Exam 2: Introduction to Financial Statement Analysis

Allen Company bought a new copy machine to be depreciated straight line for three years. Where would this purchase be reflected on the Statement of Cash Flows?

Use the table for the question(s) below. Luther Corporation Consolidated Balance Sheet June 30, 2011 and 2012 (in \ millions) Assets 2012 2011 Liabilities and Shareholders' Equity 2012 2011 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.01 2.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations ----- ----- Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Shareholders' Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Shareholders' Equity 533.1 386.7 -Refer to the balance sheet above. If on 30 June 2011 Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's enterprise value?

Which of the following is NOT one of the financial statements that must be produced by a public company?

Financial statements are accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firm's assets and the financing of those assets, and a prediction of the firm's future performance.

The firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.

Shareholders' equity is the difference between a firm's assets and liabilities, as shown on the balance sheet.

In Australia, publicly traded companies can choose whether or not they wish to release periodic financial statements.

In general, a successful firm will have a market-to-book ratio that is substantially greater than 1.

Use the table for the question(s) below. $\text { AOS Industries Statement of Cash Flows for } 2012$ Operating activities Net Income 3.2 Depreciation and amortisation 1.4 Cash effect of changes in Accounts receivable 2.1 Accounts payable 1.1 Inventory 0.8 Cash from operating activities 2.8 Investment activities Capital expenditures 2.2 Acquisitions and other investing activity -0.4 h from investing activities 2.6 Financing activities Dividends paid -1.5 Sale or purchase of stock 2.1 Increase in short-term borrowing 1.4 Increase in long-term borrowing 3.2 Cash from financing activities 5.2 Change in Cash and Cash Equivalents -Consider the above statement of cash flows. What were AOS Industries' major means of raising money in 2012?

A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?

Use the table for the question(s) below. Balance Sheet Assets 2011 2012 Current Assets Cash 50 46 Accounts receivable 22 12 Inventories 17 38 Total current assets 89 96 Liabilities 2011 2012 Current Liabilities Accounts payable 42 48 Notes payable/short-term debt 7 5 Total current liabilities 49 53 Long-Term Assets Net property, plant, and equipment 121 116 Total long-term assets 121 116 Total Assets 210 212 Long-Term Liabilities Long-term debt 128 136 Total long-term liabilities 128 136 Total Liabilities 189 Shareholders' Equity 33 23 Total Liabilities and 210 212 Shareholders' Equity - If the above balance sheet is for a retail company, what indications about this company would best be drawn from the changes in the balance sheet between 2011 and 2012?

The income statement reports the firm's revenues and expenses, and it computes the firm's bottom line of net income, or earnings.

Use the table for the question(s) below. Luther Corporation Consolidated Balance Sheet June 30, 2011 and 2012 (in \ millions) Assets 2012 2011 Liabilities and Shareholders' Equity 2012 2011 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.01 2.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations ----- ----- Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Shareholders' Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Shareholders' Equity 533.1 386.7 -Refer to the balance sheet above. If on 30 June 2011 Luther has 8 million shares outstanding trading at $15 per share, then what is Luther's market-to-book ratio?

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

Use the table for the question(s) below. Luther Corporation Consolidated Balance Sheet June 30, 2011 and 2012 (in \ millions) Assets 2012 2011 Liabilities and Shareholders' Equity 2012 2011 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.0 12.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations \ldots \ldots Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Shareholders' Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Shareholders' Equity 533.1 386.7 -Refer to the balance sheet above. If in 2012 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt-equity ratio for Luther in 2011 is closest to:

Use the table for the question(s) below. Luther Corporation Consolidated Balance Sheet June 30, 2011 and 2012 (in \ millions) Assets 2012 2011 Liabilities and Shareholders' Equity 2012 2011 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.01 2.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations ----- ----- Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Shareholders' Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Shareholders' Equity 533.1 386.7 -Refer to the balance sheet above. Luther's quick ratio for 2011 is closest to:

Use the table for the question(s) below. Balance Sheet Assets Liabilities Current Assets Cash 50 Accounts receivable 22 Inventories 17 Total current assets 89 Current Liabilities Accounts payable 42 Notes pavable/short-term debt 7 Total current liabilities 49 Long-Term Assets Net property, plant, and equipment 121 Total long-term assets 121 Total Assets 210 Long-Term Liabilities Long-term debt 128 Total long-term liabilities 128 Total Liabilities Shareholders' Equity 33 Total Liabilities and 210 Shareholders' Equity -The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year?

Use the table for the question(s) below Income Statement for CharmCorp: 2011 2012 Total sales 600 540 Cost of sales -532 -488 Gross Profit 68 52 Selling, general, and administrative expenses -36 -21 Research and development -4 -5 Depreciation and amortisation -5 -5 Operating Income 23 21 Other income 1 5 Earnings before interest and taxes (EBIT) 24 26 Interest income (expense) -7 -7 Pretax income 14 19 Taxes -4 -5 Net Income 10 14 -Consider the above Income Statement for CharmCorp. All values are in millions of dollars. If CharmCorp has 6 million shares outstanding, and its managers and employees have stock options for 1 million shares, what is its diluted EPS in 2012?

Use the table for the question(s) below. $\text { AOS Industries Statement of Cash Flows for } 2012$ Operating activities Net Income 3.2 Depreciation and amortisation 1.4 Cash effect of changes in Accounts receivable 2.1 Accounts payable 1.1 Inventory 0.8 Cash from operating activities 2.8 Investment activities Capital expenditures 2.2 Acquisitions and other investing activity -0.4 h from investing activities 2.6 Financing activities Dividends paid -1.5 Sale or purchase of stock 2.1 Increase in short-term borrowing 1.4 Increase in long-term borrowing 3.2 Cash from financing activities 5.2 Change in Cash and Cash Equivalents -Consider the above statement of cash flows. In 2012, AOS Industries had contemplated buying a new warehouse for $2 million, the cost of which would be depreciated over 10 years. If AOS Industries has a tax rate of 25%, what would be the impact for the amount of cash held by AOS at the end of 2012?

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?