SERIAL PROBLEM — SP 13
Serial Problem — SP 13, Business Solutions (45 minutes)
1. Gross margin with services revenue
Gross margin = Total revenue – Cost of goods sold
Gross margin without services revenue
Gross margin = Net (goods) sales – Cost of goods sold
2. Current ratio = $95,568 / $875 = 109.2
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Solutions Manual, Chapter 13
775
1. Trend percents for selected income statement accounts
($ in millions)
Fiscal
2013
Fiscal
2012
Fiscal
2011
Net Sales …………………………………………………..….
157.9%
144.6%
100.0%
$170,910
$156,508
$108,249
Cost of sales ……………………………………………..….
165.5%
136.3%
100.0%
$106,606
$87,846
$64,431
Operating income ……………………………………..….
145.0%
163.5%
100.0%
$48,999
$55,241
$33,790
Other income/(expense) …………………………….….
278.6%
125.8%
100.0%
$1,156
$522
$415
Income taxes (provision for income taxes) …….
158.4%
169.4%
100.0%
$13,118
$14,030
$8,283
Net income ………………………………………………..….
142.9%
161.0%
100.0%
$37,037
$41,733
$25,922
2. Common-size percents for asset categories and accounts
($ in millions)
Sep. 28, 2013
Total current assets …………………………………..….
35.4%
$73,286
Property, plant and equipment, net ……………….
8.0%
$16,597
Goodwill and other intangible assets …………….
2.8%
$5,756
Total assets as of September 28, 2013 and September 29, 2012 are $207,000 and $176,064, respectively.
3. For fiscal 2013, revenues grew at a lower rate than cost of sales,
however, for fiscal 2012, revenues grew at a higher rate than cost of
sales. Operating income grew at a higher rate than revenues for fiscal
4. Answers depend on the financial statement information obtained.
Comparative Analysis — BTN 13-2
1.
Key figures ($ millions)
Apple
Google
Cash and equivalents ……..….
6.9%
$14,259
17.0%
$18,898
Accounts receivable, net …….
6.3%
13,102
8.0%
8,882
Inventories ……………………..….
0.9%
1,764
0.4%
426
Retained earnings …………..….
50.4%
104,256
55.2%
61,262
Cost of sales …………………..….
62.4%
106,606
43.2%
25,858
Revenues………………………..…
100.0%
170,910
100.0%
59,825
Total assets …………………….….
100.0%
207,000
100.0%
110,920
3. Apple’s cost of sales percent is higher at 62.4% compared to Google’s
at 43.2%.
Ethics Challenge — BTN 13-3
1. The CEO appears to have selectively chosen from the 11 available
ratios to present only the ones that show trends that are favorable to
2. The consequences of this action by the CEO might be mixed. It is likely
that the analysts will ask other questions that may reveal some
negative trends such as the trends in return and profit margins. The
Communicating in Practice — BTN 13-4
There is no set solution to this activity. Each team’s memorandum will
vary based on the industry and companies chosen for analysis.
(Instructor: Consider having each team do a brief presentation discussing
the findings in their memorandum to engage in a classroom discussion of
the findings.)
Taking It to the Net — BTN 13–5
($ thousands)
As of 12/31/2012
As of 12/31/2013
1. Profit margin ratio …….……….
$660,931/$6,644,252 = 9.9%
$820,470/$7,146,079= 11.5%
2. Gross profit ratio ……..……….
$2,859,882/ $6,644,252 = 43.0%
$3,280,848/$7,146,079 = 45.9%
3. Return on total
assets …………………….…….
$660,931 / ([$4,754,839 +
$4,407,094]/2) = 14.4%
$820,470/ ([$5,357,488 +
$4,754,839]/2) = 16.2%
4. Return on common
stockholders’ equity* ..……….
$660,931 / ([$880,943 +
$1,048,373]/2) = 68.5%
$820,470/ ([$1,048,373 +
$1,616,052]/2) = 61.6%
5. Basic net income per
common share** ……………….
$ 3.01
$ 3.76
*An acceptable alternative solution would be to include minority interest in equity.
**Taken from consolidated statement of income.
Analysis and Interpretation: Hershey’s performance generally improved in
all areas evaluated for the profitability metrics reported in the table above
with the exception of return on common equity.
Teamwork in Action — BTN 13-6
Part 1
Team reports should look something like the following:
Horizontal Analysis
Horizontal analysis is comparing a company’s financial statement amounts
across time. We compare data from comparative statements that are
horizontally aligned; that is, we compare the same items from one period to
Example: Assume that prior year sales equal $240,000, and current year
Teamwork in Action (Concluded)
If a horizontal comparison is made over a number of periods, the
comparisons are made to corresponding amounts in a selected period
called the base period. Each subsequent period’s amount is compared to
the base period. The change is expressed as a percent of the base period.
This is commonly referred to as trend analysis.
Vertical Analysis
Vertical analysis is comparing a company’s financial statement amounts to
Part 2
Explanations of the four categories or areas of ratio analysis follow:
a. Liquidity analysis measures the availability of resources to meet short–
term cash requirements. Efficiency analysis measures how productive a
company is in using its assets.
Part 3
Each team member presents results to the entire team.
Entrepreneurial Decision — BTN 13–7
1. No. Although the current ratio improved over the three-year period, the
acid-test ratio declined and accounts receivable and merchandise
2. No. The decreasing turnover of accounts receivable indicates the
company is collecting its receivables more slowly.
4. Yes. To illustrate, if sales are assumed to equal $100 in 2013, the sales
Hitting the Road — BTN 13-8
One possible strategy to fulfill the requirements of this assignment is:
Assume that a $37,500 salary will be earned upon graduation at age 25.
Global Decision — BTN 13–9
Key figures (KRW in millions)
Samsung
Cash and equivalents ………………………………..…
7.6%
₩ 16,284,780
Accounts receivable, net …………………………..
13.0%
27,875,934
Inventories ………………………………………………..…
8.9%
19,134,868
Retained earnings ……………………………………..…
69.4%
148,600,282
Cost of sales ……………………………………………..…
60.2%
137,696,309
Revenues ………………………………………………….…
100.0%
228,692,667
Total assets …………………………………………………
100.0%
214,075,018
Comparisons and comments:
• Samsung’s cash and equivalents is greater than Apple and less than
Google as a percent of assets.