EX1: Selected financial statement data from Texas Tel Inc, for year 5 and 9 are reproduced below:

Year 5
Year 9
Income Statement Data
Revenues
542
979
Operating income
35
68
Interest expense
7
0
Pre-tax income
28
68
Income taxes
14
34
Net income
14
34
Balance sheet data
Long-term operating assets
52
63
Working capital
123
157
Total liabilities
50
0
Total equity
125
220
a. Calculate ROCE and analyse it using Dupont (using end of year values for computations requiring
an average). Assuming fixed assets and working capital are operating and a 50% tax rate.
b. Comment on Texas Telecoms use of financial leverage.
EX2: Key comparative figures ($millions) for both Nike and Reebok follow:
Key figures
Nike
Financing (L & E)
5397.4
Net income
399.6
Revenues
9553.1
a. What is the total amount of assets in (a) Nike and (b) Reebok?

Reebok
1756.1
135.1
3637.4

b. What is the Return on investment for 2 companies ? Nikes beginning assets equal $5361.2 ml and
Reeboks equal $1786.2 ml.
c. How much are expenses for 2 companies?
d. Is return on investment satisfactory for Nike? For Reebok? (competitors average a 4% return)?
e. What can you conclude about Nike and Reebok from these computations?

Ex 2:
Datatech
Co.

Sigma Co.

Ending of the year

Current Liabilities
Long-term note
payable
Common Stock $5
par value
Retained earnings
Total L & E

60340
79800

92300
100000

175000

205000

119300
434440

139150
536450

Beginning of year
data
A.R, net
Note receivable,
trade
Inventories
Total assets
Common stock, $5
par value
Retained earnings

Datatech Co.

Sigma Co.

28800
0

53200
0

54600

106400

388000
175000

372500
205000

94300

90600

2. Compute the profitability ratios. Assuming that each company paid cash dividends of $1.5 per
share and each companys stock can be purchased at $25 per share, compute their P/E ratio and
dividend yields. Identify which companys stock you would recommend as the better investment
and explain why.

Ex3: Reproduced below are selected financial data at the end of year 5 and forecasts for the end of
year 6 for top Corporation.
Account
Year 5
Year 6
Cash
35000
?
A.R
75000
?
Inventory
32000
50000
Fixed assets
100000
100000
Accumulated
21500
25000
depreciation
Additional forecast for year 6:
Sales
$412500
Days sales in receivables
90 day
The company will pay dividend for $6000

Account
A.P
Notes payable
Accrued taxes
Capital stock
Retained
earnings
Net income
Cost of sales

Year 5
65000
17500
9000
100000
72000

Year 6
122000
15000
0
100000
?

$10000
70% of sales forecast

Assuming all expenses are paid in cash when incurred and that costs of sales is exclusive of
depreciation, forecast the ending cash balance for year 6. If Top Corp wishes to maintain a minimum
cash balance of $50000, must it borrow?

These are similar firms that are operating in the same industry. Both companies pay 7% interest in
the debt to creditors. The following information is available

Year
Total asset
turnover
Return on
assets
Profit
margin
Sales

2010
3.1

A Co.
2011
3.2

2010
1.4

B Co.
2011
1.8

2012
3.3

2012
2.0

7.8%

8.64%

8.6%

3.6%

5.4%

6.6%

2.5%

2.7%

2.6%

2.6%

3%

3.3%

$540,000

$520,000

$550,000

$200,000

$240,000

$290,000

Compare A Co. and B Co. using the information. Also comment on their success in employing
financial leverage in 2012.
Total asset turnover of company a nearly double company b ability to use asset to generate
revenue of company a is better than company b, beside that , we can see that company a and
company b have good trend when asset turnover of company a and b are increasing year by year
ROA of company a overwhelmed than company b also. It means profitability of asset of co. a is
better than company b (...) . But we can see that ROA of Company B is growing significantly while
that of company A is fluctuating, that narrows the gap between ROA of the 2 companies from
2010, ... to 2012,..... It means company bs trend is much better than company a.
In contrast, Profit margin of company a is lower than company b. it means ability to manage
expense of company b better than company a. But compare between 2011 and 2012 of company a
, it reduce sightly -->, beside that from 2010 to 2011 of company b, this trend is very good
Sales of company a is reduce from 2010 to 2011 but wih company b , sales is increase year by year.

Balance sheet of A Company

Assets
Current assets
Cash and cash equivalents
Short-term investments
Account receivable
Inventories
Non-current assets
Fixed assets
Lands
Long-term investments
Total
Liabilities
Current liabilities
Non-current liabilities
Equity
Total

31/12/N-2
246
32
54
62
98
264
140
90
34
510
270
130
140
240
510
A Company

31/12/N-1
238
34
48
68
88
273
150
90
33
511
251
111
140
260
511

31/12/N
253
38
62
73
80
302
160
110
32
555
275
115
160
280
555

Income Statement
For year N-1
1780980
1450890
330090
138490
25000

For year N
1870000
1520000
350000
106000
28000

Net sales
COGS
Gross profits
Operating expenses
Interest expense
(15%a.n)
Net incomes
166600
216000
Income tax expense
41650
54000
Net income after tax
124950
162000
Using DuPont model, analyse the effectiveness of the company operation in using assets (ROA)?
Effectiveness in using EQUITY?

ROA nm nay tng so vi nm trc 6,02% chng t hiu qu s dng cc ti sn nng cao,
y l nhn t thc y nh qun tr m rng quy m sn xut. Vic tng l do nh hng:
- Profit margin nm nay tng so vi nm trc 1,7%, chng t kh nng kim sot chi ph tt hn.
- Asset turnover tng so vi nm trc 0,01 vng chng t sc sn xut ca cc ti sn tng cao.
y l nhn t tch cc gip nh qun tr tng ROA.
Chi tit:...

ROA = Net income after tax/Average of total assets= Profit margin * assets turnover
Revenue
1.7%

0.02

Op. expenses
Profits

Profit
margin

=
+
COGS
+

Revenue

ROA
Assets
turnover

Revenue

Assets

Current assets

Non-current
assets

ROE = Net income / equity = (net income / net sales) * (Net sales / average of total assets) *
average of assets/average of equity
A/E increase -> A increase > > E increase -> borrowing more (in case of large ROA)
Ex 1:
Cat Company and Mice Company are in the same industry which has average Return on Assets (ROA)
equal 6%.
Key comparative figures ($ millions) for both companies follow:

Key figures

Cat
Company

Mice
Company

Key figures

Cash and equivalents

203

415

Total Assets

Accounts receivable

1324

489

Net sales

Inventories

1259

512

Retained earnings

4210

342

Cat
Company

Mice
Company

7012

2294

10234

3598

COGS

4812

1549

Net Income

2389

749

1. Calculate profitability ratios for the 2 companies given that Cats beginning assets equal $5039
and Mice Companys beginning assets equal $1386 (in millions).
2. Comment on each company using the above computations.
3. Compare the two companies.
Ex 2:
Tigar Company reported the following net cash flow from investing activities in its cash-flow
statement:
Sale of equipment

$34,000

Sale of land

120,780

Purchase of marketable securities

(234,500)

Cash used in investing activities

(79,720)

Would the cash flow from investing activities be expected to be positive or negative?
In case Tigar Co., does the company appear to be expanding or contracting? Explain.
Ex3: Para Co. had summary information from the financial statements as followed:
Balance sheet as at the end of the current year
Assets
Liabilities and Equity
Cash
17700
Current liabilities
60120
Accounts receivable, net 41000
Long-term borrowings
81200
Inventories
81210
Common stock, $4 par
165700
value
Prepaid expenses
6000
Plant assets, net
245000
Retained earning
83890
Total Assets
390910
Total Liabilities and Equity 390910
Income Statement for the current year
Net Sales
$793,000
COGS
402,100
Operating expense
101290
Interest expense
8100
Income tax expense
70,378
Net income
211132
1. Calculate common liquidity ratios, profitability ratios and effectiveness ratios and solvency ratios
of the company (Assume that the assets of the company hardly change from the previous year to
this year)
2. Give comments on the companys liquidity and effectiveness.