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essentials managerial finance
Principles Of Managerial Finance 15th Global Edition Chad J. Zutter, Scott Smart - Solutions
=+a. In column (1), indicate in which statement—income statement (IS) or balance sheet (BS)—the account belongs.
=+b. In column (2), indicate whether the account is a current asset (CA), current liability (CL), expense (E), fixed asset (FA), long-term debt (LTD), revenue (R), or stockholders’ equity (SE).
=+P3–2 Income statement preparation On January 1, 2019, Belle Florist opened a store in an upmarket area of Soho, London. The business is owned by Boris Kimmel, the sole proprietor. During the year, Boris has kept a record of all transactions.On December 31, 2019, his records show that he has
=+a. Prepare an income statement for Belle Florist for the year ended December 31, 2019.
=+b. Evaluate the financial performance of the business for 2019.Personal Finance Problem
=+LG 1 P3–3 Income statement preparation Adam and Arin Adams have collected their personal income and expense information and have asked you to put together an income and expense statement for the year ended December 31, 2019. You have received the following information from the Adams family.
=+a. Create a personal income and expense statement for the period ended December 31, 2019. It should be similar to a corporate income statement.
=+b. Did the Adams family have a cash surplus or cash deficit?
=+c. If the result is a surplus, how can the Adams family use that surplus?
=+LG 1 P3–4 Calculation of EPS and retained earnings Parsons Electronics Inc. ended 2017 with a net profit before taxes of €560,000. The company is subject to a 20% tax rate and must pay €50,000 in preferred stock dividends. The balance sheet shows Parsons has an ordinary share capital of
=+a. Calculate Parsons’ 2017 earnings per share (EPS).
=+b. If the firm paid common stock dividends of €1.20 per share, how many euros would go to retained earnings?
=+P3–5 Balance sheet preparation Use the appropriate items from the following list to prepare Mellark’s Baked Goods balance sheet at December 31, 2019
=+P3–6 Effect of net income on a firm’s balance sheet Conrad Air Inc. reported net income of $1,365,000 for the year ended December 31, 2020. Show how Conrad’s balance sheet would change from 2019 to 2020 depending on how Conrad “spent” those earnings as described in the scenarios that
=+Conrad Air Inc. Balance Sheet as of December 31, 2019 Assets Liabilities and Stockholders’ Equity Cash $ 120,000 Accounts payable $ 70,000 Marketable securities 35,000 Short-term notes 55,000 Accounts receivable 45,000 Current liabilities $ 125,000 Inventories $ 130,000 Long-term debt 2,700,000
=+ P3–6 Effect of net income on a firm’s balance sheet Conrad Air Inc. reported net income of $1,365,000 for the year ended December 31, 2020. Show how Conrad’s balance sheet would change from 2019 to 2020 depending on how Conrad “spent” those earnings as described in the scenarios that
=+a. Conrad paid no dividends during the year and invested the funds in marketable securities.
=+b. Conrad paid dividends totaling $500,000 and used the balance of the net income to retire (pay off) long-term debt.
=+c. Conrad paid dividends totaling $500,000 and invested the balance of the net income in building a new hangar.
=+d. Conrad paid out all $1,365,000 as dividends to its stockholders.
=+P3–7 Initial sale price of common stock Borris & Jarvis (B&J) Dental Group has one issue of preferred stock and one issue of common stock outstanding. Given B&J’s stockholders’ equity account that follows, determine the original price per share at which the firm sold its single issue of
=+P3–8 Statement of retained earnings Hayes Enterprises began 2015 with a retained earnings balance of $1,151,000. During 2015, the firm earned $528,000 after taxes.From this amount, preferred stockholders were paid $98,000 in dividends. At yearend 2015, the firm’s retained earnings totaled
=+a. Prepare a statement of retained earnings for the year ended December 31, 2015, for Hayes Enterprises. (Note: Be sure to calculate and include the amount of cash dividends paid in 2015.)
=+b. Calculate the firm’s 2015 earnings per share (EPS).
=+c. How large a per-share cash dividend did the firm pay on common stock during 2015?
=+LG 1 P3–9 Changes in stockholders’ equity Listed are the equity sections of balance sheets for the years 2017 and 2018 as reported by Taylor Construction PLC. The overall value of stockholder’s equity has increased from £2,000,000 to £3,400,000. Use the statements provided to answer the
=+Taylor Construction PLC paid total dividends of £300,000 to their stockholders in 2018.
=+a. What was the corporation’s profit after taxes?
=+b. How many new shares were issued by Taylor Constructions during the year?
=+c. At what price per share did the new stock, issued in 2018, sell?
=+d. Assume that the share capital and share premium for 2017 relates to the original share issue in 2015 and there has not been any changes since. What was the price per share for stock sold in 2015?
=+P3–10 Ratio comparisons Eddie Greer recently inherited a large amount of money from his grandfather. His financial advisor has suggested to invest equally in four companies to create a stock portfolio. Wishing to learn more about the companies in which he will invest, Eddie performs a ratio
=+Dove Apartments owns a residential complex in the city center and rents the apartments to students and professionals; Apex Manufacturers produce PVC frames for windows and doors for the construction industry; Beth Software provides online security services; and Kingsley Restaurants is a chain of
=+a. What fundamental problem might Eddie encounter in comparing these companies on the basis of their ratios?
=+b. Why might the current and quick ratios for Dove Apartments be much lower than the same ratios for Apex Manufacturers?
=+c. Why is it acceptable for the Dove Apartments to carry a large debt, but not Beth Software?
=+d. Why should Eddie invest in Dove Apartments and Apex Manufacturers, which are earning a lower net margin than the other two companies? Will he be better off investing all his money in Beth Software instead of in less profitable companies?
=+LG 3 P3–11 Liquidity management Bauman Company’s total current assets, total current liabilities, and inventory for each of the past 4 years follow:
=+a. Calculate the firm’s current and quick ratios for each year. Compare the resulting time series for these measures of liquidity.
=+b. Comment on the firm’s liquidity over the 2016–2019 period.
=+c. If you were told that Bauman Company’s inventory turnover for each year in the 2016–2019 period and the industry averages were as follows, would this information support or conflict with your evaluation in part b? Why?
=+P3–12 Liquidity ratio Jamie Anderson has compiled some of his personal financial data to determine his liquidity position. The data are as follows.Account Amount Cash £3,200 Marketable securities 2,200 Savings account 1,400 Credit card payables 1,650 Repayment due to a friend 980
=+a. Calculate Jamie’s liquidity ratio.
=+b. Jamie knows that on average his friends have liquidity ratios of about 1.75. How would you analyze Jamie’s liquidity relative to his friends?
=+LG 3 P3–13 Inventory management Three companies that compete in Scotland’s home furniture industry are Loch Furnishing, Highland Furnishing, and Fell Furniture. The table below shows cost of goods sold and average inventory levels for 2015, 2016, and 2017 fiscal years. Calculate the
=+P3–14 Accounts receivable management Speedy Manufacturing Company’s end-of-year accounts receivable balance consists of amounts originating in the months indicated in the following table. The company had annual sales of $3.2 million. The company extends 30-day credit terms.
=+a. Use the year-end total to evaluate the company’s collection system.
=+b. If 75% of the company’s sales occur between July and December, would this information affect the validity of your conclusion in part a? Explain.
=+P3–15 Interpreting liquidity and activity ratios The table below shows key financial data for three supermarket chains that compete in the grocery retail industry: Almi, Pemco, and Harrison. All euro values are in thousands.
=+a. Calculate each of the following ratios for all three companies: current ratio, quick ratio, inventory turnover, average collection period, and total asset turnover.
=+b. Which company has the best liquidity position?
=+c. Would you say that the three companies are managing their debtors on a comparative basis? Which one has the best performance in terms of collecting its receivables? Which is the worst?
=+d. Which company has the most rapid inventory turnover? Which has the lowest asset turnover? Compare your results and explain why a company may have the best inventory turnover but the worst asset turnover.
=+LG 4 P3–16 Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm’s financial leverage and financial risk. On the basis of the debt ratios for Creek, along with the industry average and Creek’s recent financial statements
=+P3–17 Profitability analysis The table below shows 2017 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders’ equity for three companies competing in the local beverages market in Thailand—Gold Drinks, Tropical Fresh, and Sun
=+LG 4
=+a. Use the information given to calculate each firm’s profitability in as many different ways as you can. Which firm is most profitable? Explain why it might be difficult to pick one as the most profitable.
=+b. For each firm, ROE is greater than ROA. Explain why this is the case. Compare the ROE and ROA for each firm. Can you determine which one has the least proportion of debt in its capital structure?
=+LG 2 LG 3 P3-18 Using Tables 3.1, 3.2, and 3.3, conduct a complete ratio analysis of the Bartlett Company for the years 2018 and 2019. You should assess the firm’s liquidity, activity, debt, and profitability ratios. Highlight any particularly positive or negative developments that you uncover
=+P3–19 Common-size statement analysis A common-size income statement for Santa Enterprises’ 2017 operations follows. Using the firm’s 2017 income statement, develop the 2017 common-size income statement and compare it with the 2016 statement. Which areas require further analysis
=+P3–20 The relationship between financial leverage and profitability Pelican Paper Inc. and Timberland Forest Inc. are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the firms’ financial leverage
=+a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other.
=+1. Debt ratio
=+2. Times interest earned ratio
=+b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to one another.
=+1. Operating profit margin 2. Net profit margin
=+3. Return on total assets 4. Return on common equity
=+c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland’s investors undertake when they choose to purchase its stock instead of Pelican’s?
=+LG 4 P3-21 Analysis of debt ratios Financial information from fiscal year 2017 for two companies Carson Sportswear and Boswell Dresses, competing businesses in sportswear market in Utah, appears in the table below. All dollar values are in thousands.
=+a. Calculate the debt ratio and times interest earned ratio for each company. Identify the similarities and differences in terms of their debt usage.
=+b. Calculate the ratio of interest expense to total liabilities for each company.
=+What do you think this ratio is trying to measure on theoretical basis? Explain
=+why the values for this ratio are very different for the two companies.
=+LG 6 P3–22 Ratio proficiency McDougal Printing Inc. had sales totaling $40,000,000 in fiscal year 2019. Some ratios for the company are listed below. Use this information to determine the dollar values of various income statement and balance sheet accounts as requested.
=+Calculate values for the following:a. Gross profitsb. Cost of goods soldc. Operating profitsd. Operating expensese. Earnings available for common stockholdersf. Total assets g. Total common stock equity h. Accounts receivable
=+LG 6 P3–23 Cross-sectional ratio analysis Use the accompanying financial statements for Fox Manufacturing Company for the year ended December 31, 2019, along with the industry average ratios below, to do the following:
=+a. Prepare and interpret a complete ratio analysis of the firm’s 2019 operations.
=+b. Summarize your findings and make recommendations.
=+P3–24 Financial statement analysis The financial statements of Zach Industries for the year ended December 31, 2019, follow.
=+a. Use the preceding financial statements to complete the following table.Assume that the industry averages given in the table are applicable for both 2018 and 2019.
=+b. Analyze Zach Industries’ financial condition as it is related to (1) liquidity,(2) activity, (3) debt, (4) profitability, and (5) market. Summarize the company’s overall financial condition.
=+P3–25 Integrative: Complete ratio analysis Given the following financial statements, historical ratios, and industry averages, calculate Sterling Company’s financial ratios for the most recent year. (Assume a 365-day year.)
=+Analyze its overall financial situation from both a cross-sectional and a time-series viewpoint. Break your analysis into evaluations of the firm’s liquidity, activity, debt, profitability, and market.
=+P3–26 DuPont system of analysis Steve Steaks Ltd. and Barry Sizzle Ltd. are two restaurant chains that are competing across Europe. Use the following 2016 financial information to conduct a DuPont system of analysis for each company.
=+a. Which company has the higher net profit margin? Higher asset turnover?
=+b. Which company has the lower ROA? Lower ROE?
=+LG 6 P3–27 Complete ratio analysis, recognizing significant differences The CEO of Dinnington Glass Company has approached Anne Hersch, the company’s accountant, for an annual financial checkup. As the first step, Anne and her team have prepared a complete set of ratios for fiscal years 2017
=+a. To examine the degree of change, calculate the year-to-year proportional change by subtracting the 2017 ratio from the 2018 ratio and then dividing the difference by the year 2017 ratio. Multiply the result by 100 to get percentage change in the given ratio. Preserve the positive or negative
=+b. For any ratio that shows a year-to-year difference of more than 10% in any direction(positive or negative), state whether the difference is in the company’s favor or not.
=+c. For the most significant changes (25% or more), identify the movement in other ratios that might provide a logical explanation for the change in the ratio you are discussing.
=+The income statement and balance sheet are the primary reports that a firm constructs for use by management and for distribution to stockholders, regulatory bodies, and the general public. They are the primary sources of historical financial information about the firm. Dayton Products Inc. is a
=+You also have the following balance sheet information as of December 31, 2019 and 2018, respectively.Annual Balance Sheets (Values in Millions)December 31, 2019 December 31, 2018 Cash $ 9,090 $ 6,547 Receivables 21,163 19,549 Inventories 8,068 7,904 Other current assets 1,831 1,681 Property,
=+a. Create a spreadsheet similar to Table 3.1 to model the following:(1) A multiple-step comparative income statement for Dayton Inc. for the periods ending December 31, 2019 and 2018. You must calculate the cost of goods sold for the year 2019.(2) A common-size income statement for Dayton Inc.
=+b. Create a spreadsheet similar to Table 3.2 to model the following:(1) A detailed, comparative balance sheet for Dayton Inc. for the years ended December 31, 2019 and 2018.(2) A common-size balance sheet for Dayton Inc. covering the years 2019 and 2018.
=+c. Create a spreadsheet similar to Table 3.10 to perform the following analysis:(1) Create a table that reflects both 2019 and 2018 operating ratios for Dayton Inc., segmented into (a) liquidity, (b) activity, (c) debt, (d) profitability, and(e) market. Assume that the current market price for
=+4–2 Which three statements result as part of the short-term (operating)financial planning process?
=+4–6 Why is depreciation (as well as amortization and depletion) considered a noncash charge?
=+4–8 Why do we exclude interest expense from operating cash flow?
=+4–9 Define and differentiate between a firm’s operating cash flow (OCF)and its free cash flow (FCF).
=+4–16 Why does the presence of fixed costs lead to errors in a pro forma income statement constructed using the percent-of-sales method? What is a better method?
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