978-0077502249 Chapter 14 Solution Manual

subject Type Homework Help
subject Pages 8
subject Words 1616
subject Authors Alan Marcus, Alex Kane, Zvi Bodie

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page-pf1
Chapter 14 - Financial Statement Analysis
1.
a. Inventory turnover ratio in 2012
Cost of Goods Sold
Average Inventor ies
$ 2,850
($ 490 + $ 480)/2
b. Debt to equity ratio in 2012
Debt
Equity
$ 3 ,34 0
$ 960
c. Cash flow from operating activities in 2012
d. Average collection period
Average Accounts Receivables
Annual Sales
($ 660 + $ 690)/2
$ 5,500
44.795
e. Asset turnover ratio
Sales
Average Total Assets
$ 5,500
($ 4,300 + $ 4,010)/2
f. Interest coverage ratio
$ 87 0
$ 130
g. Operating profit margin
EBIT
Sales
$ 870
$ 5,500
14-1
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Chapter 14 - Financial Statement Analysis
h. Return on equity
Net Income
Average Shareholder's Equity
$ 410
($ 960 + $ 810)/2
i. P/E ratio
Unable to calculate as market price is not provided.
($960 + $810)/2
k. Net cash provided by operating activities. See answer to part c.
2.
a.
b.
c.
3. ROA = (EBIT/Sales) (Sales/Average Total Assets) = Return on Sales ATO
14-2
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4. ABC’s asset turnover must be above the industry average.
5. This transaction would increase the current ratio. The transaction reduces both current
assets and current liabilities by the same amount, but the reduction has a larger
6. c. Inventory increases due to a new (internally developed) product line.
7. c. Interest paid to bondholders.
8.
a. Lower bad debt expense will result in higher operating income.
9. a. Certain GAAP rules can be exploited by companies in order to achieve specific
10. a. Off balance-sheet financing through the use of operating leases is acceptable when
11. a. A warning sign of accounting manipulation is abnormal inventory growth as
12. ROE = Net Profit Margin Total Asset Turnover Leverage Ratio
Net Profit
Sales
Average Assets
13. Use Equation 14.1 to solve for operating ROA:
14-3
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14. ROE = Tax Burden Interest Burden Margin Turnover Leverage
15.
Value of Common Stock 20,000 $20 = $ 400,000
Retained Earnings 5,000,000
16.
b. Economic value added per dollar of invested capital:
Acme has higher economic value added per dollar of invested capital.
CFA 1
CFA 2
CFA 3
Answer:
SmileWhite has the higher quality of earnings for several reasons:
14-4
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Chapter 14 - Financial Statement Analysis
CFA 4
$ 3, 9 45
b. ROA
=EBIT
Assets =
=$2, 259+$78
($8, 058+$4, 792)/2
=. 364=36 . 4
c. Preferred Dividends = 0.1 $25 18,000 = $45,000
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Chapter 14 - Financial Statement Analysis
Average Assets
($4, 792+$8, 058 )/2
($2,868+$3, 803 )/2
CFA 5
Answer:
a. QuickBrush has had higher sales and earnings growth (per share) than
Tax burden Net profit/Pretax profit 67.44% 65.99%
ROE Plowback
ratio
Sustainable
growth rate
Ludlow’s
estimate
QuickBrush 15.8% 1.00 15.8% 30.0%
b. QuickBrush’s recent EPS growth has been achieved by increasing book value
per share, not by achieving greater profits per dollar of equity. Since EPS is
CFA 6
Answer:
14-6
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Chapter 14 - Financial Statement Analysis
a. ROE
=Net profit
Equity =
Net profit
Pretax profit ×Pretax profit
EBIT ×EBIT
Sales ×Sales
Assets ×Assets
Equity
Tax burden
=Net profit
Pretax Profit =$510
$805 =.6335
=Pretax profit
EBIT =$805
$830 =. 9699
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a. Using the DuPont formula:
i. Asset turnover measures the ability of a company to minimize the level of
assets (current or fixed) to support its level of sales. The asset turnover
net effect was an increase in ROE.
14-8
whole or part.

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