Accounting Questions

Instructions
1. Enter supporting calculations in the Excel workbook.
2. Regarding the .pdf file:
1. It contains background information about Coty Inc.
3. The Excel workbook contains five (5) worksheets:
1. Supporting Calculations: Show the supporting calculations for each
of your answers in this worksheet.
2. Balance Sheet: This worksheet contains Coty’s consolidated balance
sheets as of June 30, 2023 and June 30, 2022.
3. Income Statement: This worksheet contains Coty’s consolidated
statements of operations for the fiscal years ending on June 30,
2023, June 30, 2022, and June 30, 2021.
4. Prepaid and Other Curr Assets: This worksheet contains
information about the components of Coty’s prepaid and other
current assets as of June 30, 2023 and June 30, 2021.
5. Accrued and Other Curr Liab: This worksheet contains information
about the components of Coty’s accrued and other current liabilities
as of June 30, 2023 and June 30, 2022.
4. When calculating ratios, use the ending balances of balance sheet line items.
Do not use average balances.
Question 14
What were Coty’s operating assets on June 30, 2023? Your answer should be in millions
of U.S. dollars.
Question 2
What were Coty’s operating liabilities on June 30, 2023? Your answer should be in
millions of U.S. dollars.
Question 3
What were Coty’s invested capital on June 30, 2023? Your answer should be in millions
of U.S. dollars.
Question 4
What were Coty’s financial assets on June 30, 2023? Your answer should be in millions
of U.S. dollars.
Question 5
What were Coty’s financial obligations on June 30, 2023? Your answer should be in
millions of U.S. dollars.
Question 6
Net financial obligations equal the difference between financial obligations and financial
assets. What were Coty’s net financial obligations on June 30, 2023? Your answer
should be in millions of U.S. dollars.
Question 7
What was Coty’s net financial expense before tax for the fiscal year ending on June 30,
2023? Your answer should be in millions of U.S. dollars.
Question 8
What was Coty’s tax savings (cost) from financing activities for the fiscal year ending on
June 30, 2023? If Coty’s financing activities generated tax savings (cost), enter your
answer as a positive (negative) amount. Your answer should be in millions of U.S. dollars.
Question 9
What was Coty’s net financial expense after tax for the fiscal year ending on June 30,
2023? Your answer should be in millions of U.S. dollars.
Question 104 pts
What was Coty’s taxes on operating activities for the fiscal year ending on June 30,
2023? Your answer should be in millions of U.S. dollars.
Question 11
What was Coty’s net operating profit after tax for the fiscal year ending on June 30,
2023? Your answer should be in millions of U.S. dollars.
Question 12
During the fiscal year ending on June 30, 2023, what was the average number of days
between the day Coty purchased inventory and the day it sold that inventory?
Question 13
During the fiscal year ending on June 30, 2023, what amount of inventory did Coty
purchase from its suppliers? Your answer should be in millions of U.S. dollars.
Question 14
During the fiscal year ending on June 30, 2023, what was the average number of days
between the day Coty sold a product to a customer and the day Coty collected cash
from the customer?
Question 15
During the fiscal year ending on June 30, 2023, what was the average number of days
between the day Coty purchased inventory and the day it paid the supplier of the
inventory?
Question 16
For the fiscal year ending on June 30, 2023, what was Coty’s cash conversion cycle?
Question 17
For the fiscal year ending on June 30, 2023, what was Coty’s operating asset turnover?
Question 18
For the fiscal year ending on June 30, 2023, what was Coty’s fixed asset turnover?
Question 19
For the fiscal year ending on June 30, 2023, what was Coty’s invested capital turnover?
Question 20
For the fiscal year ending on June 30, 2023, what was Coty’s gross profit percentage?
State your answer as a percentage.
Question 21
For the fiscal year ending on June 30, 2023, what was Coty’s NOPAT margin? State your
answer as a percentage.
Question 22
For the fiscal year ending on June 30, 2023, what was Coty’s return on invested capital?
State your answer as a percentage.
Question 23
For the fiscal year ending on June 30, 2023, what was the two-year compound annual
growth rate in Coty’s revenues? State your answer as a percentage.
The following questions are based on additional information from Coty’s financial
statement footnotes. After reading this information, do not change your answers to
questions one through 23. Rather, only use the additional information to answer
questions 24 and 25.
Question 24
Regarding the investment in Wella, Coty reports this investment on its balance sheet at
fair value and the income effects related to this investment (which are included in net
other income) represent revaluation gains and losses. That is, if the value of Wella’s
shares increased (decreased) during the fiscal year, Coty recognizes a revaluation gain
(loss). How would you treat the gains (losses) on Coty’s investment in Wella?
Group of answer choices
Both gains and losses should be included in core NOPAT and NOPAT.
Both gains and losses should be included in NOPAT but excluded from core NOPAT.
Gains should be included in core NOPAT and NOPAT. Losses should be excluded from
core NOPAT but included in NOPAT.
Losses should be included in core NOPAT and NOPAT. Gains should be excluded from
core NOPAT but included in NOPAT.
Gains (losses) should increase (decrease) net financial expense.
Gains (losses) should decrease (increase) net financial expense.
Not all of Coty’s equity is common equity. For example, Coty includes redeemable
noncontrolling interests in its equity. These interests are described below. (The
description is based on a footnote to Coty’s financial statements.) Use this description as
the basis for your answer to questions 38 and 39.
Redeemable Noncontrolling Interests
As of June 30, 2023, the redeemable noncontrolling interests consist of interests in a
consolidated subsidiary in the Middle East (i.e., the Middle East Subsidiary). The
noncontrolling interest holder of this subsidiary has a 25 percent ownership share. Coty
has the ability to exercise the Call right for the remaining noncontrolling interest of 25
percent on December 31, 2028, with such transaction to close on December 31, 2029.
In addition to the Call right feature, the noncontrolling interest holder has the right to
sell the noncontrolling interest to Coty on December 31, 2028, with such transaction to
close on December 31, 2029 (i.e., a Put right). The amount at which the Put right and
Call right can be exercised equals six percent of the subsidiary’s trailing three-year
average earnings before interest and taxes (i.e., EBIT) multiplied by the noncontrolling
interest holder’s percentage interest in the Middle East Subsidiary. Given the provision
of the Put right, the entire noncontrolling interest is redeemable outside of Coty’s
control and is recorded in Coty’s Consolidated Balance Sheets at the estimated
redemption value. Coty adjusts the redeemable noncontrolling interest to the
redemption values at the end of each reporting period with changes recognized as
adjustments to equity. Coty recognized $93.5 million and $69.8 million as the
redeemable noncontrolling interest balances as of June 30, 2023 and 2022, respectively.
Question 25
What is the economic substance of the noncontrolling interest?
Group of answer choices
It is an operating asset.
It is an operating liability.
It is a financial asset.
It is a financial obligation.
It is equity.
COTY INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
June 30,
2023
June 30,
2022
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Trade receivables, net
Inventories
Prepaid expenses and other current assets
Total current assets
246.90
36.90
360.90
853.40
553.60
2,051.70
233.30
30.50
364.60
661.50
392.00
1,681.90
Property and equipment, net
Goodwill
Other intangible assets, net
Equity investments
Operating lease right-of-use assets
Deferred income taxes
Other noncurrent assets
TOTAL ASSETS
712.90
3,987.90
3,798.00
1,068.90
286.70
589.90
165.60
12,661.60
715.50
3,914.70
3,902.80
842.60
320.90
651.80
85.90
12,116.10
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Short-term debt and current portion of long-term debt
Current operating lease liabilities
Income and other taxes payable
Total current liabilities
1,444.70
1,042.00
57.90
65.60
126.60
2,736.80
1,268.30
1,097.10
23.00
67.80
109.40
2,565.60
Long-term operating lease liabilities
Long-term debt, net
Pension and other post-employment benefits
Deferred income taxes
Other noncurrent liabilities
TOTAL LIABILITIES
247.50
4,178.20
280.70
659.70
325.40
8,428.30
282.20
4,409.10
292.20
669.00
340.00
8,558.10
TOTAL STOCKHOLDERS’ EQUITY
4,233.30
3,558.00
TOTAL LIABILITIES AND STOCKSHOLDERS’ EQUITY
12,661.60
12,116.10
COTY INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)
Year Ended
June 30,
2023
2022
Net revenues
5,554.10
5,304.40
Cost of sales
(2,006.80)
(1,935.20)
Gross profit
3,547.30
3,369.20
Selling, general and administrative expenses
(2,818.30)
(2,881.30)
Amortization expense
(191.80)
(207.40)
Restructuring gains (losses)
6.50
6.50
Acquisition- and divestiture-related costs
0.00
(14.70)
Asset impairment charges
0.00
(31.40)
Operating income (loss)
543.70
240.90
Interest expense, net
(257.90)
(224.00)
Other income, net
419.00
409.90
Income (loss) from continuing operations before income taxes
704.80
426.80
Provision (benefit) for income taxes on continuing operations
(181.60)
(164.80)
Net income (loss) from continuing operations
523.20
262.00
Net income (loss) from discontinued operations
0.00
5.70
Net income (loss)
523.20
267.70
S
ar Ended
une 30,
2021
4,629.90
(1,861.70)
2,768.20
(2,363.20)
(251.20)
(63.60)
(138.80)
0.00
(48.60)
(235.10)
43.90
(239.80)
172.00
(67.80)
(137.30)
(205.10)
COTY INC. & SUBSIDIARIES
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
(In millions, except per share data)
June 30,
June 30,
2023
2022
Receivable from Wella Company
70.60
70.20
Sales and other non-income tax assets
60.20
59.40
Expected income tax refunds, credits, and prepaid income taxes
102.40
116.30
Prepaid marketing, copyright, and agency fees
88.70
66.90
Supplier rebates owed to Coty
18.40
15.30
Prepaid rent, leases, maintenance, and insurance
17.50
10.30
Interest rate swap asset
2.80
7.60
Forward repurchase contract asset
137.60
0.00
Other prepaid operating expenses
55.40
46.00
Total prepaid expenses and other current assets
553.60
392.00
COTY INC. & SUBSIDIARIES
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(In millions, except per share data)
June 30,
June 30,
2023
2022
Accrued advertising, marketing and licensing expenses
338.40
314.90
Customer returns, discounts, allowances, and bonuses
261.50
254.10
Accrued compensation and related employee benefits
171.10
131.70
Sales and other non-income tax liabilities
71.50
83.10
4.80
65.60
Derivative liability for foreign currency
Accrued restructuring costs
8.90
54.10
Accrued interest on debt
47.00
47.80
Auditing, consulting, and legal fees payable
25.20
30.80
Unearned revenue
6.90
21.50
Payable to Wella Company
8.30
4.70
98.40
88.80
Other accrued operating expenses
Total accrued expenses and other current liabilities
1,042.00
1,097.10
Overview
Unless otherwise indicated, all dollar amounts in the following discussion are in millions of
United States (i.e., U.S.) dollars.
In this assignment, you will evaluate Coty Inc. & Subsidiaries (i.e., Coty). Coty was founded in
1904 and it is one of the world’s largest beauty companies. It has a large portfolio of well-known
brands across fragrance, color cosmetics, and skin and body care. Specifically, Coty either owns
or licenses the following brands:
Consumer Beauty
Adidas
Beckham
Biocolor
Bozzano
Bourjois
Bruno Banani
CoverGirl
Jovan
Max Factor
Mexx
Monange
Nautica
Paixao
Rimmel
Risque
Sally Hansen
Prestige
Burberry
Calvin Klein
Chloe
Davidoff
Escada
Gucci
Hugo Boss
Jil Sander
Joop!
Kylie Jenner
Lancaster
Marc Jacobs
Miu Miu
Orveda
philosophy
SKKN BY KIM
Coty markets, sells, and distributes its products in approximately 126 countries and territories.
Its mass beauty brands are primarily sold through hypermarkets, supermarkets, drug stores and
pharmacies, mid-tier department stores, traditional food and drug retailers, and dedicated ecommerce retailers. Its prestige products are primarily sold through prestige retailers, including
perfumeries, department stores, e-retailers, direct-to-consumer websites, and duty-free shops.
Coty manufactures and packages approximately 80 percent of its products. Its manufacturing
facilities are primarily located in the United States, Brazil, China, and various countries in
Europe.
Over the past few years Coty has been implementing a comprehensive transformation agenda,
focusing on its core competencies, simplifying its capital structure, and deleveraging its
balance sheet. To this end, in fiscal 2021, Coty completed the sale of a majority stake in its
Professional and Retail Hair business (i.e., the Wella Company or Wella). Prior to the sale,
Coty owned 100 percent of the Wella Company. At present, Coty owns 22.3 percent of the
Wella Company and it maintains a strategic alliance and collaboration agreement with Wella.
CONTINUED ON NEXT PAGE
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Assumptions and Additional Information
1. All of Coty’s cash and cash equivalents are operating cash.
2. The following financial statement line items relate only to operating activities:
a. Deferred income tax assets and liabilities (balance sheet).
b. Other noncurrent assets (balance sheet).
c. Other noncurrent liabilities (balance sheet).
3. Unless otherwise instructed, you are to assume that all of Coty’s stockholders’ equity is
common equity.
4. Regarding the financial statement line items that are not explicitly mentioned in points one,
two, or three above, it is your responsibility to determine whether a particular line item
relates either to operating activities or to financing activities. To do this, you should:
a. Use your understanding of Coty’s value proposition and your knowledge of
accounting.
b. The excerpts taken from the footnotes to Coty’s financial statements for the fiscal
year that ended on June 30, 2023. These excerpts are part of point six below.
c. The information in the Excel workbook.
5. The tax rate is 21 percent.
6. Additional information is provided below. This information was obtained from the
footnotes to Coty’s financial statements for the fiscal year that ended on June 30, 2023.
Restricted Cash
Restricted cash represents funds that are not readily available for general purpose cash needs
due to contractual limitations. The restricted cash balances as of June 30, 2023 and 2022
primarily provide collateral for certain guarantees on rent, customs, and duty accounts. These
balances also consist of unremitted collections on receivables that Coty sold to an external
party. Specifically, on behalf of the external party, Coty collects on the sold receivables, and
then periodically remits the amounts collected to the external party.
Receivable from (Payable to) Wella Included in Prepaid Expenses and Other Current Assets
(Accrued Expenses and Other Current Liabilities)
After Coty sold the majority interest in Wella, it entered into an agreement with Wella. Per the
agreement, Coty and Wella collaborate on certain marketing campaigns, carry out co-branding,
etc. In addition, Coty performs services for Wella in exchange for fees. These services include
billing and collecting from Wella’s customers, certain logistics and warehouse services, as well
as other administrative and systems support. As of June 30, 2023 and 2022, accounts receivable
from Wella of $70.6 and $70.3, respectively, were included in prepaid expenses and other
current assets. As of June 30, 2023 and 2022, accounts payable to Wella of $8.3 and $4.7,
respectively, were included in accrued expenses and other current liabilities.
Page 2 of 4
Derivative Assets Included in Other Prepaid Expenses and Other Current Assets
Interest rate swap asset: This relates to the fair value of pay-fixed, receive-floating interest-rate
swaps. Coty uses these interest rate swaps to hedge against fluctuations in interest payments
on its variable-rate debt. Coty includes revaluation gains (losses) on the interest rate swaps in
the income statement line item “Interest expense, net.” Coty did not disclose the dollar amount
of the revaluation gains (losses) on the interest rate swaps, and thus you should consider them
to be immaterial.
Forward repurchase contract asset: This relates to the fair value of a forward repurchase
contract that fixes the share price that Coty will pay for shares of its own common stock that it
plans to repurchase per its share repurchase program. Coty includes revaluation gains (losses)
on the forward repurchase contract in the income statement line item “Other income, net.”
During the fiscal year that ended on June 30, 2023, the forward repurchase contract generated
a revaluation gain of 196.9 million.
Equity Investments
These consist of Coty’s investments in KKW Holdings (i.e., KKW) and the Wella Company.
KKW Holdings: Coty owns 20 percent of KKW’s outstanding common equity and it has a
strategic alliance and collaboration agreement with KKW. Per this agreement, Coty has the
right and license to: (1) manufacture, advertise, promote, distribute, and sell certain Kim
Kardashian products and (2) use certain intellectual property owned by or licensed to KKW.
Coty includes the income effects related to its investment in KKW in various line items of its
income statement. Coty did not disclose the dollar amount of these income effects, and thus
you should consider them to be immaterial.
Wella Company: As discussed above, Coty owns approximately 22.3 percent of Wella’s
outstanding equity and it maintains a strategic alliance and collaboration agreement with
Wella. Coty includes income effects related to its investment in Wella in the income statement
line item “Other income, net.”
Derivative Liabilities Included in Accrued Expenses and Other Current Liabilities
Derivative liability for foreign currency: Coty uses foreign currency derivatives to hedge
against fluctuations in the dollar value of foreign-currency-denominated receivables from
customers, purchases and sales of inventory, and accounts payable to suppliers. Coty includes
revaluation gains (losses) on the foreign currency derivatives in the income statement line item
“Selling, general and administrative expenses.” Coty did not disclose the dollar amount of the
revaluation gains (losses) on the foreign currency derivatives, and thus you should consider
them to be immaterial.
Page 3 of 4
Pension and other post-employment benefits
These obligation relate to Coty’s defined benefit pension plan. Per this plan, Coty is obligated to
maintain a pension trust, and then contribute cash on a periodic basis to this trust. The managers
of the trust use the cash contributed by Coty to purchase stocks, bonds, real estate, etc. The income
generated by these assets is then used to make monthly payments to retired former Coty employees.
Per GAAP, Coty is required to show a liability on its balance sheet equal to the difference between:
(1) the present value of the retirement payments owed to former Coty employees and (2) the value
of the assets held in the trust. In addition, per GAAP, Coty must accrue interest expense on the
pension liability. To do this, Coty multiplies the beginning balance of the liability by the interest
rate on high-grade corporate bonds. During the fiscal year that ended on June 30, 2023, Coty’s
accrued interest expense on the pension liability was $2.4 million, which Coty included in the
income statement line item “Interest expense, net.”
Other Income, Net
For the fiscal year that ended on June 30, 2023, net other income was $419.0 million. This amount
reflects the income effects of $230.0 million related to the investment in Wella, the revaluation
gain of 196.9 million on the forward repurchase contract, and other operating expenses of 7.9
million.
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