Professional Documents
Culture Documents
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10 Computron's Income Statement
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INCOME STATEMENT
Net sales
Cost of Goods Sold
Other Expenses
Depreciation
Total Operating Costs
Earnings before interest and taxes (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes (40%)
Net Income
Tax rate
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63
2006
2007
########
########
$340,000
$18,900
########
$209,100
$62,500
$146,600
$58,640
$87,960
########
########
$720,000
$116,960
########
$17,440
$176,000
-$158,560
-$63,424
-$95,136
40%
40%
a. (1.) What effect did the expansion have on sales and net income?
Statement of Retained Earnings
The statement of retained earnings takes the previous year's balance of retained earnings, adds the current year's net income,
and then subtracts dividends paid to common stockholders. The end result is the new balance of retained earnings.
Computron's statement is shown below:
2007
Balance of Retained Earnings, Dec. 31, 2006
########
Add: Net Income, 2007
########
Less: Dividends to common stockholders
########
Balance of Retained Earnings, Dec. 31, 2007
$97,632.0
2006
2007
Assets
Cash and equivalents
Short-term investments
Accounts receivable
Inventories
Total current assets
Gross fixed assets
Less: Accumulated depreciation
Net plant and equipment
Total assets
$9,000
$48,600
$351,200
$715,200
########
$491,000
$146,200
$344,800
########
$7,282
$20,000
$632,160
########
########
########
$263,160
$939,790
########
$145,600 $324,000
$200,000 $720,000
$136,000 $284,960
$481,600 ########
$323,432 ########
$460,000 $460,000
$203,768 $97,632
$663,768 $557,632
######## ########
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65
66 a. (2.) What effect did the expansion have on the asset side of the balance sheet?
67
68 Information from the balance sheet and income statement can be used to construct the Statement of Cash Flows, which is
69 shown below for Computron.
70 Computron's Statement of Cash Flows
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2007
Operating Activities
Net Income before preferred dividends
Noncash adjustments
Depreciation and amortization
Due to changes in working capital
Change in accounts receivable
Change in inventories
Change in accounts payable
Change in accruals
Net cash provided by operating activities
($280,960)
($572,160)
$178,400
$148,960
($503,936)
Investing activities
Cash used to acquire fixed assets
Change in short-term investments
Net cash provided by investing activities
($711,950)
$28,600
($683,350)
Financing Activities
Change in notes payable
Change in long-term debt
Payment of cash dividends
Net cash provided by financing activities
$520,000
$676,568
($11,000)
########
100
101 b. What do you conclude from the statement of cash flows?
102
($95,136)
$116,960
($1,718)
$9,000
$7,282
A
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105
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107
108
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c. What are operating current assets? What are operating current liabilities? How much net operating working capital and
total net operating capital does Computron have?
Net Operating Working Capital
Those current assets used in operations are called operating current assets, and the current liabilities that result from
operations are called operating current liabilities. Net operating working capital is equal to operating current assets minus
operating current liabilities.
Operating
current
assets
= $1,926,802
= $1,317,842
NOWC07 =
113
114
115
$608,960
$281,600
116
Operating
current
assets
= $1,075,400
= $793,800
NOWC06 =
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121 Total Net Operating Capital
122
The Total OperatingCapital is Net Operating Working Capital plus any fixed assets.
123
124 TOC07 =
125
=
126
NOWC
$1,317,842
$2,257,632
+
+
Fixed assets
$939,790
NOWC
$793,800
$1,138,600
+
+
Fixed assets
$344,800
127
128 TOC06 =
129
130
=
=
131
132 d. What is free cash flow? Why is it important? What are the five uses of FCF?
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134 e. What are Computrons net operating profit after taxes (NOPAT) and free cash flow (FCF)?
135
136 Net Operating Profit After Taxes
137
NOPAT is the amount of profit Computron would generate if it had no debt and held no financial assets.
138
139 NOPAT07 =
EBIT
140
= $17,440
x
x
(1-T)
60%
x
x
(1-T)
60%
= $10,464
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142
143 NOPAT06 =
144
145
EBIT
= $209,100
= $125,460
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147 Free Cash Flow
148 Computron's Free Cash Flow caluclation is the cash flow actually availabe for distribution to investors after the company has
149 made all necessary investments in fixed assets and working capital to sustain ongoing operations.
150
151 FCF07 =
152
=
153
NOPAT
$10,464.0
-$1,108,568
154
155 f. Calculate Computrons return on invested capital. Computron has a 10% cost of capital (WACC). Do you think Computrons
156 growth added value?
2006
10%
157
NOPAT
$10,464.0
=
0.5%
Operating Capital
$2,257,632
168 ROIC06 =
NOPAT
169
= $125,460.0
Operating Capital
$1,138,600
166
2007
10%
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g. What is Computron's EVA? The after-tax cost of capital was 10 percent in both years.
179 EVA07 =
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181
182
11.0%
=
=
=
NOPAT
$10,464
$10,464
-$215,299
Operating Capital
x
$2,257,632
NOPAT
$125,460
$125,460
$11,600
Operating Capital
x
$1,138,600
x
########
WACC
10%
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184 EVA06 =
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200
=
=
=
x
########
WACC
10%
$8.50
100,000
($0.95)
$0.11
$6.00
100,000
$0.88
$0.22
201 MVA07 =
202
203
204
=
=
=
Stock price
$6.00
x
x
$600,000
# of shares
100,000
x
x
$850,000
# of shares
100,000
$42,368
205
206 MVA06 =
207
208
209
=
=
=
Stock price
$8.50
$186,232