Chapter 1 This is due to the widespread acceptance and use of its products

23

P1–5, Concluded

4. PENDRAY SYSTEMS CORPORATION

Statement of Cash Flows

For the Year Ended December 31, 20Y5

Cash flows from operating activities:

Note to Instructors: The determination of cash receipts and payments from

operating activities is not discussed in Chapter 1 and is beyond the student

level of understanding or comprehension at this point in the text. This topic

will be covered in later chapters. However, for completeness of the solution, the

cash receipts and payments for operating activities are computed as follows:

24

METRIC-BASED ANALYSIS

MBA 1–1

1. The following metrics appear on the companies’ respective 10-Ks:

Interpublic Group of Companies Inc.

Twitter

● Monthly Active Users (MAUs)

● Timeline views (the number of timelines requested and delivered when regis-

tered users visit Twitter or refresh a home timeline, but not other timelines or

view search results)

2. In general, the differences in the metrics used by each company can be

explained by looking at each company’s operations. Interpublic Group of

Companies Inc. uses traditional metrics based upon the financial statements.

25

MBA 1–2

1. The following metrics appear on the companies’ respective 10-Ks:

JetBlue

● Available seat miles (ASM)

● Number of revenue passengers

Costco

● Net sales (less merchandise costs)

● Gross margin (profit) as a percentage of net sales

2. In general, the differences in the metrics used by each company can be ex-

plained by looking at each company’s operations. JetBlue uses nontraditional

metrics based upon its operations. Costco uses more traditional retail metrics

based upon the financial statements.

26

MBA 1–3

1. $6,644

MBA 1–4

1. 63.0% ($342 ÷ $543) (Rounded)

27

MBA 1–4, Concluded

5. Hershey’s markup percentage of 75.6% is higher than Tootsie Roll’s markup

MBA 1–5

1. Note to Instructors: Answers will vary. The purpose of this requirement is to

2. Pfizer:

3. Microsoft has the highest return on assets of 7.0%. This is due to the wide-

28

MBA 1–6

1. Note to Instructors: Answers will vary. The purpose of this requirement is to

get students thinking about businesses and their profitability. This is done by

2. ExxonMobil:

Coca-Cola:

3. ExxonMobil has the highest return on assets of 9.3%. This is due to the high

demand for petroleum based products. At the same time, ExxonMobil’s

operations have the most risks. These risks include such factors as oil spills,

with their resulting fines and clean-up costs, as well as the uncertainty of

MBA 1–7

29

CASES

Case 1–1

Management’s actions are ethical. Management has a responsibility to the com-

pany’s stockholders to remain competitive and profitable. Similarly, many com-

Case 1–2

1. Acceptable professional conduct requires that Loretta Smith supply City

National Bank with all the relevant financial statements necessary for the

2. a. Owners are generally willing to provide bankers with information about

the operating and financial condition of the business, such as the follow-

ing:

Operating Information:

• description of business operations

• results of past operations

• preliminary results of current operations

• plans for future operations

Case 1–2, Concluded

the business or future plans to expand operations into areas not currently

served by a competitor.

Case 1–3

1. In a commodity business like poultry production, the dominant business em-

phasis is a low-cost emphasis because customers cannot differentiate be-

2. A major business risk includes the selling of contaminated chickens and the

possibility that competitors will develop lower-cost methods of breeding and

raising chickens. Also, a major cost of raising chickens is the cost of feed.

3. The company could differentiate its products by emphasizing that it raises its

chickens with only “natural” feeds without the use of artificial ingredients

Case 1–4

The difference in the two bank balances, $175,000 ($215,000 – $40,000), may not

be pure profit from an accounting perspective. To determine the accounting profit

for the 8-month period, the revenues for the period would need to be matched

Case 1–5

Note to Instructors: Answers will vary. The purpose of this activity is to show

Case 1–6

As can be seen from the balance sheet data in the case, Enron was financed

largely by debt as compared to equity. Specifically, Enron’s stockholders’ equity

represented only 17.5% ($11,470 ÷ $65,503) of Enron’s total assets. The remainder

of Enron’s total assets, 82.5%, was financed by debt. When a company is financed