Exam 4: Profitability Analysis

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. 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.

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

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 profit margin for ROA for Net Devices for 2010?

Carridine Company reported net income of $1,903 on revenues of $55,618 for Year 4.Interest expense totaled $459,and preferred dividends totaled $13.5.Average total assets for Year 4 were $17,500.The income tax rate is 40 percent.Average preferred shareholders' equity totaled $250,and average common shareholders' equity totaled $7,500.Assume that all the following amounts are in thousands. 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 leverage ratio components. c.Calculate the amount of net income to common shareholders derived from the excess return on creditors' capital,the excess return on preferred shareholders' capital, and the return on common shareholders' capital.

The computation of the additional shares to be issued on the exercise of stock options assumes that the firm would repurchase common shares on the open market using an Amount equal to the sum of all the following except:

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

Operating income is negative in an amount equal to _________________________ when revenues are zero.

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%. Income Statement For the year ended December 31,2011 Refer to the information for Orca Industries.Orca's accounts receivable turnover is (assume that Orca makes all sales on account)

Which factor does not explain differences or changes in ROA?

Ramos Company Ramos Company included the following information in its annual report: Refer to the information for Ramos Company.In a common size income statement for 2011,the cost of goods sold are expressed as:

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

The numerator of the return on assets ratio is net income from operations excluding the effects of any ______________________________.

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 ____________________.

Which of the following would not be considered a committed fixed cost ( a cost that is incurred regardless of the level of activity during the period)?

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

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

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

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) Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Adjustments for dilutive securities and the adjustment to weighted average number of shares outstanding presumes that the dilutive securities are converted to common shares

Asset turnover represents