Your parents are considering investing in TSMC ordinary shares. They ask you, as an accounting expert, to make an analysis of the company for them. TSMC’s financial statements are presented in Appendix A. The complete annual report, including the notes to the financial statements, is available at the company’s website.

Instructions

(Follow the approach in the chapter for rounding numbers.)

a. Compute for 2016 and 2015 the

(1) Profit margin,

(2) Asset turnover,

(3) Return on assets,

(4) Return on ordinary shareholders’ equity. How would you evaluate TSMC’s profitability?

b. Compute for 2016 and 2015 the

(1) Debt to assets ratio

(2) Times interest earned. How would you evaluate TSMC’s long-term solvency?

c. What information outside the annual report may also be useful to your parents in making a decision about TSMC?