Question 1

A current ratio greater than 1.0 is generally desirable for a company.

Accepted Answer

A) True 
 B)False

Question 2

The current ratio is used to assess:

Accepted Answer

A)  Solvency 
B)  Bankruptcy position 
C)  Liquidity 
D)  Financial leverage 
E)  None of the above

Question 3

Income statements and balance sheets follow for The New York Times Company. Refer to these financial statements to answer the requirements.

Required: 
a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for both years.
b. Compute net operating assets (NOA) for 2016 and 2015.
c. Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $397,299 thousand in 2014.
d. Compute return on common shareholders equity (ROE) for 2016 and 2015. Stockholders' equity attributable to New York Times Company in 2014 is $726,328 thousand.
e. What is nonoperating return component of ROE for 2016 and 2015?
f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

Accepted Answer

The answer of Income statements and balance sheets follow for...

Question 4

Selected balance sheet income statement data follow for Whole Foods Market, Inc. for the year ended September 25, 2016 (in millions). Use the data to calculate the company's current ratio and quick ratio.

Accepted Answer

The answer of Selected balance sheet income statement data follow...

Question 5

Income statements and balance sheets follow for E.I. DuPont de Nemours and Company. Refer to these financial statements to answer the requirements.
   
  Required 
a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rate is 37% for both years.
b. Compute net operating assets (NOA) for 2016 and 2015.
c. Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $13,239 million in 2014.
d. Compute return on equity (ROE) for 2016 and 2015. DuPont Stockholders' equity in 2014 is $13,320 million.
e. What is nonoperating return component of ROE for 2016 and 2015?
f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

Accepted Answer

The answer of Income statements and balance sheets follow for...

Question 6

The 2016 balance sheet of Microsoft Corp. reports total assets of $193,694 million, operating liabilities of $68,010 million, and total shareholders' equity of $71,997 million.
Microsoft 2016 nonoperating liabilities are:

Accepted Answer

A)  $140,007 million 
B)  $ 53,687 million 
C)  $ 68,010 million 
D)  $121,697 million 
E)  There is not enough information to calculate the amount.

Question 7

The fiscal 2016 balance sheet for Whole Foods Market reports the following data (in millions). What is the company's quick ratio?

Accepted Answer

A)  0.69 
B)  1.38 
C)  0.72 
D)  1.47 
E)  None of the above

Question 8

The 2016 balance sheet of E.I. du Pont de Nemours and Company shows average DuPont shareholders' equity attributable to controlling interest of $9,996 million, net operating profit after tax of $2,308 million, net income attributable to DuPont of $2,513 million, and common shares issued of 950.044 million.
Assume the company has no preferred shares issued. DuPont's return on equity (ROE) for the year is:

Accepted Answer

A)  30.7% 
B)  37.6% 
C)  25.1% 
D)  36.4% 
E)  There is not enough information to calculate the ratio.

Question 9

Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the requirements.
   Required: 
a. Compute net nonoperating expenses (NNE) for 2016 and 2015. Assume that combined federal and state statutory tax rate is 37% for both fiscal years.
b. Compute net nonoperating obligations (NNO) for 2016 and 2015.
c. Compute Spread for 2016 and 2015. Return on net operating assets is 17.5% and 16.8% in 2016 and 2015, respectively. In 2014, net nonoperating obligations were $786.4 million.
d. Compute FLEV for 2016 and 2015. In 2014, net nonoperating obligations were $786.4 million and total shareholders' equity was $2,225.3 million.
e. Calculate return on equity (ROE) for both years. Show that ROE = RNOA + (FLEV × Spread) x NCI ratio. Interpret the year-over-year change in ROE. (Hint: consider the changes in both FLEV and Spread.) In 2014, shareholders' equity attributable to Snap-On was $2,207.8 and total shareholders' equity was $2,225.3.

Accepted Answer

The answer of Income statements and balance sheets follow for...

Question 10

Explain the trade-off between net operating profit margin and net operating asset turnover.

Accepted Answer

The answer of Explain the trade-off between net operating profit...

Question 11

What is the difference between the traditional ROA measure (part of the traditional DuPont analysis) and the return on net operating assets (RNOA)?

Accepted Answer

The answer of What is the difference between the traditional...

Question 12

Selected balance sheet and income statement data follow for The New York Times Company for fiscal 2016 (in thousands). Use the data to calculate the following:
a. Return on equity (ROE)
b. Return on net operating assets (RNOA)
c. The company's nonoperating return

Accepted Answer

The answer of Selected balance sheet and income statement data...

Question 13

Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the requirements.

Required: 
a. Compute net operating profit after tax (NOPAT) for 2016 and 2015. Assume that combined federal and state statutory tax rates are 37% for fiscal 2016 and 2015.
b. Compute net operating assets (NOA) for 2016 and 2015.
c. Compute return on net operating assets (RNOA) for 2016 and 2015. Net operating assets are $3,011.7 million in 2014.
d. Compute return on equity (ROE) for 2016 and 2015. (Stockholders' equity attributable to Snap-On in 2014 is $2,207.8 million.)
e. What is nonoperating return component of ROE for 2016 and 2015?
f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?

Accepted Answer

The answer of Income statements and balance sheets follow for...

Question 14

Use Microsoft's balance sheets for the fiscal year 2016 to compute the following (assume equity and other investments is operating):
a. Operating assets
b. Operating liabilities
c. Net operating assets (NOA)

Accepted Answer

The answer of Use Microsoft's balance sheets for the fiscal...

Question 15

Highly leveraged firms have higher RNOA than firms with lower leverage.

Accepted Answer

A) True 
 B)False

Question 16

What is solvency? Identify and discuss two ways a company's solvency is measured.

Accepted Answer

The answer of What is solvency? Identify and discuss two...

Question 17

Use the income statement for Microsoft Corporation to compute the following:
a. Tax shield
b. The tax on operating profit
c. NOPAT
The company's combined federal and state statutory tax rate is 37.0%.

Accepted Answer

The answer of Use the income statement for Microsoft Corporation...

Question 18

The 2016 financial statements of The New York Times Company reveal average shareholders' equity attributable to controlling interest of $837,283 thousand, net operating profit after tax of $48,032 thousand, net income attributable to The New York Times Company of $29,068 thousand, and average net operating assets of $354,414 thousand.
The company's return on net operating assets (RNOA) for the year is:

Accepted Answer

A)  3.5% 
B)  6.9% 
C)  13.6% 
D)  18.7% 
E)  There is not enough information to calculate the ratio.

Question 19

Selected balance sheet and income statement data follow for Harley Davidson, Inc. for the year ended December 31, 2016 (in thousands). Use the data to calculate a) times interest earned, and b) liabilities-to-equity ratio

Accepted Answer

The answer of Selected balance sheet and income statement data...

Question 20

Selected balance sheet data follow for Goodyear Tire & Rubber Company for the year ended December 31, 2016 (in millions). What is the company's liabilities-to-equity ratio?

Accepted Answer

A)  2.49 
B)  1.40 
C)  3.23 
D)  0.71 
E)  None of the above

Exam 4: Analyzing and Interpreting Financial Statements

A current ratio greater than 1.0 is generally desirable for a company.

The current ratio is used to assess:

Selected balance sheet income statement data follow for Whole Foods Market, Inc. for the year ended September 25, 2016 (in millions). Use the data to calculate the company's current ratio and quick ratio.

The 2016 balance sheet of Microsoft Corp. reports total assets of $193,694 million, operating liabilities of $68,010 million, and total shareholders' equity of $71,997 million. Microsoft 2016 nonoperating liabilities are:

The fiscal 2016 balance sheet for Whole Foods Market reports the following data (in millions) . What is the company's quick ratio?

Explain the trade-off between net operating profit margin and net operating asset turnover.

What is the difference between the traditional ROA measure (part of the traditional DuPont analysis) and the return on net operating assets (RNOA)?

Selected balance sheet and income statement data follow for The New York Times Company for fiscal 2016 (in thousands). Use the data to calculate the following: a. Return on equity (ROE) b. Return on net operating assets (RNOA) c. The company's nonoperating return

Use Microsoft's balance sheets for the fiscal year 2016 to compute the following (assume equity and other investments is operating): a. Operating assets b. Operating liabilities c. Net operating assets (NOA)

Highly leveraged firms have higher RNOA than firms with lower leverage.

What is solvency? Identify and discuss two ways a company's solvency is measured.

Use the income statement for Microsoft Corporation to compute the following: a. Tax shield b. The tax on operating profit c. NOPAT The company's combined federal and state statutory tax rate is 37.0%.

Selected balance sheet and income statement data follow for Harley Davidson, Inc. for the year ended December 31, 2016 (in thousands). Use the data to calculate a) times interest earned, and b) liabilities-to-equity ratio

Selected balance sheet data follow for Goodyear Tire & Rubber Company for the year ended December 31, 2016 (in millions) . What is the company's liabilities-to-equity ratio?