Exam 4: Profitability Analysis

Linda's Clothing is a retailer of contemporary women's clothing.Selected financial information for Linda's appears below: Required: a.Compute the rate of return on assets for the years 2009-2011.Linda's has an effective tax rate of 35%. b.Compute the rate of return on common shareholders' equity for the years 2009-2011. c.Compute basic earnings per share for the years 2009-2011. d.Interpret the changes in ROA versus ROCE and EPS over the three-year period.

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.Use the information to calculate the following information: ADDITIONAL INFORMATION

Krane,Inc.reported net income (amounts in thousands)of $619,700 for Year 4.The weighted average of common shares outstanding during Year 4 was 468,810 shares.Krane Inc.,subtracted interest expense net of tax saving on convertible debt of $4,820.If the convertible debt had been converted into common stock,it would have increased the weighted average common shares outstanding by 20,905 shares.Krane Inc.,has outstanding stock options that,if exercised,would increase the weighted average of common shares outstanding by 7,335 shares. REQUIRED: Compute basic and diluted earnings per share for Year 4,showing supporting computations.

Which of the following industries would you expect to have,on average,high asset turnover and low profit margin?

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

Multiples of EPSto value firms are referred to as.

Ramos Company Ramos Company included the following information in its annual report: 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?

Below are three relationships that are important to the determination of profitability.Assume assets were $22,900,000 on Dec.31,2008. REQUIRED: Compute the operating leverage,financial structure leverage,and ROCE (rounded to two places).Then use these relationships to analyze how the profitability of X-Mart changed over the three year period below.What does the company need to do to reverse this trend? What are the risks of your strategy?

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.

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

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 Refer to the information for Net Devices Inc.What is the inventory turnover for Net Devices for 2011?

Return on assets can be a misleading ratio when analyzing technology firms because two important assets,______________________________ and ______________________________ do not appear on their balance sheets their employees; their technologies or their technoligies,their employees

Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.

Inventory turnover is calculated by dividing ________________________________________ by average inventories. cost of goods sold

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

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

Below is financial information for two restaurant retailers.Popper's Company operates an innovative retail bakery-cafe business and franchising business.At the end 2010,Popper's had 132 company-owned and 346 franchise-operated bakery-cafes.Popper's located most of their unique bakery-cafe concept stores in suburban,strip mall,and regional mall locations.As a first mover in this concept,the company operates in 32 states.Simmer Corporation began operations five years earlier than Popper's and purchases and roasts whole bean coffees and sells them,along with numerous coffee drinks and related products at over 2,900 Company-operated retail stores. Selected Data for Popper's Company and Simmer Corporation (amounts in millions) Required: a.Compute the rate of return on assets for each firm.Disaggregate the rate of return on assets into profit margin and assets turnover components.The income tax rate is 35%. b.Describe the likely reasons for the differences in the profit margins and assets turnovers of the two companies.

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except:

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

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 Refer to the information for Net Devices Inc.What is the rate of return on assets for Net Devices for 2011?