Exam 4: Profitability Analysis

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%. What is the rate of return on assets for Net Devices for 2007?

Return on assets will likely differ across firms and across time, three elements of risk that will help explain these differences are operating leverage, ___________________________________, and stage and length of product life cycle. Answer:

Snap-On Tools and Black and Decker manufacture and market power tools and accessories. Snap-on Tools target customers in the professional contractor market, while Black and Decker focuses on home users and professionals. Selected financial data for the companies appears below. Required:

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

The return on assets measures operating performance independent of financing while the return on common shareholders' equity considers the cost of debt and preferred stock financing. Describe the relationship between ROA and ROCE in terms of where each dollar of return generated by assets is allocated.

Return on common stockholders' equity can be disaggregated into profit margin, asset turnover and __________________________________________________. Answer:

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%. What is the profit margin for ROA for Net Devices for 2006?

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%. What is Net Devices' Earnings per Share for 2007?

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%. What is the inventory turnover for Net Devices for 2007?

In order to measure how profitable a firm is in generating a return for its common shareholders a financial analyst would examine the return on _____________________________________________. Answer:

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

Discuss the economic characteristics of firms that have the following mix of profit margin and asset turnover. In addition provide an example of an industry that would have the relevant profit margin asset turnover mix: A. High profit margin and low asset turnover. B. Low profit margin and high asset turnover

Which of the following is not a way a company can achieve a low-cost position

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, 2007 The profit margin for computing ROA for Orca Industries is

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, 2007 The return on assets for Orca Industries is

One problem with using EPS as a measure of profitability is that it does not consider the amount of ____________________ or ____________________ required to generate a particular level of earnings. Answer:

The ability of a firm to generate income from operations given a particular level of sales is measured by the ______________________________. Answer:

The rationale for adding back the _______________________________________________________ relates to attaining consistency in the numerator and denominator of ROA. Answer:

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%. What is Net Devices' Return on Common Shareholders' Equity for 2007?

Accounts receivable turnover is calculated by dividing ________________________________________ by average accounts receivable. Answer: