An important part of understanding a firm's financial statements is understanding the firm's economic characteristics. These...

 

 

Transcribed Image Text:

An important part of understanding a firm's financial statements is understanding the firm's economic characteristics. These characteristics can often be determined by analyzing the relative levels of various balance sheet and income statement items. Presented on the next page are common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Additionally, the last line shows the ratio of cash flow from operations to capital expenditures for each firm. Each of the columns corresponds to one of the firms described below: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that shown on the next page. A. Amazon.com: B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. Е. еВay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson 8: Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kellogg's: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. Real estate assets are typically financed with debt more so than other assets. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell and KFC. Required 1. Match each column with the correct company named above. 2. Explain your reasoning to support your work. Property, plant, and equipment, net Financial Information for problem 2. n.m. indicates not meaningful. A dash indicates the amount was too small to be reported. 1 2 3 4 5 6 7 10 11 12 BALANCE SHEET Cash & marketable securities 2,256.1% 4.1% 20.1% 2.0% 10.6% 96.9% 4.1% 2,198.0% 26.0% 4.5% 1.9% 39.3% Receivables 352.8 2.8 15.2 8.9 12.0 8.8 4.2 1,384.8 4.0 13.3 2.0 5.1 Inventories 2.4 7.9 7.0 2.1 3.0 1.5 8.9 4.0 1.3 Property, plant, and equipment, at cost Accumulated depreciation 286.8 43.0 55.4 221.5 33.8 278.8 7.8 41.4 61.1 32.9 (59.8) (20.4) 22.5% (32.5) 22.9% (28.3) 32.9% (132.6) (22.6) (52.8) 226.0% (2.6) (14.1) (18.9) 227.0% 88.9% 11.2% -%- 5.3% 27.3% 14.0% Intangibles Other assets Total assets 36.5 43.4 39.8 75.2 40.5 6.0 101.9 5.0 109.4 8.3 90.9 57.3 2,666.2% 7.2 24.0 280.0% 133.2% 4.8 85.4% 19.0 81.0 322.9% 3,893.3% 7.2 56.4% 59.7 218.2% 28.3 208.5 11.4 33.3 207.9% 188.6% 57.9% 182.6% Current liabilities 2,080.8% 37.8% 32.7% 27.7% 26.6% 37.8% 41.7% 2,878.4% 30.0% 20.7% 15.3% 43.4% Long-term debt Other long-term liabilities Shareholders' equity 390.9 69.1 12.7 31.7 48.2 28.5 172.2 596.1 0.4 38.4 31.6 92.6 5.6 21.1 14.6 90.2 15.3 53.8 171.3 4.4 33.9 12.0 9.4 101.9 167.5 _66.7 11.3 42.8 107.0 55.1 247.5 21.4 125.3 (1.0) 129.8 Total Liabilities and Shareholders' Equity 2666.2% 280.0% 133.2% 85.4% 207.9% 188.6% 322.9% 3893.3% 56.4% 218.2% 57.9% 182.6% INCOME STATEMENT Operating revenues Cost of sales (excluding depreciation) or operating expenses Depreciation and amortization Selling and administrative Research and development Interest (expense)/income 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% (54.6) (2.0) (1.4) (1.6) (61.6) (40.1) (15.0) (27.6) (36.1) (1.5) (27.6) (14.6) (56.0) (10.8) (19.3) (85.8) (1.5) (2.6) (5.1) (59.5) (5.7) (27.9) (75.1) (4.9) (7.6) (26.1) (2.8) (33.7) (8.5) (29.0) (4.4) (29.3) (12.2) (0.1) (6.2) 1.6 20.3% (58.1) (2.9) (23.7) (73.4) (5.0) (5.1) (7.7) (9.9) (12.1) (2.8) (0.1) 0.1 13.6% (8.5) (2.6) 2.3 5.3% (2.0) (2.8) 0.4 8.0% 9.5 (2.5) (1.9) 1.0 78.4 (1.8) 1.3 (14.3) (1.0) (0.3) 3.7% (3.8) (3.4) (5.5) 6.6% (2.2) 5.2 8.0% Income taxes (4.3) (16.0) (28.8) (4.7) All other items, net (8.0) 27.6% Net income 9.0% 17.0% 42.3% 25.5% Cash flow from operations/capital expenditures n.m. 1.0 4.9 2.7 1.5 9.8 1.0 n.m. 8.8 1.8 1.6 5.1 An important part of understanding a firm's financial statements is understanding the firm's economic characteristics. These characteristics can often be determined by analyzing the relative levels of various balance sheet and income statement items. Presented on the next page are common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Additionally, the last line shows the ratio of cash flow from operations to capital expenditures for each firm. Each of the columns corresponds to one of the firms described below: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that shown on the next page. A. Amazon.com: B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. Е. еВay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson 8: Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kellogg's: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. Real estate assets are typically financed with debt more so than other assets. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell and KFC. Required 1. Match each column with the correct company named above. 2. Explain your reasoning to support your work. Property, plant, and equipment, net Financial Information for problem 2. n.m. indicates not meaningful. A dash indicates the amount was too small to be reported. 1 2 3 4 5 6 7 10 11 12 BALANCE SHEET Cash & marketable securities 2,256.1% 4.1% 20.1% 2.0% 10.6% 96.9% 4.1% 2,198.0% 26.0% 4.5% 1.9% 39.3% Receivables 352.8 2.8 15.2 8.9 12.0 8.8 4.2 1,384.8 4.0 13.3 2.0 5.1 Inventories 2.4 7.9 7.0 2.1 3.0 1.5 8.9 4.0 1.3 Property, plant, and equipment, at cost Accumulated depreciation 286.8 43.0 55.4 221.5 33.8 278.8 7.8 41.4 61.1 32.9 (59.8) (20.4) 22.5% (32.5) 22.9% (28.3) 32.9% (132.6) (22.6) (52.8) 226.0% (2.6) (14.1) (18.9) 227.0% 88.9% 11.2% -%- 5.3% 27.3% 14.0% Intangibles Other assets Total assets 36.5 43.4 39.8 75.2 40.5 6.0 101.9 5.0 109.4 8.3 90.9 57.3 2,666.2% 7.2 24.0 280.0% 133.2% 4.8 85.4% 19.0 81.0 322.9% 3,893.3% 7.2 56.4% 59.7 218.2% 28.3 208.5 11.4 33.3 207.9% 188.6% 57.9% 182.6% Current liabilities 2,080.8% 37.8% 32.7% 27.7% 26.6% 37.8% 41.7% 2,878.4% 30.0% 20.7% 15.3% 43.4% Long-term debt Other long-term liabilities Shareholders' equity 390.9 69.1 12.7 31.7 48.2 28.5 172.2 596.1 0.4 38.4 31.6 92.6 5.6 21.1 14.6 90.2 15.3 53.8 171.3 4.4 33.9 12.0 9.4 101.9 167.5 _66.7 11.3 42.8 107.0 55.1 247.5 21.4 125.3 (1.0) 129.8 Total Liabilities and Shareholders' Equity 2666.2% 280.0% 133.2% 85.4% 207.9% 188.6% 322.9% 3893.3% 56.4% 218.2% 57.9% 182.6% INCOME STATEMENT Operating revenues Cost of sales (excluding depreciation) or operating expenses Depreciation and amortization Selling and administrative Research and development Interest (expense)/income 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% (54.6) (2.0) (1.4) (1.6) (61.6) (40.1) (15.0) (27.6) (36.1) (1.5) (27.6) (14.6) (56.0) (10.8) (19.3) (85.8) (1.5) (2.6) (5.1) (59.5) (5.7) (27.9) (75.1) (4.9) (7.6) (26.1) (2.8) (33.7) (8.5) (29.0) (4.4) (29.3) (12.2) (0.1) (6.2) 1.6 20.3% (58.1) (2.9) (23.7) (73.4) (5.0) (5.1) (7.7) (9.9) (12.1) (2.8) (0.1) 0.1 13.6% (8.5) (2.6) 2.3 5.3% (2.0) (2.8) 0.4 8.0% 9.5 (2.5) (1.9) 1.0 78.4 (1.8) 1.3 (14.3) (1.0) (0.3) 3.7% (3.8) (3.4) (5.5) 6.6% (2.2) 5.2 8.0% Income taxes (4.3) (16.0) (28.8) (4.7) All other items, net (8.0) 27.6% Net income 9.0% 17.0% 42.3% 25.5% Cash flow from operations/capital expenditures n.m. 1.0 4.9 2.7 1.5 9.8 1.0 n.m. 8.8 1.8 1.6 5.1

Answer rating: 100% (QA)

The table below shows the matching of pairs along with the reasons for matching them Name of the company Information provided Company No Reason A Amaz... View the full answer