Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
General Instructions
1. The following worksheet may be used to complete the exercise/problem.
You may need to refer to your textbook for additional information.
3. The completed exercise/problem may be printed or e-mailed per direction from your instructor.
E13-6
Kellogg’s General Mills
443$ 867.3$
Required
a. Current ratio
b. Quick ratio
Calculations (all dollar amounts in millions):
Kellogg’s General Mills
The following information was summarized from the balance sheets included in the 2014 Form 10-K of
Kellogg Company and Subsidiaries at January 3, 2015, and General Mills, Inc., and Subsidiaries
at May 25, 2014:
(in millions)
1. Using the information provided, compute the following for each company at the
Cash and cash equivalents
end of 2014:
were $3,835 million and $5,293.9 million, respectively. Compute the cash flow from operations
2. Kellogg’s reported net cash provided by operating activities of $1,793 million during 2014.
General Mills reported net cash provided by operating activities of $2,541.0 million. Current
to current liabilities ratio for each company for 2014.
liabilities reported by Kellogg’s at December 28, 2013, and General Mills at May 26, 2013,
4. What other ratios would help you more fully assess the liquidity of these companies?
3. Comment briefly on the liquidity of each of these two companies. Which appears
to be more liquid?
General Instructions
2. The blue cells are for data entry. Enter text in T cells, formulas in F cells, percentages in % cells,
and dollars or numbers in the $ cells.
P13-4A
2016 2015 2014
1. Sales 100.0$ 96.7$ 93.3$
2. Net income 3.0 2.9 2.8
3. Dividends declared and paid 1.2 1.2 1.2
December 31 balances:
4. Stockholders' equity 40.0 38.2 36.5
Required
1. Using the CEO’s program, prepare a schedule that shows the appropriate data
for the years 2017, 2018, and 2019 for the items numbered 1 through 7 on the
The CEO believes that the price of the stock has been adversely affected by the
downward trend of the return on equity, the relatively low dividend payout ratio, and
the lack of dividend increases. To improve the price of the stock, he wants to improve
the return on equity and dividends.
Sunset Corp. is a major regional retailer. The chief executive officer (CEO) is concerned
with the slow growth both of sales and of net income and the subsequent effect on
the trading price of the common stock. Selected financial data for the past three years
follow.
Sunset Corp. (in millions)
2019 2018 2017
1. Sales 133.1000$ 121.0000$ 110.0000$
2. Net income 3.9930 3.6300 3.3000
3. Dividends declared and paid 2.3958 2.1780 2.0000
to support increased dividend payments?
Alternative actions to be considered to improve the return on equity and support the increased dividend payments:
3. What alternative actions should the CEO consider to improve the return on equity and
preceding schedule.
Sunset Corp. (in millions)
2. Can the CEO meet all of his requirements if a 10% per-year growth in income and
sales is achieved? Explain your answers.
No, the CEO will not be able to meet all his requirements if a 10% per-year growth in income and sales is achieved.
General Instructions
1. The following worksheet may be used to complete the exercise/problem.
You may need to refer to your textbook for additional information.
3. The completed exercise/problem may be printed or e-mailed per direction from your instructor.
P13-4
2019 2018 2017
1. Sales 200.0$ 192.5$ 187.0$
2. Net income 6.0 5.8 5.6
3. Dividends declared and paid 2.5 2.5 2.5
Required
2019 2018 2017
Sunrise Corp. (in millions)
1. Using the CEO's program, prepare a schedule that shows the appropriate data for the years 2017, 2018,
and 2019 for the items numbered 1 through 7 on the preceding schedule.
(2) establishing a new dividend policy that calls for a dividend payout of 50% of
earnings or $3,000,000, whichever is larger.
The CEO believes that the price of the stock has been adversely affected by the
downward trend of the return on equity, the relatively low dividend payout ratio, and
the lack of dividend increases. To improve the price of the stock, she wants to
improve the return on equity and dividends.
She believes that the company should be able to meet these objectives by
(1) increasing sales and net income at an annual rate of 10% a year and
Sunrise Corp. is a major regional retailer. The chief executive officer (CEO) is
concerned with the slow growth both of sales and of net income and the subsequent
effect on the trading price of the common stock. Selected financial data for the past
three years follow.
Sunrise Corp. (in millions)
1. Sales 266.200$ 242.00$ 220.00$
2. Net income 7.986 7.26 6.60
4. Explain the reasons that the CEO might have for wanting to limit debt to 35% of total liabilities and
owners' equity.
The CEO is probably concerned with the potential impact that greater debt would have on the company’s cost of
Alternative actions to be considered to improve the return on equity and support the increased dividend payments:
a. Improve the return on assets by:
3. What alternative actions should the CEO consider to improve the return on equity and to support
increased dividend payments?
2. Can the CEO meet all of her requirements if a 10% per-year growth in income and sales is achieved?
Explain your answer.
No, the CEO will not be able to meet all her requirements if a 10% per-year growth in income and sales is achieved
General Instructions
1. The following worksheet may be used to complete the exercise/problem.
You may need to refer to your textbook for additional information.
3. The completed exercise/problem may be printed or e-mailed per direction from your instructor.
P13-5A
600,000$
45,000
2016 2015
27,000$ 20,000$
36,000 37,000
Assets
Current assets:
Cash and short-term investments
Receivables, less allowance for doubtful accounts
($1,100 in 2016 and $1,400 in 2015)
SST Enterprises
Comparative Statements of Financial Position
December 31, 2016 and 2015
(thousands omitted)
(thousands omitted)
Revenue:
Net sales
Other
The accounting staff of SST Enterprises has completed the financial statements for the
2016 calendar year. The statement of income for the current year and the comparative
statements of financial position for 2016 and 2015 follow.
SST Enterprises
Statement of Income
Year Ended December 31, 2016
20,000$ 15,000$
80,000 68,000
5,000 7,000
105,000$ 90,000$
Required
a.
60,000$
15,000$
27,000$
6.80 times
d.
120,000$
180,000$
0.67 to 1
e.
Current ratio (at December 31, 2016)
Debt-to-equity ratio (at December 31, 2016)
Total liabilities
Total stockholders’ equity
Debt-to-equity ratio
Times interest earned
Net income
Interest expense
Income tax expense
Times interest earned
1. Calculate the following financial ratios for 2016 for SST Enterprises:
Salaries, wages, and other
Total current liabilities
Short-term loans
Accounts payable
16.44 times
h.
16.44
22 days
i
The company appears to be successfully using outside capital, as is evidenced by a
return on assets of 23.65% but a much higher return on stockholders' equity of 34.78%.
Further evidence of the company's use of leverage could be found by examining the exact
cost of each individual source of capital. For example, what are the terms of the
instruments that make up long-term debt and what is the effective interest cost of each?
The times interest earned ratio indicates that earnings are nearly seven times the amount
signal a problem with excess inventory. Whether or not the quick ratio is indicative of a
liquidity problem could be determined more accurately by comparing this ratio with
those of prior years, as well as with an industry average
2. Prepare a few brief comments on the overall financial health of SST Enterprises.
For each comment, indicate any information that is not provided in the problem
that you would need to fully evaluate the company’s financial health.
The current ratio is slightly less than 1 to 1, and the significantly smaller quick ratio may
Number of days’ sales in receivables (Consider 360 days in a year.)
Accounts receivable turnover ratio
Number of days
Inventory turnover ratio (Assume that all purchases are on credit.)
Accounts receivable turnover ratio
