...CHAPTER 3 – ANALYZING FINANCIAL STATEMENTS Questions LG1-LG5 1. Classify each of the following ratios according to a ratio category (liquidity ratio, asset management ratio, debt management ratio, profitability ratio, or market value ratio). a. Current ratio – liquidity ratio b. Inventory turnover ratio – asset management ratio c. Return on assets – profitability ratio d. Accounts payable period – asset management ratio e. Times interest earned – debt management ratio f. Capital intensity ratio – asset management ratio g. Equity multiplier – debt management ratio h. Basic earnings power ratio – profitability ratio LG1 2. For each of the actions listed below, determine what would happen to the current ratio. Assume nothing else on the balance sheet changes and that net working capital is positive. a. Accounts receivable are paid in cash – Current ratio does not change b. Notes payable are paid off with cash – Current ratio increases c. Inventory is sold on account – Current ratio does not change d. Inventory is purchased on account– Current ratio decreases e. Accrued wages and taxes increase – Current ratio decrease f. Long-term debt is paid with cash – Current ratio decreases g. Cash from a short-term bank loan is received – Current ratio decreases LG1-LG5 3. Explain the meaning and significance of the following ratios a. Quick ratio - Inventories are generally the least liquid of a firm’s current assets. Further, inventory is the current...
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...Lewis Hodge Corporate Finance Company analysis May 8, 2015 3M Company (MMM) analysis Financial Statements The motive of this paper is to carry out a precise financial analysis on3M Company. Firstly, three important financial statements for this company will be highlighted. These statements are the income statement, balance sheet, and the statement of cash flow. These statements are attached in Microsoft excel. Ratio Analysis Following this, a number of ratios were computed in order to show specific trends in 3M Company. This included ratios that measured short term solvency or liquidity, long-term solvency, asset management or turnover ratios, and profitability. Along with the attached ratios, a table below will illustrate the market value ratios. Sony Market Value Ratios | 2012 | 2013 | 2014 | Price to Earnings | 14.71 | 20.87 | 21.93 | Peg ratio | 2.47 | 3.24 | 1.91 | Price/Sales | 3.29 | 2.53 | 3.16 | Market/book | 7.20 | 4.12 | 5.27 | Tobin's Q | 1.81 | 2.75 | 3.37 | Enterprise Value - EBTDA | 12.13 | 9.74 | 11.79 | General Electric Market Value Ratios | 2012 | 2013 | 2014 | Price to Earnings | 15.96 | 16.82 | 21.38 | Peg ratio | 7.63 | 1.56 | 3.74 | Price/Sales | 1.46 | 1.62 | 1.85 | Market/book | 1.71 | 1.89 | 1.99 | Tobin's Q | .34 | .41 | .35 | Enterprise Value - EBTDA | 11.94 | 11.64 | 13.34 | According to this evaluation of these ratios it can be stated that 3M Company is fairly valued. When compared to General...
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...MAKING ENTERPRISE RISK MANAGEMENT PAY OFF Thomas L. Barton William G. Shenkir Paul L. Walker Prentice Hall PTR One Lake Street Upper Saddle River, NJ 07458 www.phptr.com Editorial/Production Supervision: KATHLEEN M. CAREN Executive Editor: JIM BOYD Marketing Manager: BRYAN GAMBREL Manufacturing Manager: MAURA ZALDIVAR Cover Design: TALAR BOORUJY ©2002 Financial Executives Research Foundation, Inc. Published by Financial Times/Prentice Hall PTR Pearson Education, Inc. Upper Saddle River, NJ 07458 Prentice Hall books are widely used by corporations and government agencies for training, marketing, and resale. The publisher offers discounts on this book when ordered in bulk quantities. For more information, contact: Corporate Sales Department, Phone: 800-382-3419; Fax: 201-236-7141; E-mail: corpsales@prenhall.com; or write: Prentice Hall PTR, Corp. Sales Dept., One Lake Street, Upper Saddle River, NJ 07458. All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ISBN 0-13-008754-8 Pearson Education LTD. Pearson Education Australia PTY, Limited Pearson Education Singapore, Pte. Ltd. Pearson Education North Asia Ltd. Pearson Education Canada, Ltd. Pearson Educación de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Pearson Education, Upper Saddle River, New Jersey A D V I S O R Y C O...
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...DuPont Performance Coatings Case By Jake Greenstein and Andrew Rubenstein October 28, 2015 Introduction In January 2012, Ellen Kullman, CEO and chairman of DuPont, had to decide on the future of DuPont Performance Coatings (“DPC”), a division of DuPont that produced paint for the auto and trucking industries. From the beginning of Kullman’s term as CEO in January 2009, she sought to transition the Company from an economically struggling commodity chemical business (with a 2009 stock price below $19) to a specialty chemical and science-driven business (Exhibit ). Kullman believed DuPont was best positioned for a future at the core of industrial biotechnology by competing in agriculture, nutrition, and advanced materials, areas with larger growth potential and higher margins. With expected revenue growth of 3-5% coupled with expected operating margins of a mere 10-12%, DPC must outperform in order to fit Kullman’s strategic initiative. Overall, Kullman needed to determine whether or not to divest DPC through an auction process and to whom she should sell the division. DuPont Performance Coatings Overview Created in March 1999 through the merger of Herberts GmbH and Dupont Automotive Finishes, DPC produces paint for the auto and trucking industries. DPC’s products included high-performance liquid and powder coatings for motor vehicle original equipment manufacturers (“OEMs”), motor vehicle aftermarket, and general industrial applications. DPC generated 11% of DuPont’s total...
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...1-310-919-0950 Hi rlaughter1981 StudyMode.com Essays Book Notes AP Notes More Essays » Chemistry Dupont Case By tweaklefairy, Feb 2009 | 9 Pages (2,231 Words) | 1641 Views | 12345 Report | This is a Premium essay for members like you Executive Summary DuPont has been known for its low reliance on borrowings. In the 1970’s, the company had to assume a substantial portion of debt of Conoco, a newly acquired company. In 1983, the managers have to decide about the future optimal target debt ratio. Should the company continue to keep about 40% of its assets financed via debt or should it strive to lower its borrowings to 25%? We defined several criteria to determine our choice – return, risks and other quantitative and qualitative factors. Targeting a debt ratio of 40% will maximize the firm’s value. A higher earning’s per share and dividends per share will lead to a higher stock price in the future. Due to leveraging, return on equity is higher because debt is the major source of financing capital expenditures. To maintain the 40% debt ratio, no equity issues will be declared until 1985. DuPont will be financing the needed funds by debt. For 1986 onwards, minimum equity funds will be issued. It will be timed to take advantage of favorable market condition. The rest of the financing required will be acquired by issuing debt. Case Context DuPont is a very big company with a low debt policy designed to maximize financial flexibility and insulate operations...
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...million -Short Ratio= 6.76 times -EPS= .70 -Price to Earnings to Growth .98 times -Total Asset 1.46 Billion -Market Capitalization -Current Assets= $828.48 million -Current Liabilities= $240.33 million Quick Ratio= .47 times -I could not find a cash ratio for the electronic equipment industry. -Inventory Turnover= 12.29 -Days’ Sales in inventory= 14.12 days -Receivables Turnover= 7.69 -Days’ Sales in Receivables= 42.76 days -NWC Turnover= 22.37 -Fixed asset turnover= 4.22 -Total asset turnover= .49 -P/E ratio= 17.10 -Equity multiplier= 1.73 - I could not find the times interest earned ratio for this industry -I could not determine Apple’s cash coverage ratio because they did not report any depreciation. PART 4: DuPont...
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...Case studies Acknowledgements We are grateful to the following for permission to reproduce copyright material: ‘Getting to know you’ (Acreman, S. and Pegram, B.), originally published in Research Magazine, November 1999, pp. 36–41. In some instances we have been unable to trace the owners of copyright material, and we would appreciate any information that would enable us to do so. Case 1 Nike sprints ahead of the competition? Nike was founded by Bill Bowerman, the legendary University of Oregon track and field coach, and Phil Knight, a University of Oregon business student and middle-distance runner under Bowerman. The partnership began in 1962 as Blue Ribbon Sports (BRS); their first-year sales totalled $8,000. In 1972 BRS changed its name to Nike, named after the Greek winged goddess of victory. Nike employs 22,000 people worldwide, from Nike World Headquarters in Oregon. With 1,500 employees working at the Laakdal Customer Service Centre, Belgium has the most employees of any EMEA (Europe, Middle East and Africa) country. The Netherlands is a close second, with 1,200 employees working at the European HQ in Hilversum. Nike is the number one athletic footwear company in the US and the number two American brand in terms of name recognition among overseas consumers, a status shared with IBM and second only to Coca-Cola. This high degree of recognition is probably one of the main reasons Nike has been so immensely successful. For the 2001 fiscal year sales...
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...Case studies Acknowledgements We are grateful to the following for permission to reproduce copyright material: ‘Getting to know you’ (Acreman, S. and Pegram, B.), originally published in Research Magazine, November 1999, pp. 36–41. In some instances we have been unable to trace the owners of copyright material, and we would appreciate any information that would enable us to do so. Case 1 Nike sprints ahead of the competition? Nike was founded by Bill Bowerman, the legendary University of Oregon track and field coach, and Phil Knight, a University of Oregon business student and middle-distance runner under Bowerman. The partnership began in 1962 as Blue Ribbon Sports (BRS); their first-year sales totalled $8,000. In 1972 BRS changed its name to Nike, named after the Greek winged goddess of victory. Nike employs 22,000 people worldwide, from Nike World Headquarters in Oregon. With 1,500 employees working at the Laakdal Customer Service Centre, Belgium has the most employees of any EMEA (Europe, Middle East and Africa) country. The Netherlands is a close second, with 1,200 employees working at the European HQ in Hilversum. Nike is the number one athletic footwear company in the US and the number two American brand in terms of name recognition among overseas consumers, a status shared with IBM and second only to Coca-Cola. This high degree of recognition is probably one of the main reasons Nike has been so immensely successful. For the 2001 fiscal year sales...
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...Department of Management Information Systems Group London School of Economics and Political Science Working Paper Series 150 Leslie Willcocks, David Feeny and Nancy Olson “The Feeny-Willcocks Governance Framework Revisited: Implementing Core IS Capabilities" October 2006 Department of Management Information Systems Group London School of Economics and Polical Science Houghton Street London WC2A 2AE telephone +4 4 (0)20 7 955 7655 fax +44 (0 )20 7 955 7385 e-mail is@ lse.ac.uk home page http://is.lse.ac.uk/ © the author 2006 The Feeny-Willcocks Governance Framework Revisited: Implementing Core IS Capabilities Leslie Willcocks London School of Economics Willcockslp@aol.com David Feeny Templeton College, Oxford David.Feeny@templeton.ox.ac.uk Nancy Olson Warwick University Nancyox20@aol.com and Abstract In 1998, Feeny and Willcocks published a core IS capabilities framework suggesting four tasks and nine capabilities for any future IT function. This paper revisits the framework, examining the challenges and learning points from its implementation in two organizations from 1997 to 2005. The contrasting cases, studied longitudinally, involved a medium size organization beginning to outsource, and a global manufacturing company that had 10-year $US 4 billion outsourcing arrangements with two suppliers. Longitudinal case research revealed a range of omissions and resulting problems and underlined the importance of: retaining enough architecture planning...
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...1. Financial Statement Analysis 2. Financial Statement Analysis• Assessment of the firm’s past, present and future financial conditions• Done to find firm’s financial strengths and weaknesses• Primary Tools: – Financial Statements – Comparison of financial ratios to past, industry, sector and all firms 3. Objectives of Ratio Analysis• Standardize financial information for comparisons• Evaluate current operations• Compare performance with past performance• Compare performance against other firms or industry standards• Study the efficiency of operations• Study the risk of operations 4. Uses for Ratio Analysis• Evaluate Bank Loan Applications• Evaluate Customers’ Creditworthiness• Assess Potential Merger Candidates• Analyze Internal Management Control• Analyze and Compare Investment Opportunities 5. Horizontal, Vertical, & Trend Analysis• Horizontal Analysis = calculating the Rupee change and % change in financial statement amounts across time• Vertical Analysis (Common Size Analysis) = changing all Rupee values for accounts to % values.• Trend Analysis = Using the “first” year as a base year, calculate future year Rupee values as a ratio. 6. Types of Ratios• Financial Ratios: – Liquidity Ratios • Assess ability to cover current obligations – Leverage Ratios • Assess ability to cover long term debt obligations• Operational Ratios: – Activity (Turnover) Ratios • Assess amount of activity relative to amount of resources used – Profitability Ratios • Assess...
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...Chapter 3 Analyzing Financial Statement Five major areas to analyze. (1) (2) (3) (4) (5) (1) a) Liquidity Position Management of Assets Management of Debt Company's Profitability Market's View of Company Liquidity Ratios - use to investigate the relationship between a firm's current (shortterm) assets and current (short-term) liabilities. Current Ratio = Current Assets Current Liabilities Current Assets - Inventory Current Liabilities Cash + Marketable Securities Current Liabilities b) Quick Ratio (Acid-test) Cash Ratio = c) = (2) Asset Management Ratios - Use to evaluate how efficiently management employs assets. Inventory Management a) b) Inventory Turnover Days’ Sales in Inventory = = Cost of Goods Sold (or Sales) Inventory Inventory Average Sales/day Accounts Receivable Management a) Average Collection = Period (ACP) Accounts Receivable Turnover = Accounts Receivable Average Sales/day Sales Accounts Receivable b) Accounts Payable Management a) Average Payment = Period (APP) Accounts Payable Turnover = Accounts Payable Cost of Goods Sold / day Cost of Goods Sold Accounts Payable b) Fixed Asset and Working Capital Management a) b) Fixed Asset Turnover Sales to Working Capital = Sales Net Fixed Assets Sales Net Working Capital = Total Asset Management a) b) Total Asset Turnover Capital Intensity = = Sales Total Assets Total Assets Sales (3) Debt Ratios - use to evaluate riskiness of company (remember higher risk equates to higher...
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...Krishnan & Abena P. Kuttin-Saulka Columbia University TMGTK4115: Accounting and Finance for Technology Abstract Objective: To analyze the effects of Bed Bath & Beyond’s (BBBY) rapid expansion strategy on the company and to determine if such a strategy is sustainable. Methods: We used data extracted from financial statements and applied sustainability ratios such as the DuPont ratio. Results: Bed Bath & Beyond will greatly benefit from pursuing its expansion policy in both the short and long term. Key Words: Sustained long-term growth, excellent customer service, promote-from-within policy. Table of Contents Executive Summary 3 Business, Operating and Expansion Strategies 3 Consistency in Strategy and Potential Changes 5 Current Performance and Keys to its Current Success 6 Competitors 7 Strouds 7 Lechters 8 JC Penney 8 Linens ‘n Things 8 Competitive Analysis 9 The Bargaining Power of Suppliers 9 Bargaining Power of Buyers 9 The Threat of New Entrants 9 Threat of Substitutes 9 Industry Rivalry 10 ROE and DuPont ratio analysis 10 3-Point DuPont Ratio 10 5-Point DuPont Ratio 10 ROE and growth rate 11 Strategic Considerations and Recommendation 12 References 13 Appendix A 14 Appendix B 14 Appendix C 14 Appendix D 15 Appendix E 15 Appendix F 15 Appendix G 16 Executive Summary Team United is an external independent consulting group hired by the board of directors of Bed Bath & Beyond (BBBY) to review and analyze the...
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...DuPont Case Team 11 (Five Guys) Mark Desens, Drew Barker, Leo Rodriguez, Matt Wilson, Ken Kim 7/21/2014 Executive Summary The Titanium Dioxide industry experienced a dramatic demand rising over the previous decade. But changes in market conditions, including the increasing price of rutile ore and rising concerns about ecologically hazardous wastes released by plants that use the sulfate process for production, forced manufactures to make major shifts in capital expenditures to comply with new environmental legislation. At that time, Du Pont had already developed its ilmenite chloride process, a technology that uses lower grade ores and produces less waste than sulfate. With an established competitive advantage over its industry rivals, the executive committee decided to re-evaluate its capacity expansion strategy to analyze whether maintain or grow current market share. Assumptions (Based on facts) Since maintenance and replacement costs were expected to approximate depreciation allowances over time (as per Tips and Hints), depreciation expenses were expected to be included in the pretax operating expenses (given condition). Therefore it is not necessary to add depreciation each year to calculate operating cash flow, and then add back the same amount to capital expenditures. These two procedures just offset each other, so they are left out from calculation. At the end of the project (1985) DuPont...
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...Communication Plan You Decide – Defining a Communication Plan Marketing Management Abstract Graves Enterprises, makers of floor care product offers both consumer and commercial grade products to the market. The goal of conducting this analysis is to recognize integrated marketing communication (IMC) and evaluate proposed approaches of the marketing communication plan along with expected impact on the business and its profits. Our current focus is in developing the consumer product area. Introduction Graves Enterprises’ is evaluating marketing of our products to the clients. We have been focused on expansion and have developed new users of our products. The decision to expand was a chartered business plan and a strategic move. The decisions made during the expansion and exercising the proposed plans will have implications across the finance, marketing and operational areas of the company. Our current focus is in developing the consumer product area based on the recommendations of the integrated marketing communications. This report is my analysis of what my directors and financial analyst recommend to achieve our goal of understanding what impact the marketing plan will have on profit margin. The consumer product team is visionary and is planning in keeping with the future of direction of the team. Some concerns are voiced from the commercial products team which I will review before I close but let me begin with the summary of what the consumer products team...
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...Accounting at the Harvard Business School. He had wrote a journal entitled “The Evolution of Management Accounting” in 1983. The purpose of this article is to summarize the development of management accounting, including the new demands for management information, and to develop a research strategy to meet these demands i) THE EVOLUTION OF MANAGEMENT ACCOUNTING (From Robert S. Kaplan point of view) In his paperwork, he divided it into five sections. • Section 1 - Development of cost accounting practices from the early textile mills and railroads (circa 1850) through the formation of the great industrial enterprises in the U.S. and the emergence of the scientific management approach. • Section 2 - Management control innovations of the DuPont Corporation and the General Motors Corporation after its reorganization by Pierre du Pont and Alfred Sloan in 1920. • Section 3 - Development in cost accounting and managerial control form 1925 to the present. • Section 4 - Challenges from the contemporary environment that may not be met by the accounting practices developed more than 60 years ago for a substantially different competitive situation. • Section 5 - Agenda for field based research to document or develop innovative management control practices appropriate for the changing industrial environment. ii) A SUMMARY OF HISTORICAL DEVELOPMENTS IN MANAGEMENT ACCOUNTING STAGE 1 - COST ACCOUNTING The development of cost accounting and management control practices...
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