percent operating tax rate. -What is the average invested capital (IC )for Dolphin for the current year?

With respect to goodwill and acquired intangibles,which of the following is most accurate concerning their treatment in computing ROIC when measuring the competiveness of the underlying business of a company?

How will an increase in invested capital (IC )in a given year affect free cash flow (FCF )and ROIC if all other things are kept equal?

Which of the following are operating liabilities? I.Accounts payable. II.Accrued salaries. III.Deferred revenue. IV.Income taxes payable.

In computing free cash flow,include investments in capitalized operating leases in gross investment.

Nonconsolidated subsidiaries and equity investments should be measured and valued separately from invested capital.

List the three components into which an analyst should reorganize financial statements to better assess economic performance and three common traps that the analyst wants to avoid in the assessment.