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04 Chapter model
12/08/11
This model is STRICTLY OPTIONAL. Neither students nor instructors need to go through it. However, if
someone wants to practice with Excel, then the model can be useful. Also, on the tabs we show solutions
for the within-chapter self-test questions.
This spreadsheet model sets up common size balance sheets and income statements for Allied (2011 and
2012 statements) and conducts a full ratio analysis of Allied's financial statements.
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Common Size Analysis is not illustrated in the text, but we show it because it is so easy to do with Excel.
The common size balance sheet shows each asset and liability item as a percentage of total assets, and
the common size income statement shows the other items as a percentage of sales. Common size
statements are useful for getting an idea of how the various statement items match up, and they are
especially good for comparing companies that differ in size.
INPUT DATA SECTION: Historical Data Used in the Analysis
2012
$23.06
50
40%
2011
$26.00
50
40%
10 $
375
615
1,000 $
1,000
2,000 $
2011
80
315
415
810
870
1,680
COMMON SIZE
2012
2011
0.50%
18.75%
30.75%
50.00%
50.00%
0.00%
100.00%
4.76%
18.75%
24.70%
48.21%
51.79%
0.00%
100.00%
A
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$
$
$
$
60
110
140
310
750
1,060
130
810
940
2,000
$
$
$
$
30
60
130
220
580
800
130
750
880
1,680
3.00%
5.50%
7.00%
15.50%
37.50%
53.00%
6.50%
40.50%
47.00%
100.00%
1.79%
3.57%
7.74%
13.10%
34.52%
47.62%
7.74%
44.64%
52.38%
100.00%
Net sales
Oper costs except depr'n & amort.
Depreciation and amortization
Operating income (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes
Net income
2012
$ 3,000.0
2,616.2
100.0
$ 283.8
88.0
$ 195.8
78.3
$ 117.5
2011
$ 2,850.0
2,497.0
90.0
$ 263.0
60.0
$ 203.0
81.2
$ 121.8
Common dividends
Addition to retained earnings
$
$
57.5 $
60.0 $
53.0
68.8
$
$
$
2012
2.35 $
1.15 $
18.80 $
2011
2.44
1.06
17.60
PER-SHARE DATA
Earnings per share (EPS)
Dividends per share (DPS)
Book value per share (BVPS)
FCF =
$270.3
$380.0
FCF =
($109.7)
COMMON SIZE
2012
2011
100.00%
100.00%
87.21%
87.61%
3.33%
3.16%
9.46%
9.23%
2.93%
2.11%
6.53%
7.12%
2.61%
2.85%
3.92%
4.27%
1.92%
2.00%
1.86%
2.41%
A
B
C
D
70 SECTIONS 4-1 TO 4-6, RATIO ANALYSIS
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Here we calculate Allied's ratios for 2011 and 2012. These results are compared across time and to the
industry averages.
Liquidity ratios
Current Ratio
Quick Ratio
Asset Management ratios
Inventory Turnover
Days Sales Outstanding
Fixed Assets Turnover
Total Assets Turnover
Debt Management ratios
Debt Ratio
Times Interest Earned
Profitability ratios
Operating Margin
Profit Margin
Return on Assets
Basic Earning Power
Return on Equity
Market Value ratios
Price-to-Earnings Ratio
Market-to-Book Ratio
2012
3.23
1.24
2011
3.68
1.80
Ind Avg
4.20
2.20
4.88
45.63
3.00
1.50
6.87
40.34
3.28
1.70
10.90
36.00
2.80
1.80
53.00%
3.23
47.62%
4.38
40.00%
6.00
9.46%
3.92%
5.87%
14.19%
12.50%
9.23%
4.27%
7.25%
15.65%
13.84%
10.00%
5.00%
9.00%
18.00%
15.00%
9.81
1.23
10.67
1.48
11.30
1.70
ROE =
Profit Margin x
TA Turnover
Equity Multiplier
Sales /
Total
assets
ROE =
Net
income /
Sales
Total
assets /
Equity
ROE =
3.9%
1.5
2.13
12.5%
1.67
15.0%
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100
101
102 Industry =
x
5.0%
1.8
103
104
Industry Equity Multiplier = 1 / (1 Debt ratio) =
105
= 1/(1-F82)
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B
C
106 SECTION 4-9c, TREND ANALYSIS
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Trend analysis allows you to see how a firm's results are changing over time. For example, Allied's ROE
has been declining for the past 3 years, and it is now below the industry average. Not a good sign.
Allied
14.0%
16.1%
14.8%
13.8%
12.5%
2008
2009
2010
2011
2012
Ind Avg
13.2%
15.0%
16.0%
16.2%
15.0%
ROE
18.0%
Industry
16.0%
14.0%
Allied
12.0%
10.0%
2008
2009
2010
Year
2011
2012
12/08/11
10%
40%
Sales revenues
Oper. costs Fixed
Variable
0.4
Total operating costs
Operating income (EBIT)
Interest
Earnings before taxes (EBT)
Taxes
Net income (NI)
ROEU
Sales revenues
Oper. costs Fixed
Variable
0.4
Total operating costs
Operating income (EBIT)
Interest
Earnings before taxes (EBT)
Taxes
Net income (NI)
ROEL
Debt
Common Equity
Total Liab & Equity
100
100
Business Conditions
Good
Expected
$150.0
$100.0
45.0
45.0
60.0
40.0
105.0
85.0
$45.0
$15.0
0.0
0.0
$45.0
$15.0
18.0
6.0
$27.0
$9.0
Bad
$75.0
45.0
30.0
75.0
$0.0
0.0
$0.0
0.0
$0.0
27.0%
Debt
Common Equity
Total Liab & Equity
9.0%
0.0%
$
$
Business Conditions
Good
Expected
$150.0
$100.0
45.0
45.0
60.0
40.0
105.0
85.0
$45.0
$15.0
5.0
5.0
$40.0
$10.0
16.0
4.0
$24.0
$6.0
48.0%
12.0%
50
50
100
Bad
$75.0
45.0
30.0
75.0
$0.0
5.0
-$5.0
0.0
-$5.0
-10.0%
Good
Expected
Bad
$150.00
$100.00
$75.00
Average
$108.33
ROE
Firm U
Firm L
27.0%
48.0%
9.0%
12.0%
0.0%
-10.0%
12.0%
16.7%
Effect of Leverage
ROE
50.0%
0.0%
$50
Le ve rage
d
Unle ve rage
d
$100
SALES
-50.0%
$150
SECTION 4-2
12/08/11
$500
2.0 =
CA / CL
= CL CR = CL 2 =
$1,000
4b. A company has current liabilities of $500 million, and its current ratio is 2.0. If this firms
quick ratio is 1.6, how much inventory does it have?
Current liabilities ($M)
Current ratio
Quick ratio = (CA Inventories) / CL
CA Inventories = CL 1.6 =
$500
2.0
1.6
$800.00
$1,000
$800
$1,000
$200
SECTION 4-3
12/08/11
$100
$20
$30
Sales / Inventory =
5.0
5b. A firm has annual sales of $100 million, $20 million of inventory, and $30 million of accounts
receivable. What is its DSO?
Annual Sales ($M)
Inventory ($M)
Accounts receivable ($M)
$100
$20
$30
109.5
days
SECTION 4-5
12/08/11
$20
$1
$10
50%
5.00%
4b. A company has $20 billion of sales and $1 billion of net income. Its total assets are $10
billion, financed half by debt and half by common equity. What is its ROA?
Sales ($B)
Net income ($B)
Total assets ($B)
Debt ratio
$20
$1
$10
50%
10.00%
4c. A company has $20 billion of sales and $1 billion of net income. Its total assets are $10
billion, financed half by debt and half by common equity. What is its ROE?
Sales ($B)
Net income ($B)
Total assets ($B)
Debt ratio
$20
$1
$10
50%
$5.0
20.00%
Table 4A.1
Income Statement:
Net sales
Operating costs excl. deprec. & amort.
Depreciation & amortization
Total operating costs
Operating income (EBIT)
Interest
EBT
Taxes
Net income
Table 4A.2
Balance Sheet:
Cash & equivalents
Accounts receivable
Inventories
Total current assets
Net fixed assets
Other assets
Total assets
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term bonds
Total debt
Total common equity
Total liabilities & equity
Table 4A.3
Income Statement:
Base year = 2011
Net sales
Operating costs excl. deprec. & amort.
Depreciation & amortization
Total operating costs
Operating income (EBIT)
Interest
EBT
Taxes
Net income
2012
100.0%
87.2%
3.3%
90.5%
9.5%
2.9%
6.5%
2.6%
3.9%
2011
100.0%
87.6%
3.2%
90.8%
9.2%
2.1%
7.1%
2.8%
4.3%
Industry
407,333
358,283
8,317
366,600
40,733
6,789
33,944
13,578
20,367
2012
3,000
2,616
100
2,716
284
88
196
78
117
2012
2012
0.5%
18.8%
30.8%
50.0%
50.0%
0.0%
100.0%
2011
4.8%
18.8%
24.7%
48.2%
51.8%
0.0%
100.0%
Industry
3,275
40,175
37,370
80,820
145,476
0
226,296
2.3%
3.4%
2.8%
8.5%
31.5%
40.0%
60.0%
100.0%
3.0%
7.0%
5.5%
15.5%
37.5%
53.0%
47.0%
100.0%
1.8%
7.7%
3.6%
13.1%
34.5%
47.6%
52.4%
100.0%
5,098
7,697
6,448
19,243
71,276
90,519
135,778
226,296
10
375
615
1,000
1,000
0
2,000
60
140
110
310
750
1,060
940
2,000
Balance Sheet:
Base year = 2011
Cash & equivalents
Accounts receivable
Inventories
Total current assets
Net fixed assets
Other assets
Total assets
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term bonds
Total debt
Total common equity
Total liabilities & equity
Percent
Change in
2012
-87.5%
19.0%
48.2%
23.5%
14.9%
19.0%
100.0%
7.7%
83.3%
40.9%
29.3%
32.5%
6.8%
19.0%
2011
2,850
2,497
90
2,587
263
60
203
81
122
2011
nge Analysis
80
315
415
810
870
0
1,680
30
130
60
220
580
800
880
1,680