Exam 4: Profitability Analysis

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

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 $\text { ASEETE (\$in thausands) }$ Fiscal year end Cash Marketable securities Receivables Inventories Other current assets Total current assets Property, plant \& equipment Intangibles Deposits \& other assets Total assets 2011 2010 2009 \ 875,650 \ 571,250 154,230 6,560 0 0 771,580 775,250 902,000 1,320,150 1,254,600 1,418,500 3,222,940 2,832,300 2,704,630 1,118,750 1,100,300 1,122,400 263,050 241,000 215,600 LIABILITIES (\ in thousands) Fiscal year end Accounts payable Current long term debt Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long term debt Other long term liabilities Total liabilities Preferred stock Common stock net Additional Paid-in Capital Retained earnings Treasury stock Shareholders' equity Total Liab, \& Equity 2011 2010 2009 \ 1,178,540 \ 1,061,100 \ 1,138,250 18,100 316,500 150,900 664,100 615,900 585,400 138,900 108,400 38,200 1,999,640 2,101,900 1,912,750 478,250 378,400 599,630 2,491,240 2,480,300 2,512,380 850,000 850,000 550,000 4,000 3,950 3,800 869,000 758,000 689,500 1,430,500 1,055,000 1,245,050 \ INCOME STATEMENTS (f in thousands) Fiscal year end Net sales \ 11,455,500 \ 11,082,100 Cost of Goods Sold Gross profit 3,429,050 3,142,035 Selling, general \& admin. Exp. Income before deprec. \& amort. 1,592,650 1,352,835 Depreciation \& amortization (785,250) (757,250) Interest expense Income before tax 761,205 552,245 Provision for income taxes (157,725) (112,290) Minority interest -- -- Net income Outstanding shares (in thousands) 308,515 303,095 Preferred Dividends (in thousands) \ 85,000 \ 85,000 -Refer to the information for Net Devices Inc.What is Net Devices' return on common shareholders' equity 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

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

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.Selected financial data for the companies appears below. Sensitron Sales \ 2,109,100 \ 2,095,700 \ 2,175,700 Average Accounts Receivable 564,500 608,650 631,072 Change in Sales from previous year 0.64\% -3.68\% 11.83\% Douglas Tools Sales \ 4,394,000 \ 4,245,600 \ 4,474,900 Average Accounts Receivable 718,800 745,850 803,150 Change in Sales from previous year 3.50\% -5.12\% 0.59\% Required: 1. Calculate the accuunts recervale turnover ratad far each firm far year 2010, 2009, 2008. 2. Suggest reasans far the differences in the accuunts receivable tuncver ratios far these two firms.

One important difference between return on assets (ROA)and return on common shareholder's equity (ROCE)is that:

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

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

Which factor does not explain differences or changes in ROA?

Another term for earnings power is:

Return on common equity can be disaggregated into profit margin for ROCE,capital structure leverage and _________________________________________________.

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

Which of the following would be considered a committed fixed cost (a cost that is incurred regardless of the level of activity during the period)?

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 $\text { ASEETE (\$in thausands) }$ Fiscal year end Cash Marketable securities Receivables Inventories Other current assets Total current assets Property, plant \& equipment Intangibles Deposits \& other assets Total assets 2011 2010 2009 \ 875,650 \ 571,250 154,230 6,560 0 0 771,580 775,250 902,000 1,320,150 1,254,600 1,418,500 3,222,940 2,832,300 2,704,630 1,118,750 1,100,300 1,122,400 263,050 241,000 215,600 LIABILITIES (\ in thousands) Fiscal year end Accounts payable Current long term debt Accrued expenses Income taxes payable Other current liabilities Total current liabilities Long term debt Other long term liabilities Total liabilities Preferred stock Common stock net Additional Paid-in Capital Retained earnings Treasury stock Shareholders' equity Total Liab, \& Equity 2011 2010 2009 \ 1,178,540 \ 1,061,100 \ 1,138,250 18,100 316,500 150,900 664,100 615,900 585,400 138,900 108,400 38,200 1,999,640 2,101,900 1,912,750 478,250 378,400 599,630 2,491,240 2,480,300 2,512,380 850,000 850,000 550,000 4,000 3,950 3,800 869,000 758,000 689,500 1,430,500 1,055,000 1,245,050 \ INCOME STATEMENTS (f in thousands) Fiscal year end Net sales \ 11,455,500 \ 11,082,100 Cost of Goods Sold Gross profit 3,429,050 3,142,035 Selling, general \& admin. Exp. Income before deprec. \& amort. 1,592,650 1,352,835 Depreciation \& amortization (785,250) (757,250) Interest expense Income before tax 761,205 552,245 Provision for income taxes (157,725) (112,290) Minority interest -- -- Net income Outstanding shares (in thousands) 308,515 303,095 Preferred Dividends (in thousands) \ 85,000 \ 85,000 -Refer to the information for Net Devices Inc.What is the accounts receivable turnover ratio for Net Devices for 2011?

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

________________________________________ is the level of earnings and the growth in the levels of earnings expected to persist in the future.

Inventory turnover is calculated by dividing ________________________________________ by average inventories.

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

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

Return on assets will likely differ across firms and across time.Three elements of risk that will help explain these differences are ________________________________________,cyclicality of sales and stage and length of product life cycle.