Exam 4: Profitability Analysis

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) All Sports Extreme Sports Sales \ 5,320 \ 1,344 Cost of Goods Sold 3,897 887 Interest Expense 138 43 Net Income 212 236 Average Inventory 998 130 Average Fixed Assets 1,163 662 Average Total Assets 2,472 40\% -Refer to the information for Extreme Sports Company and All Sports Corporation. What is the return on assets for All Sports?

Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.

Asset turnover represents:

The three elements of risk that help in understanding differences across firms and changes over time in ROAs are:

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%. Balance Sheet Assets: Cash Accounts Receivable (net) Inventory Long-lived assets Less: Accumulated depreciation Total assets 2011 2010 \ 10,000 \ 6,000 6,000 1,500 8,000 10,000 12,000 11,000 $\text { Liabilities and Stockholders' Equity: }$ Accounts payable \ 5,000 \ 6,000 Deferred revenues 1,000 2,000 Long-term note payable 10,000 10,000 Less: Discount on note payable (800) (1,000) Common stock 12,000 6,000 Retained earnings Total liabilities and stockholders' equity Income Statement For the year ended December 31, 2011 Revenues \4 2,000 Cast af goods sold (24,000) Depreciation expense (2,000) Interest expense (3,000) Bad debt exanense (2,000) Other expense (including income taxes) Net incame -Refer to the information for Orca Industries.Orca's accounts receivable turnover is (assume that Orca makes all sales on account):

Firms with high levels of operating leverage experience which of the following in comparison to firms with low levels of operating leverage?

Which of the following scenarios is consistent with an increasing cost of goods sold to sales percentage and increasing inventory turnover?

Krane,Inc.reported net income (amounts in thousands)of $619,700 for Year 4.Included in net income was income tax expense of $10,400.During the year the company paid the preferred shareholders $9,000 in dividends.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.

When calculating Basic earnings per share net income is adjusted by____________

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

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) All Sports Extreme Sports Sales \ 5,320 \ 1,344 Cost of Goods Sold 3,897 887 Interest Expense 138 43 Net Income 212 236 Average Inventory 998 130 Average Fixed Assets 1,163 662 Average Total Assets 2,472 40\% -Refer to the information for Extreme Sports Company and All Sports Corporation. Calculate All Sports' inventory turnover ratio.

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 common size income statement for 2011,the cost of goods sold is expressed as: 

Sustainable earnings represent:

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 profit margin for ROA for Net Devices for 2010?

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 net income? 

Carl Industries Carl Industries has condensed balance sheets as shown: Assets: Current assets 65,000 \ 46,500 \ 80,000 Plant \& equipment, net 600,000 420,000 410,000 Intangible assets, net 15,000 36,500 50,000 Total assets 680,000 \ 503,000 540,000 Liabilities \& Stockholders' Equity: Current liabilities \ 70,000 \ 25,000 \ 33,500 Long-term liabilities 420,000 290,000 400,000 Stockholders' equity 190,000 188,000 106,500 Total liabilities \& equity \ 680,000 \ 503,000 540,000 -Refer to the information for Carl Industries.In a percentage change balance sheet over the period of 2009 to 2011,what is the change in long-term liabilities? 

Discuss how the following three elements of risk help us understand return on assets differs across firms and changes over time: 1.Operating leverage 2.Cyclicality of sales 3.Product life cycle