Exam 5: Risk Analysis

The source of risk related to political unrest and exchange rate changes are _________________________.

In the empirical research on earnings manipulation discussed in the chapter a number of firm characteristics are found to be associated with the likelihood of engaging in earnings manipulation. For each of the characteristics listed below discuss the rationale for their inclusion in the model: Gross Margin Index a. Asset Quality Index b. Sales Growth Index c. Depreciation Index d. Leverage Index e.

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions: Dec. 31,2004 As of Dec. 31,2005 Current Assets 616,604 \ 1,267,038 Cash and short-term investments 665,828 490,816 Accounts Receivable (net) 487,505 338,599 Inventories 291,915 292,511 Prepaid Expenses and other current asset: \2 ,061,852 \2 ,388,964 Total Current Assets Current Liabilities \3 8,108 \ 25,190 Short-term borrowings 210,090 182,295 Current portion of long-term debt 334,247 296,307 Accounts payable 743,999 941,912 Accrued liabilities 239,793 203,049 Income taxes payable 1,566,237 1,648,753 Total Curyent Liabilities $\text { SelectedIncome Statement Data - for the year ending December 31, 2005: }$ \ 4,885,340 Net Sales 2,542,353 Cost of GoodsSold 733,541 Operating Income 230.101 Net Income $\text { SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: }$ $\$ 1,156,084$$\quad$$\quad$$\quad$ Cash Flows from Operations Days of other financing required by HighTech at the end of 2005 would be

The operating cycle must not only generate cash to supply ________________________________________ needs, it must generate sufficient cash to service debt.

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions: Dec. 31,2004 As of Dec. 31,2005 Current Assets 616,604 \ 1,267,038 Cash and short-term investments 665,828 490,816 Accounts Receivable (net) 487,505 338,599 Inventories 291,915 292,511 Prepaid Expenses and other current asset: \2 ,061,852 \2 ,388,964 Total Current Assets Current Liabilities \3 8,108 \ 25,190 Short-term borrowings 210,090 182,295 Current portion of long-term debt 334,247 296,307 Accounts payable 743,999 941,912 Accrued liabilities 239,793 203,049 Income taxes payable 1,566,237 1,648,753 Total Curyent Liabilities $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$ \ 4,885,340 Net Sales 2,542,353 Cost of Goods Sold 733,541 Operating Income 230,101 Net Income SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: $\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's days receivables outstanding at the end of 2005 was

In bankruptcy prediction analysis a type ____________________ error is classifying a firm as bankrupt and it ultimately survives.

_________________________ concerns a firm's ability to make interest and principal payments on borrowings as they become due.

Short-term ____________________________ represents a firm's near-term ability to generate cash to service working capital needs and debt service requirements.

One common problem with the current ratio is that it is susceptible to "window dressing". If prior to the end of the accounting period Streetwise Company has a current ratio of 1.5 and management wishes to boost its current ratio it may decide to

When management takes deliberate steps at a balance sheet date to produce a better current ratio than is normal it is called ______________________________.

Which of the following is not one of the three explanatory variables that determines a firm's market beta?

The current risk-free rate of return in the economy is 6.5%. In addition, the market rate of return is currently 10%. Given that a company's expected return on common stock is 12.5% what is the company's systemic risk level (beta)? Show your calculations. In addition, describe systemic risk.

HighTech Company HighTech Company manufactures computer technology devices. Selected financial data for HighTech is presented below, use the information to answer the following questions: Dec. 31,2004 As of Dec. 31,2005 Current Assets 616,604 \ 1,267,038 Cash and short-term investments 665,828 490,816 Accounts Receivable (net) 487,505 338,599 Inventories 291,915 292,511 Prepaid Expenses and other current asset: \2 ,061,852 \2 ,388,964 Total Current Assets Current Liabilities \3 8,108 \ 25,190 Short-term borrowings 210,090 182,295 Current portion of long-term debt 334,247 296,307 Accounts payable 743,999 941,912 Accrued liabilities 239,793 203,049 Income taxes payable 1,566,237 1,648,753 Total Curyent Liabilities $\text { SelectedIncome Statement Data - for the year ending December 31, } 2005$ \ 4,885,340 Net Sales 2,542,353 Cost of Goods Sold 733,541 Operating Income 230,101 Net Income SelectedStatement of Cash Flow Data - for the year ending December 31, 2005: $\$ 1,156,084$$\quad$$\quad$$\quad$$\quad$ CashFlows from Operations HighTech's Operating Cash Flow to Current Liabilities ratio in 2005 was

Financially healthy firms frequently close any cash flow gap in their operating cycles with ________________________________________.

Below is selected information from DXI's 2007 financial statements: Dec. 31, 2006 As of Dec.31, 2007 \ 745,800 \ 958,245 Cash and short-term investments 135,400 125,850 AccountsReceivable (net) 175,840 195,650 Inventories 30,860 45,300 Prepaid Expenses and other current assets \ 1,087,900 \ 1,325,045 Total Current Assets 1,358,700 1,478,320 Plant, Property and Equipment, net 120,400 125,600 Intangible Assets \ 2,567,000 \ 2,928,965 Total Assets 38,108 \ 25,190 Short-term borrowings 40,000 45,000 Current portion of long-term debt 325,900 285,400 Accounts payable 705,891 916,722 Acculed liabilities 05,891 \ 16,722 Accued liablilties 115,600 125,400 Income taxes payable \ 1,225,499 \ 1,397,712 Total Current Liabilities 430,000 450,000 Long-term Debt \ 1,655,499 \ 1,847,712 Total Liabilities \ 911,501 \ 1,081,253 Shareholders' Equity \ 2,567,000 \ 2,928,965 Total Liabilities and Shareholders Equity $\text { Selected Income Statement Data - for the year ending December 31,2007: }$ \ 3,210,645 Net Sales -2,310,210 Cost of GoodsSold 900,435 Pperating Income 324,850 Net Income $\text { SelectedStatement of Cash Flow Data - for the year encling December 31,2007:}$ \ 584,750 Cash Flows from Operations 42,400 Interest Expense 114,200 Income Tax Expense DXI's 2007 Long-term Debt to Long-Term Capital ratio is

Beta captures the _________________________ of the firm.

Molitor Company currently has a current ratio of 1.1. The company decides to borrow $1,000,000 from City National Bank for a period of six months. After the borrowing Molitor's current ratio will be

The main ratio used by many financial analysts to examine a company's short-term liquidity risk is the current ratio. However, there are a number of problems that arise when this ratio is used to examine short-term liquidity risk that may make the current ratio less useful than initially thought. Discuss the interpretative problems of using the current ratio.

Large current ratios indicate the availability of cash and near cash assets to repay ____________________ coming due within the next year.

By adding the number of days that inventory is held to the number of days that accounts receivable is outstanding an analyst can calculate the number of days of _____________________________________________ the firm requires.