186) Required: Compute the average collection period (rounded to one decimal place) for 2018.
187) Required: Compute the average days in inventory for 2018.
188) Required: Compute the profit margin on sales for 2018.
189) Required: Compute the return on assets for 2018.
190) Required: Compute the return on shareholders’ equity for 2018. Round your answer to one
decimal place, e.g., .1234 as 12.3%.
Use this information to answer the following questions:
The following information (in $ millions) comes from the Annual Report of Saratoga Springs
Co. for the year ending 12/31/2018:
Year ended 12/31/2018
Net sales
7,949
Cost of goods sold
4,767
Sales, general & administrative
1,909
Interest expense
416
Income before tax
857
Net income
458
12/31/2018
12/31/2017
Cash and cash equivalents
975
64
Receivables, net
1,010
664
Inventories
1,055
519
Land, buildings and equipment at cost, net
13,500
3,844
Total assets
16,540
5,091
Total current liabilities
5,747
2,209
Long-term debt
5,591
2,221
Total liabilities
11,338
4,430
Total stockholders’ equity
5,202
661
Required: Compute the following amounts for Saratoga Springs Co.
191) Its profit margin on sales for 2018. Round your answer to one decimal place, e.g., 0.1234 as
12.3%.
192) Its receivables turnover ratio for 2018. Round your answer to one decimal place.
193) Its inventory turnover ratio for 2018. Round your answer to one decimal place.
194) Its asset turnover ratio for 2018. Round your answer to two decimal places.
195) Its average collection period for 2018. Round your final answer to one decimal place.
196) Its average days in inventory for 2018. Round your final answer to one decimal place.
197) Its return on assets for 2018. Round your answer to one decimal place, e.g., 0.1234 as
12.3%.
198) Its return on stockholders’ equity for 2018. Round your answer to one decimal place, e.g.,
0.1234 as 12.3%.
199) The following information is provided in the 2018 annual report to shareholders of paris-
perfume.com:
December 31, 2018
Accounts receivable
(E)
Inventory
$70 million
Other assets
(G)
Total assets
(A)
Total liabilities
(C)
Total stockholders’ equity
(B)
For the year ended Dec. 31,
2018
Net sales
(D)
Cost of goods sold
(F)
Net income
$40 million
Return on assets
10%
Receivables turnover
8.0
Inventory turnover
12.0
Asset turnover
2.5
Return on stockholders’ equity
20%
Profit margin on sales
4%
Required: Compute the missing amount in the paris-perfume.com financial statement
information, and indicate your answers by marking them (A) to (G).
200) The following information is provided in the 2018 annual report to shareholders of The
BizStore:
December 31, 2018
December 31, 2017
Accounts receivable
(Y)
$6 million
Inventory
$25 million
$20 million
Total assets
$250 million
(X)
Total stockholders’ equity
(W)
$130 million
Net sales
Cost of Goods Sold
$115 million
(Z)
Net income
(U)
Average collection period
22.2 days
Average days in inventory
104 days
Equity multiplier
1.9
Return on stockholders’ equity
16.0%
Profit margin on sales
17.4%
ROA
(V)
Required: Compute items U—Z in the table above.
201) Briefly explain when and why intraperiod tax allocation is necessary.
202) Briefly explain why the income statement is referred to as a change statement.
203) Net income, often referred to as “the bottom line,” is not always a good predictor of future
income. Explain this statement.
204) Explain, using an example, how a company can use earnings management and justify it by
conservatism.
205) In a recent press release, Foot Locker Inc. reported that its fiscal first-quarter net income
fell 46% due to losses related to discontinued operations, but earnings from continuing
operations jumped 19% amid a modest increase in sales. The specialty athletic retailer said net
income was $20 million for the quarter ended May 4, compared with net income of $37 million a
year earlier. The latest results included a loss of $18 million from discontinued operations. Last
year, the company had earnings of $5 million, or four cents a share, from discontinued
operations. Foot Locker said earnings from continuing operations were $38 million, compared
with $32 million a year earlier. Discuss how Foot Locker’s press release relates to its earnings
quality.
206) In a recent press release, Estee Lauder Co. reported “a fiscal fourth-quarter loss due to a
restructuring charge but said it expects to see earnings growth in its fiscal second through fourth
quarters.” The New York skin care and cosmetics company reported a net loss of $25.4 million,
or 13 cents a share, for the quarter ended June 30, compared with net income of $20.4 million, or
six cents a share, a year earlier. Excluding the restructuring charge of $76.9 million, or 32 cents a
share, the company said profit would have been $51.5 million, or 19 cents a share. Discuss how
Estee Lauder’s press release relates to its earnings quality.
207) Briefly define discontinued operations and explain how they are reported according to U.S.
GAAP.
208) Presented below is an excerpt ($ in millions) from the 2016 annual report to shareholders of
Microsoft Corporation. Explain how the shareholder should interpret the difference between the
net income and total comprehensive income for Microsoft in 2016.
Comprehensive Income:
Net income $16,798
Other comprehensive income (loss),
net of tax:
Net unrealized gains (losses) on derivatives (238)
Net unrealized gains on investments (228)
Translation adjustment and other (519)
Other comprehensive income (loss) (985)
Comprehensive income $15,813
209) Give an example of a major investing activity cash outflow that would be reported in the
statement of cash flows for a manufacturing company.
210) List at least four operating activities that would be reported in the statement of cash flows
for Walmart. Assume the use of the direct method.
211) Give an example of a noncash financing and investing activity and explain when and how it
would be reported in the financial statements.
212) Briefly explain how you can determine if a company is effectively using leverage.
Use this information to answer the following questions:
The following table presents a summary of ratio analysis for McDonald’s and averages for its
peer group:
McDonald’s
Industry
Peer Group
Profit margin
8.0%
7.0%
Inventory turnover
114.5
99.6
Asset turnover
0.75
1.22
Equity multiplier
2
2.5
Return on shareholders’ equity
12.0%
21.3%
213) Using the information provided above, use the DuPont framework to briefly summarize the
operating performance of McDonald’s relative to its benchmark competitors.
214) Are differences between McDonald’s and the industry likely driven by differences in size
between McDonald’s and the average company in its industry peer group? Explain briefly.
215) Besides size differences, what other differences between McDonald’s and its industry peer
group could limit your ability to make meaningful comparisons about the performance of
McDonald’s from the data above?
216) Based on this information, if you were going to advise McDonald’s about how it could
enhance return on shareholders’ equity, what would you suggest? Be as specific as possible in the
operational or financial changes you would recommend.
Use this information to answer the following questions:
The following table presents a summary of ratio analysis for Uncle Joe’s Coffee, based on the
most recent 12 months and five-year comparisons of Uncle Joe’s with averages in the restaurant
industry and the services sector, respectively.
Company
Industry
Sector
Return on assets
10.68%
9.04%
5.09%
Return on assets- 5 yr. avg.
8.23%
8.37%
6.78%
Return on equity
13.94%
17.55%
10.97%
Return on equity- 5 yr. avg.
11.28%
15.69%
15.76%
Receivable turnover
34.15
27.99
16.11
Inventory turnover
11.88
34.73
15.94
Asset turnover
1.58
1.30
1.22
217) Using the information provided for Uncle Joe’s and the industry and sector, briefly
summarize the operating performance of Uncle Joe’s relative to its benchmark competitors.
218) What limitations exist in drawing meaningful comparisons about the performance of Uncle
Joe’s from the data above?