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See the attached.

Ch

0

2 Mini Case

perience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.
During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.

)

tax earnings

)

40% 40%

2015 2016

20,000

460,000

$ 1,468,800 $ 2,886,592

2016

$ (95,136)

116,960

9,000

$ 7,282

)? What are operating current assets? What are operating current liabilities? How much net operating working capital and total net operating capital does Computron have?

2016

EBIT x

x

2015 NOPAT = EBIT x ( 1 – T )

x
=

2016

=

–

= –
=
2015 NOWC = Operating current assets – Operating current liabilities

= –
=

2016

NOWC

= +
=
2015 TOC = NOWC + Fixed assets

= +
=

2016

NOPAT –

= –
=

2016

cost of capital (

). Do you think Computron’s growth added value?

2015 2016

10% 10%

2016

NOPAT

Operating Capital

=

=

2015 ROIC = NOPAT ÷ Operating Capital

=
=

2016

NOPAT ÷

=
=

2015 OP = NOPAT ÷ Sales

=
=

2016

÷ Sales

=
=

2015 CR = Total Op. Cap. ÷ Sales

=
=

2016

NOPAT –

WACC

= – x 10%
= –

.0

=
2015

NOPAT – Operating Capital x WACC

= $0 – $0 x 10%
= $0 –

= $0

100,000

2016

x

–

= x –
= $0 –
=
2015

MVA = Stock price x # of shares – Total common equity
= x –
= $0 –
=

of taxable income from operations plus

of interest income and

of dividend income. What is the company’s tax liability?

$100,000

$5,000

$10,000

s

$0

$0

$50,000

$75,000 $100,000

$100,000

$335,000

34.0%

$10,000,000

$15,000,000

$18,333,333

35.0%

<-- Might need a VLOOKUP formula.

<-- Might need a VLOOKUP formula.

$5,000

10%

7%

Tax Rate 25.0%

–

ExxonMobil =

Yield * (Investment) – 0

California =

Chapter 2 Mini Case

Situation

Jenny Cochran, a graduate of The University of OBO with 4 years of e

x

Computron’s Income Statement

2015

2016

INCOME STATEMENT

Net sales

$ 3,432,000

$ 5,834,400

Cost of Goods Sold Except Depr.

2,864,000

4,980,000

Depreciation and amortization

18,900

116,960

Other Operating Expenses

340,000

7

20,000

Total Operating Costs

$ 3,222,900

$ 5,816,960

Earnings before interest and taxes ( Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper

EBIT

$ 209,100

$ 17,440

Less interest

62,500

176,000

Pre

–

$ 146,600

$ (158,560)

Taxes (

40%

58,640

(63,424)

Net Income

$ 87,960

$ (95,136)

Dividends

$22,000

$11,000

Tax rate

a. (1.) What effect did the expansion have on sales and net income?

Computron’s Balance Sheets

Assets

Cash and equivalents

$

9,000

$ 7,282

Short-term investments

48,600

Accounts receivable

351,200

632,160

Inventories

715,200

1,287,360

Total current assets

$ 1,124,000

$ 1,946,802

Gross fixed assets

$ 491,000

$ 1,202,950

Less: Accumulated depreciation

146,200

263,160

Net plant and equipment

$ 344,800

$ 939,790 Bart Kreps: Property, Plant and Equipment minus Depreciation

Total assets

$ 1,468,800

$ 2,886,592

Liabilities and equity

Accounts payable

$ 145,600

$ 324,000

Notes payable

200,000

720,000

Accruals

136,000

284,960

Total current liabilities

$ 481,600

$ 1,328,960

Long-term bonds

$ 323,432

$ 1,000,000

Common Stock

460,000

Retained Earnings

203,768

97,632

Total Equity

$ 663,768

$ 557,632

Total Liabilites and Equity

a. (2.) What effect did the expansion have on the asset side of the balance sheet?

Computron’s Statement of Cash Flows Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.

Operating Activities

Net Income before preferred dividends

Noncash adjustments

Depreciation and amortization

Due to changes in working capital

Change in accounts receivable

(280,960) Bart Kreps: Change is negative because accounts receivable went up in 2001. This means that more sales revenue has been reflected in net income than has been collected in cash.

Change in inventories

(572,160) Bart Kreps: Inventories went up meaning that Computron used cash to purchase inventories.

Change in accounts payable

178,400 Bart Kreps: This is positive because accounts payable went up. Computron bought on credit from suppliers and did not dispense cash.

Change in accruals

148,960 Bart Kreps: Accruals increased in 2001. Cash flow is positive because it recognizes an increased expense prior to the payment of cash.

Net cash provided by operating activities

$ (503,936)

Investing activities

Cash used to acquire fixed assets

$ (711,950) Bart Kreps: Make sure to add back annual Depreciation to Net PP&E.

Change in short-term investments

28,600 Bart Kreps: Short term investments went down in 2001. Computron received cash through the sale or maturity of these assets.

Net cash provided by investing activities

$ (683,350)

Financing Activities

Change in notes payable

$ 520,000 Bart Kreps: Notes payable went up in 2001. Computron received cash from creditors.

Change in long-term debt

676,568 Bart Kreps: Long term debt went up in 2001. Computron received cash from creditors.

Payment of cash dividends

(11,000) Bart Kreps: Computron used cash to pay dividends to shareholders.

Net cash provided by financing activities

$ 1,185,568

Net change in cash and equivilents

$ (1,718)

Cash and securities at beginning of the year

Cash and securities at end of the year

b. What do you conclude from the statement of cash flows?

c. What is free cash flow? Why is it important? What are the five uses of FCF?

d. What is Computron’s net operating profit after taxes (

NOPAT

Net Operating Profit After Taxes

NOPAT is the amount of profit Computron would generate if it had no debt and held no financial assets.

NOPAT =

( 1 – T )

=

=

=

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.

NOWC

Operating current assets

Operating current liabilities

Total Net

Operating Capital

The Total OperatingCapital is Net Operating Working Capital plus any fixed assets.

TOC =

+

Fixed assets

e. What is Computron’s free cash flow (FCF)? What are Computron’s “net uses” of its FCF?

Free Cash Flow

Computron’s Free Cash Flow caluclation is the cash flow actually availabe for distribution to investors after the company has made all necessary investments in fixed assets and working capital to sustain ongoing operations.

FCF =

Net Investment in Operating Capital

Uses of FCF:

After-tax interest payment =

Reduction (increase) in debt =

Payment of dividends =

Repurchase (Issue) stock =

Purchase (Sale) of short-term investments =

Total uses of FCF =

f. Calculate Computron’s return on invested capital. Computron has a

10%

WACC

Cost of Capital (WACC)

Return on Invested Capital

The Return on Invested Capital tells us the amount of NOPAT per dollar of operating capital.

ROIC =

÷

Operating Profitability

The operating profitability (OP) ratio shows how many dollars of operating profit are generated by each dollar of sales.

OP =

Sales

Capital Utilization

The capital utilization (CR) ratio shows how many dollars of operating assets are needed to generated a dollar of sales.

CR =

Total Op. Cap.

Operating profitability declined and the capital utlization worsened, each contributing to the big decrease in ROIC.

g. What is Computron’s EVA? The after-tax cost of capital was 10 percent in both years.

Economic Value Added

Economic Value Added represents Computron’s residual income that remains after the cost of all capital, including equity capital, has been deducted.

EVA =

Operating Capital x

$0

EVA =

$0.0

h. What happened to Computron’s market value added (MVA)?

Year-end common stock price

$8.50

$6.00

Year-end shares outstanding (in millions)

100,000

Earnings per share (EPS)

Bart Kreps: An increase in Earnings Per Share either means the company is generating more net income or they are reducing the amount of common shares outstanding. Shares that are repurchased by the company are called Treasury stocks.

Dividends per share (DPS)

Bart Kreps: The same rational holds for interpreting Dividends Per Share data. If the company increases their dividend payout policies or reduces shares outstanding, DPS will increase.

$0.11

$0.22

Market Value Added

Assume that the market value of debt is equal to the book value of debt. In this case, Market Value Added (MVA) is the difference between the market value of Computron’s stock and the amount of equity capital supplied by shareholders.

MVA =

Stock price

# of shares

Total common equity

i. Assume that a corporation has

$100,000

$5,000

$10,000

Operating income =

Interest income =

Dividends =

Taxable dividends=

Taxable Income:

Corporate

Tax Rate

If a corporation’s taxable income is between:

It pays this amount on the base of the bracket:

Plus this percentage on the excess over the base

(1)

(2)

(3)

(4)

$50,000

15.0%

$75,000

$7,500

25.0%

$13,750

34.0%

$335,000

$22,250

39.0%

$10,000,000

$113,900

$15,000,000

$3,400,000

35.0%

$18,333,333

$5,150,000

38.0%

and up

$6,416,667

Base amount of tax

<-- Might need a VLOOKUP formula.

Marginal tax rate in bracket

Income above base of bracket

Tax on income above base

Total tax liability:

j. Assume that you are in the 25 percent marginal tax bracket and that you have $5,000 to invest. You have narrowed your investment choices down to California bonds with a yield of 7 percent or equally risky ExxonMobil bonds with a yield of 10 percent. Which one should you choose and why? At what marginal tax rate would you be indifferent to the choice between California and ExxonMobil bonds?

Taxable vs. Tax Exempt bonds

ExxonMobil bonds at 10% vs. California muni bonds at

7%

Amount to invest

ExxonMobil Yield

California Yield

ExxonMobil =

Yield * (Investment)

Yield * (Investment) * (Tax Rate)

California =

Tax rate which you would be indifferent

Solve for T

Muni Yield =

Corp Yield *(1-Tax rate)

Tax Rate =

2< /

td>> Build a Model

2

15

es, free cash flow, and return on invested capital for the most recent year.

DA

EBIT

)

(Thousands of Dollars)

2016 2015

term investments

$94,500

47,250 45,000

94,500 90,000

444,600

90,000

$807,050 $768,600

40%

2016

=

–

2016 NOWC = –
2016 NOWC =
2015 NOWC = Operating current assets – Operating current liabilities
2015 NOWC = –
2015 NOWC =
2016

=

NOWC

2016 TOC = +
2016 TOC =
2015 TOC = NOWC + Fixed assets
2015 TOC = +
2015 TOC =
2016 2015
2016

TOC – TOC

2016 Inv. In TOC = –
2016 Inv. In TOC =
2016

=

EBIT x

2016 NOPAT = x
2016 NOPAT =
2016

NOPAT –

2016 FCF = –

2016 FCF =

2016

NOPAT / Total net operating capital

2016 ROIC = /
2016 ROIC =

per share

(in thousands)

15,000

Stock price x # of shares – Total common equity

MVA = x –
MVA = –
MVA =

NOPAT –

x

EVA = – x
EVA = –
EVA =

																																																																																																																													Solution	7/16/	15
Chapter:
Problem:
a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after ta						x
Lan & Chen Technologies: Income Statements for Year Ending December 31
	(Thousands of Dollars)																					2016									2015
Sales	$9	45,000	$900,000
Expenses excluding depreciation and amortization	812,700	774,000
		EBIT	$132,300	$126,000
Depreciation and amortization	33,100	31,500
$99,200		$	94,500
Interest Expense	10,470	8,600
EBT	$88,730	$85,900
Taxes (	40%	35,492	34,360
Net income	$53,238	$51,540
Common dividends	$43,300	$41,230
Addition to retained earnings	$9,938	$10,310
Lan & Chen Technologies: December 31 Balance Sheets
Assets
Cash and cash equivalents	$	47,250	$45,000
Short														–	3,800	3,600
Accounts Receivable	283,500	270,000
Inventories	141,750	135,000
Total current assets	$476,300	$453,600
Net fixed assets	330,750	3	15,000
Total assets		$807,050		$768,600
Liabilities and equity
Accounts payable	$		90,000
Accruals
Notes payable	26,262	9,000
Total current liabilities	$168,012	$144,000
Long-term debt
Total liabilities	$262,512	$234,000
Common stock		444,600
Retained Earnings	99,938
	Total common equity	$544,538	$534,600
Total liabilities and equity
Key Input Data
Tax rate
Net operating working capital
							NOWC		Operating current assets		Operating current liabilities
	Total net operating capital
							TOC				+		Fixed assets
Investment in total net operating capital
		Inv. In TOC =
Net operating profit after taxes
					NOPAT	( 1 – T )
Free cash flow
		FCF =	Net investment in operating capital
Michael C. Ehrhardt: Change in total net operating capital (TOC) from the previous year to the current year.	Kenneth D. Jackson: Short-Term Investments are not part of current operating assets	Kenneth D. Jackson: Notes Payable are not part of current operating liabilities
Return on invested capital
		ROIC =
b. Assume that there were 15 million shares outstanding at the end of the year, the year-end closing stock price was $65 per share, and the after-tax cost of capital was 8%. Calculate EVA and MVA for the most recent year.
Additional Input Data
	Stock price	$65.00
	# of shares
After-tax cost of capital	8.0%
Market Value Added
			MVA =
Economic Value Added
			EVA =	(Operating Capital	After-tax cost of capital)

Build a Model

15

$379,659 $327,240

(Thousands of Dollars)

2016 2015

Michael C. Ehrhardt: Due to rounding, the numbers calculated in the Chapter 2 problem may differ slightly from these.

$17,262

2016 2015

4,000

$20,000 $20,000

$5,000

2016 2015

NA

NA

2016

2015

Assets 2016 2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and equity 2016 2015
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

2016 2015

Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)

Net Income

Assets 2016 2015
Cash and cash equivalents
Short-term investments
Accounts Receivable
Inventories
Total current assets
Net fixed assets
Total assets

Base

Liabilities and equity 2016 2015
Accounts payable
Accruals
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained Earnings
Total common equity
Total liabilities and equity

Base

2016 2015

Sales
COGS except excluding depr. and amort.
Depreciation and Amortization
Other operating expenses
EBIT
Interest Expense
EBT
Taxes (40%)
Net Income

																																																																																																																																																																																						Solution	7/16/	15
Chapter:	3
Problem:
Joshua & White Technologies: December 31 Balance Sheets
	(Thousands of Dollars)
		Assets											2016
										2015
		Cash and cash equivalents	$21,000			$20,000
		Short-term investments	3,759	3,240
		Accounts Receivable	52,500	48,000
		Inventories	8	4,000	56,000
		Total current assets	$161,259	$127,240
		Net fixed assets	218,400	200,000
		Total assets		$379,659		$327,240
		Liabilities and equity
		Accounts payable	$33,600	$32,000
		Accruals	12,600	12,000
		Notes payable	19,929	6,480
		Total current liabilities	$66,129	$50,480
		Long-term debt	67,662	58,320
		Total liabilities	$133,791	$108,800
		Common stock	183,793	178,440
		Retained Earnings	62,075	40,000
		Total common equity	$245,868	$218,440
		Total liabilities and equity
Joshua & White Technologies December 31 Income Statements
		Sales	$420,000	$400,000
		COGS except excluding depr. and amort.	300,000	298,000
		Depreciation and Amortization	19,660	18,000
		Other operating expenses	27,600	22,000
		EBIT	$72,740	$62,000
		Interest Expense	5,740	4,460
		EBT	$67,000	$57,540
		Taxes (40%)	26,800	23,016
	Net Income
$40,200	$34,524
Common dividends	$18,125		$17,262
Addition to retained earnings	$22,075
Other Data
Year-end Stock Price	$90.00	$96.00
# of shares (Thousands)	4,052
Lease payment (Thousands of Dollars)
Sinking fund payment (Thousands of Dollars)		$5,000
Ratio Analysis	Industry Avg
Liquidity Ratios
Current Ratio	2.58
Quick Ratio	1.53
Asset Management Ratios
Inventory Turnover (Total COGS/Inventories)	7.69
Days Sales Outstanding	47.45
Fixed Assets Turnover	2.04
Total Assets Turnover	1.23
Debt Management Ratios
Debt Ratio (Total debt-to-assets)	20.0%
Liabilities-to-assets ratio	32.1%
Times-interest-earned ratio	15.33
EBITDA coverage ratio	4.18
Profitability Ratios
Profit Margin	8.86%
Basic Earning Power	19.48%
Return on Assets	10.93%
Return on Equity	16.10%
Market Value Ratios
Earnings per share			NA
Price-to-earnings ratio	10.65
Cash flow per share
Price-to-cash flow ratio	7.11
Book Value per share
Market-to-book ratio	1.72
a. Has Joshua & White’s liquidity position improved or worsened? Explain.
b. Has Joshua & White’s ability to manage its assets improved or worsened? Explain.
c. How has Joshua & White’s profitability changed during the last year?
d. Perform an extended Du Pont analysis for Joshua & White for 2008 and 2009.
ROE =	PM x	TA Turnover x Equity Multiplier
e. Perform a common size analysis. What has happened to the composition
(that is, percentage in each category) of assets and liabilities?
Common Size Balance Sheets
Common Size Income Statements
f. Perform a percent change analysis. What does this tell you about the change in profitability
and asset utilization?
Percent Change Balance Sheets			Base
Percent Change Income Statements

Ratios

Chapter 3 Mini Case The first part of the case, presented in Chapter 2, discussed the situation of

Computron

Industries after an expansion program. A large loss occurred in

2016

, rather than the expected profit. As a result, its ma

na

gers, directors, and investors are concerned about the firm’s survival. Jenny Cochran was brought in as assistant to Computron’s chairman, who had the task of getting the company back into a sound financial position. Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions to take. Your assignment is to help her answer the following questions, using the recent and projected financial information shown next. Provide clear explanations, not yes or no answers. Input Data: 2015

2016

2017E

Bart Kreps: Projections
Year-end common stock price $8.50 $6.00 $12.17 Year-end shares outstanding 100,000

100,000

250,000 Tax rate 4

0%

40% 40%
Lease payments $40,000

$40,000 $40,000
Balance Sheets Assets

2015 2016 2017E
Cash and equivalents $9,000 $7,282 $14,000 Short-term investments $48,600 $20,000 $71,632 Accounts receivable $351,200 $632,160 $878,000 Inventories $715,200 $1,287,360 $1,716,480 Total current assets $1,124,000 $1,946,802 $2,680,112 Gross Fixed Assets $491,000 $1,202,950 $1,220,000 Less Accumulated Dep. $146,200 $263,160 $383,160 Net Fixed Assets $344,800 $939,790 $836,840 Total Assets $1,468,800 $2,886,592 $3,516,952 Liabilities and equity Accounts payable $145,600 $324,000 $359,800 Notes payable $200,000 $720,000 $300,000 Accruals $136,000 $284,960 $380,000 Total current liabilities $481,600 $1,328,960 $1,039,800 Long-term bonds $323,432 $1,000,000 $500,000 Total liabilities $805,032 $2,328,960 $1,539,800 Common stock (100,000 shares) $460,000

$460,000

$1,680,936 Retained earnings $203,768 $97,632 $296,216 Total common equity $663,768 $557,632 $1,977,152 Total liabilities and equity

$1,468,800 $2,886,592 $3,516,952
Income Statements

2015 2016 2017E

Net sales $3,432,000 $5,834,400 $7,035,600 Costs of Goods Sold

Except Depr. $2,864,000 $4,980,000 $5,800,000 Depreciation

and amortization $18,900 $116,960 $120,000 Other Expenses $340,000

$720,000

$612,960 Total Operating Cost $3,222,900 $5,816,960 $6,532,960 Earnings before interest and taxes (

EBIT

) $209,100 $17,440 $502,640 Less interest $62,500 $176,000 $80,000 Pre-tax earnings $146,600 ($158,560) $422,640 Taxes (40%) $58,640 ($63,424) $169,056 Net Income before preferred dividends $87,960 ($95,136) $253,584 EPS $0.880 ($0.951) $1.014 DPS $0.220 $0.110

$0.220
Book Value Per Share $6.638 $5.576 $7.909 Cochran must prepare an analysis of where the company is now, what it must do to regain its financial health, and what actions should be taken. Your assignment is to help her answer the following questions. Provide clear explanations, not yes or no answers. a. Why are ratios useful? What three groups use ratio analysis and for what reasons? b. (1.) Calculate the current and quick ratios based on the projected balance sheet and income statement data. Calculated Data: Ratios Industry 2015 2016 2017E

Average Liquidity ratios Current Ratio
Bart Kreps: Current Assets divided by Current Liabilities. Quick Ratio
Bart Kreps: Current Assets minus Inventories divided by Current Liabilities. (2.) What can you say about the company’s liquidity position? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios? c. Calculate the inventory turnover, days sales outstanding (DSO), fixed assets turnover, operating capital requirement, and total assets turnover. How does Computron’s utilization of assets stack up against other firms in its industry?

Industry

Asset Management ratios

2015 2016 2017E Average
Inventory Turnover
Bart Kreps: COGS divided by Inventories. 6.10 Days Sales Outstanding
Bart Kreps: Accounts Receivable divided by average daily sales. 3

2.00 Fixed Asset Turnover
Bart Kreps: Sales divided by Net Fixed Assets. 7.00 Total Asset Turnover
Bart Kreps: Sales divided by Total Assets. 2.5

0 d. Calculate the debt ratio, liabilities-to-assets ratio, times-interest-earned, and EBITDA coverage ratios. How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios?

Industry

Debt Management ratios

2015 2016 2017E Average
Debt Ratio 32.0% Liabilities-to-assets Ratio
Bart Kreps: Total Debt divided by Total Assets. 5

0.0% Times Interest Earned
Bart Kreps: EBIT divided by interest charges. 6.20 EBITDA Coverage Ratio
Bart Kreps: (EBITDA + Lease Payments) / (Interest + Loan Payments + Lease Payments) 8.00 e. Calculate the profit margin, basic earning power (BEP), return on assets (ROA), and return on equity (ROE). What can you say about these ratios?

Industry

Profitability ratios

2015 2016 2017E Average
Net Profit Margin
Bart Kreps: Net Income divided by sales. 3.6% Operating Margin
Bart Kreps: EBIT divided by sales. 7.1% Gross Profit Margin
Bart Kreps: Net Income divided by (Sales – COGS). 15.5% Basic Earning Power
Bart Kreps: EBIT divided by Total Assets. 17.8% Return on Assets
Bart Kreps: Net Income divided by Total Assets. 9.0% Return on Equity
Bart Kreps: Net Income divided by Common Equity. 18.0% f. Calculate the price/earnings ratio, price/cash flow ratio, and market/book ratio. Do these ratios indicate that investors are expected to have a high or low opinion of the company?

Industry

Market Value ratios

2015 2016 2017E Average
Price-to Earnings Ratio
Bart Kreps: Price per share divided by Earnings Per Share. 14.20 Price-to-Cash Flow Ratio
Bart Kreps: P/CF ratio is calculated by dividing the price by the net cash flow per share. 7.60 Market-to-Book Ratio
Bart Kreps: Market Price per share divided by Book value per share. 2.90 Book Value Per Share
Bart Kreps: Common Equity divided by shares outstanding.

na
g. Perform a common size analysis and percent change analysis. What do these analyses tell you about Computron?

See the worksheet with the TAB “

Common Size and % Change

”

h. Use the extended DuPont equation to provide a summary and overview of Computron’s projected financial condition. What are the firm’s major strengths and weaknesses? DuPont Analysis ROE = P.M. X T.A.T.O. X Equity Multiplier Computron 2015
Computron 2016
Computron 2017E
Industry Average 18.00%

0.0% 2.5 2.00
i. What are some potential problems and limitations of financial ratio analysis? j. What are some qualitative factors analysts should consider when evaluating a company’s likely future financial performance?

Common Size and % Change

Balance Sheets 2015 2016 2017E Industry
Assets

Bart Kreps: Percentage of Total Assets.

Cash and equivalents

Short-term investments 0.3%
Accounts receivable

Inventories

Net Fixed Assets

Total Assets

100.0% 100.0% 100.0%

Accounts payable

Notes payable 2.4%
Accruals

Total current liabilities

Long-term bonds

Total common equity

Total liabilities and equity 100.0% 100.0% 100.0% 100.0%
Income Statements 2015 2016 2017E Industry

100.0%

Depreciation

Other Expenses

EBIT 7.1%
Less interest

Pre-tax earnings 5.9%
Taxes (40%) 2.4%
Net Income before preferred dividends 3.6%
Balance Sheets 2015 2016 2017E

Assets

Cash and equivalents 0%
Short-term investments 0%
Accounts receivable 0%
Inventories 0%
Total Current Assets 0%
Net Fixed Assets 0%
Total Assets 0%

Liabilities and equity

Accounts payable 0%
Notes payable 0%
Accruals 0%
Total current liabilities 0%
Long-term bonds 0%
Total common equity 0%
Total liabilities and equity 0%
Income Statements 2015 2016 2017E
Net sales 0%
Costs of Goods Sold 0%
Depreciation 0%
Other Expenses 0%
EBIT 0%
Less interest 0%
Pre-tax earnings 0%
Taxes (40%) 0%
Net Income before preferred dividends 0%

Common Size Statements
	0.3%
2		2.4%
41.2%
	Total Current Assets	64.1%
3	5.9%
								100.0%
Liabilities and equity Bart Kreps: Percentage of Total Liabilities and Equity.
11.9%
9.5%
23.7%
26.3%
50.0%
Net sales Bart Kreps: Percentage of Net Sales.
COGS except depr.	84.5%
4.0%
4.4%
1.1%
Percentage Change Analysis

Common Size Analysis and Percent Change Analysis
In common size analysis, all income statement items are divided by sales, and all balance sheet items are divided by total assets.
In percent change analysis, all items are expressed as a percent change from the first year, called the base year, of the analysis.