Exam 19: Analysis of Financial Statements

The balance sheet shows what assets the firm controls at a point in time and how it financed the assets.

Exhibit 19-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You are provided with the following information for the Nelson Corporation. 2008 2009 Net Income \ 1500 \ 2000 Depreciation \ 200 \ 475 Total Current Assets \ 700 \ 900 Total Current Liabilities \ 500 \ 800 During 2009 Nelson Corp. made capital expenditures totaling $500 and disposed property worth $800. -Refer to Exhibit 19-7. What is the firm's free cash flow?

Exhibit 19-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) STAR CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS') Net Sales \ 1075 Cost of Goods Sold Gross Profit Margin 369 Depreciation 30 Operating Expense 109 Administrative Expense Operating Profit 101 Interest Profit Before Taxes Taxes Net Income frac 21 51 STAR CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS) ASSETS Cash \ 69 Accounts receivables 233 Inventory Total current assets 650 Net fixed assets Total assets \ 1536 LIABILITIES Notes payable \ 231 Accounts payable 146 Accruals Total current liabilities 408 Long term debt 318 Common stock ( \ 1.50 par) 111 Paid in surplus 190 Retained earnings Total liabilities and Stockholders' equity \ 1536 -Refer to Exhibit 19-2. What was Star's fixed asset turnover ratio?

Financial risk is the uncertainty of operating income caused by the firm's industry.

Exhibit 19-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) STAR CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS') Net Sales \ 1075 Cost of Goods Sold Gross Profit Margin 369 Depreciation 30 Operating Expense 109 Administrative Expense Operating Profit 101 Interest Profit Before Taxes Taxes Net Income frac 21 51 STAR CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS) ASSETS Cash \ 69 Accounts receivables 233 Inventory Total current assets 650 Net fixed assets Total assets \ 1536 LIABILITIES Notes payable \ 231 Accounts payable 146 Accruals Total current liabilities 408 Long term debt 318 Common stock ( \ 1.50 par) 111 Paid in surplus 190 Retained earnings Total liabilities and Stockholders' equity \ 1536 -Refer to Exhibit 19-2. What was Star's current ratio at year-end 2009?

Exhibit 19-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You are provided with the following information about Albermarle Corp. Income Statement Data Sales 542 Operating Income 38 Depreciation 3 Interest Expense 3 Pretax Income 32 Income Taxes 13 Net Income after tax 19 Balance Sheet Data Fixed Assets 41 Total Assets 245 Working Capital 123 Total Debt 16 Equity 159 -Refer to Exhibit 19-5. Calculate the return on equity (ROE).

Exhibit 19-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) STAR CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS') Net Sales \ 1075 Cost of Goods Sold Gross Profit Margin 369 Depreciation 30 Operating Expense 109 Administrative Expense Operating Profit 101 Interest Profit Before Taxes Taxes Net Income frac 21 51 STAR CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS) ASSETS Cash \ 69 Accounts receivables 233 Inventory Total current assets 650 Net fixed assets Total assets \ 1536 LIABILITIES Notes payable \ 231 Accounts payable 146 Accruals Total current liabilities 408 Long term debt 318 Common stock ( \ 1.50 par) 111 Paid in surplus 190 Retained earnings Total liabilities and Stockholders' equity \ 1536 -Refer to Exhibit 19-2. What was Star's total asset turnover for 2009?

Financial ratios are used in stock and bond valuation models.

Exhibit 19-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You are provided with the following information for a company. Net Annual Sales 60000 Average Receivables 1200 COGS 35000 Average Inventory 3000 Average Trade Payables 1500 -Refer to Exhibit 19-3. Calculate the payables turnover ratio.

Cash flow from operations = Net Income + Non cash revenue and expenses - Changes in net working capital.

Which ratio is considered an internal liquidity ratio?

Exhibit 19-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) STAR CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS') Net Sales \ 1075 Cost of Goods Sold Gross Profit Margin 369 Depreciation 30 Operating Expense 109 Administrative Expense Operating Profit 101 Interest Profit Before Taxes Taxes Net Income frac 21 51 STAR CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS) ASSETS Cash \ 69 Accounts receivables 233 Inventory Total current assets 650 Net fixed assets Total assets \ 1536 LIABILITIES Notes payable \ 231 Accounts payable 146 Accruals Total current liabilities 408 Long term debt 318 Common stock ( \ 1.50 par) 111 Paid in surplus 190 Retained earnings Total liabilities and Stockholders' equity \ 1536 -Refer to Exhibit 19-2. What was Star's net profit margin?

Exhibit 19-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Zeco Company has the following financial statements for year ending 12/31/2009. Sales 1,000,000 Cost of Goods Sold Gross Profit 250,000 Depreciation 100,000 Operating Expenses 70,000 Administration Exp. Operating Profit 15,000 Interest Expense Profit Before Taxes Taxes 7,000 Net Income 4,200 Dividends 3,200 Assets Cash 50,000 Accounts Receivable 250,000 Inventory Total Current Assets 825,000 Net Fixed Assets Total Assets 1,275,000 Liablities Notes Payable 250,000 Accounts Payable Total Current Liab. 800,000 Long Term Debt 225,000 Common Stock 200,000 Retained Earnings Total Liab. \& Earnings 1,275,000 The Zeco Company's industry averages are as follows: Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/ Equity = 1.5 -Refer to Exhibit 19-8. Calculate the sustainable growth rate for Zeco Company.

Exhibit 19-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Zeco Company has the following financial statements for year ending 12/31/2009. Sales 1,000,000 Cost of Goods Sold Gross Profit 250,000 Depreciation 100,000 Operating Expenses 70,000 Administration Exp. Operating Profit 15,000 Interest Expense Profit Before Taxes Taxes 7,000 Net Income 4,200 Dividends 3,200 Assets Cash 50,000 Accounts Receivable 250,000 Inventory Total Current Assets 825,000 Net Fixed Assets Total Assets 1,275,000 Liablities Notes Payable 250,000 Accounts Payable Total Current Liab. 800,000 Long Term Debt 225,000 Common Stock 200,000 Retained Earnings Total Liab. \& Earnings 1,275,000 The Zeco Company's industry averages are as follows: Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/ Equity = 1.5 -Refer to Exhibit 19-8. Calculate Zeco Company's Net Profit Margin.

Which of the following is not a use of financial ratios?

Operating performance is divided into which two subcategories of ratios?

Which of the following is not a flow ratio?

Exhibit 19-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) BMC CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS') Net Sales \ 1025 Cost of Goods Sold Gross Profit Margin 343 Depreciation 31 Operating Expense 103 Administrative Expense Operating Profit 82 Interest Profit Before Taxes Taxes Net Income frac 17 38 BMC CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2009 (DOLLARS IN THOUSANDS) ASSETS Cash \ 61 Accounts receivables 286 Inventory Total current assets 701 Net fixed assets Total assets \ 1503 LIABILITIES Notes payable \ 223 Accounts payable 152 Accruals Total current liabilities 407 Long term debt 306 Common stock ( \ 1.50 par) 102 Paid in surplus 226 Retained earnings Total liabilities and Stockholders' equity \ 1503 -Refer to Exhibit 19-1. What was BMC's net profit margin?

Limitations on the use of ratios include

A cross-sectional analysis compares a firm to a subset of industry firms comparable in size or characteristics.