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    charpter-ratio analysis

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    charpter-ratio analysis

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    138 views17 pages

    Chapter 3

    Uploaded by

    Anahisa Quintanilla
    charpter-ratio analysis

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    Download as pdf
    of 17
    agaall uc ala Fin 200 AgILall 3 ga Gu jde SOeVEENIAY dhe khalidabdelazim@gmail.com Chapter 3 FORO RHO RIOR RIOR IIR HR IOI Sy sla il gall Sats yy all OOS oe ees Sar Line May oye cpa fe Sources and Uses _Gtslaiiw'\ 9 jstuaalt Sources of cash : A firm’s activities that generate (or bring) cash. (Cash inflow) Decrease in asset accounts & Increase in liability or equity account. (GSks Ga BAS ) AN (ss gh) als NS SN A ga: Aga alias ASL Sia gl aguas) hla Bik slly © eee ohh i yall Uses (or applications) of cash: A firm’s activities that involve spending cash.(Cash outflow) Increase in asset accounts & Decrease in liability or equity accounts. (GIS gS BS) . As Ga gle os glad a AS AN Aba) ey Ayah (caYLandad gf ) cabaladaud ASL gla gi ppundll bbe (23 Gallly © gue Glue boo jl P.(9) Based only on the following information for Sweeney Corp., did cash go up or down? By how much? Classify each event as a source or use of cash. Decrease in inventory $375 Decrease in accounts payable 190 Increase in notes payable 210 Increase in accounts receivable 105 ApH pladaut gh jaca oan OS Gs 9,8; Seuss ah Cand of ASG Jo ald AMUN ils gleall gle oly 105 Gairall Ba «© 210 aba Bly shdaky © 190 cetlall Galt 6 375 Gs jAall Galisl Solution ; Decrease in inventory is a source of cash Decrease in accounts payable is a use of cash Increase in notes payable is a source of cash Increase in accounts receivable is a use of cash Changes in cash = sources — uses = 375-190+ 210-105 = 290 Cash increased by 290 P.(11) For the year just ended, Wallin Frozen Yogurt shows an increase in its net fixed assets account of $835. The company took $148 in depreciation expense for the year. How much did Wallin spend on new fixed assets? Is this a source or use of cash? $835 alae: GH Gyuatl pie Ghee gi Subj sel "al Suen GUI «gl Lesill dual Soarall KAN gual) 54S yA BEN AS Lull ADL) las GHG 148 4S pill cota gs, SAGEM paddy) reene fhe Ua Solution : Net investment in FA = = NFA end — NFA tice ) + Depreciation 835 + 148 = 983 This is a use of cash. : é a5 (Khalidabdelazim@gmaileom — +8+\EEXYA% lys — paialye a: ske|) Q. A firm has the following current account values. What effect did the change in net working capital have on the firm's cash flows for 2009? ABI cles teas Sata GaN Gh piles (2B ast 85 ge Le Aa a pista) Aba ad ual AS 8 £2009 plal ds ail 4ysah 2008 2009 Cash $ 87 $112 accounts receivable 309 321 inventory 919 868 accounts payable 617 714 A. net use of cash of $37 B. net use of cash of $83 C. net source of cash of $83 D. net source of cash of $111 _ E. net source of cash of $135 Solution : (D) Net source of cash = - 25 - 12 +51+ 97=$111 Statement of Cash Flows 4-3 ailédsih Lait Is financial statement that summarizes its sources and uses of cash over a specified period. Is financial statement that explain reasons the change in the cash balance by the knowledge of the impact of operating activities, investment, and finance on the movement of cash during a certain period of time . (Boone 8 8 OMS Au) GLalastuls plies Gadl Ubs Lali ga cle Gages | SURLY y « GA A 8h Apes Ge Ge Asli) ae gb oH hah eae gs Alle Lath Fine Lie 5 5 pd OS Asi 4S a Changes divided into three major categories: (1) Operating Activity : includes, net income, Depreciation and changes in current accounts (except cash , Short-term investments, Short-term borrowings & Notes Payable) (2) Investment Activity : includes, change in Total fixed assets. (3) Financing Activity : includes, changes in Short-term investments , notes payable, Short- term borrowings, long-term debt, and equity accounts (except retained earnings ) as well as dividends . IRL, «All Lae a) Aglaia LLaeall pbc pails « DAY « SS pile Jats: Qatsll bits (abst SLualy « Ga) Syne Gag ily « Ga Yt Eyal (CADWY + AEH geet cite ced sll gh) GWU Gyuet olla of stl Judy 2 lati buds Cogelly Sa) 5 yma ga g sly « aia Gly ghy « GaN 5 ped A LSA gi ol stl Jay : bs paill bLas Fe Spall CLIN lt GLEYG (bjateall CLUY) labs ) Usb) bbe s Ja) dig : é a5 (Khalidabdelazim@gmaileom — +8+\EEXYA% lys — paialye a: ske|) Example: Balance Sheet ($ in Millions ) Income Statement 2009 Cash AR Inventory Other CA Total CA Net FA Total Assets 2009 696 956 301 303_ 2,256 3.138 2008 58 992 361 264 1,675 3,358 5394 5,033 AP /P Other CL Total CL LT Debt C/S (Common Stock) Total Liab.& Equity There are 190.9 million shares outstanding. prepare an Statement of Cash Flows 2009 | 2008 Revenues 5,000 307 | 303 ©) Cost of Goods Sold | 2,006 26 119 (-) Expenses 1,740 1.662 | 1,353 ) Depreciation 116_ 1,995 | 1,775 EBIT 1,138 843 | 1,091 ©) Interest Expense 7 2,556 | 2,167 Taxable Income 1,131 5,394 | 5,033 © Taxes 42 Net Income EPS 3.61 Dividends per share 1.08 Statement of Cash Flows 2009 (§ in Millions ) Cash, beginning of year a ly Las 58 Operating Activity : pauiat busi Net Income sal giles 689 Plus: Depreciation Day + cla; 116 Decrease in A/R syed 3 Gadi 36 Decrease in Inventory 3 Ral 3 Galil 60 Increase in A/P Go sthl 64 5a hh 4 Increase in Other CL GAY! Asli & (8 52 3M 309 Less: Increase in other CA GAY) 4 slaiall Ugo) i bab SM: quads 39 Net Cash from Operations bell gy Ayal ile 1175 Investment Activity : 2 et bus Sale of Fixed Assets A Sguel ae 104 Net Cash from Investments SA LAY ye Aaah ile 104 Financing Activit da geil bLSs Decrease in Notes Payable ats Bs) eb call -93 Decrease in LT Debt al dpb oss 4 ell -248 Decrease in C/S (minus RE) Fuslall gu! Ged Gail “94 Dividends Paid de saat de spall cL YI =206 Net Cash from Financing a saill Cys Apatite 641 Net Increase in Cash Ags Bats jN Sle 638 Cash, End of Year Fad Ags Aas 696 Notes : 1- Change in total fixed assets = - 220 + Depreciation 116 = -104 2- Dividends paid = 190.9 = 1.08 = 206 3- Change in Common Stock C/S : Additions to RE = 689 —206 = 483 3 jatnall cl DU Ged) Change in C/S = 2556 — 2167 — 483 = -94 ask La Spat eg Au 2 yh s 5 jot Tasted peu cet scl NCA joe Algal heal At Ub gS 5 ol bay 3 jatl CLM cb till ol Guay ¢ B jatnll cl YY Cpanel aidll fhe (yb olin $8 9 « (common Stock) Aol) “onlay lS Spl) taht Lath 2 asa : é a5 (Khalidabdelazim@gmaileom — +8+\EEXYA% lys — paialye a: ske|) Standardized statements make it easier to compare financial information, particularly as the company grows.Also, They are also useful for comparing companies of different sizes, particularly within the same industry. Hs Ball Bagh Leash hg, gah AS AN ALLS ¢ MLM ile led) As dad AN ges BSI yah Gag Laas il il Aetiall jail Joi Lola uns ll pleat) GIS GIS All Ga (1) Common-Size Statements (Vertical Analysis) Comigh dutaall ) Syitall apa ait sb A standardized financial statements presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales. (A) Common-Size Balance Sheets : Compute all accounts as a percent of total assets. (B ) Common-Size Income Statements : Compute all line items as a percent of sales Cot Magia aS Aaa gal Ah jul gi Coa ey Agi Laat Lge (ne tll asa pl A lus LN al Sazeall (ya Aaghe Aus Saal) Lad a gh gah glleal ye dy sto Anais Gi baall JS Guus: Ayia 0 salle dasa ais 9 gill JS Cua: ej pa Bt) Coy Sota ¢ aT Sota AS jute jill ORE A standardized financial statement presenting each item relative to the base-year value of that item. Select a base year and then express each item relative to the base-year value of that item. This is useful for picking up trends through time. = Ges Aa gd sil Pa Aad (oll Ayatlly aby US path A hes Alls Lad CAS yee SUNY ean gb he UB y ula Aina ot NT Hh gh QM ab SS aa Ge ya Bo ul) Ais gaat 3) Combined Common-Size and Base-Year Analysis: AS siall Guituitt Ais g i cisiall anol Guus aaall Jules Express each item in base year as a percent of either total assets or sales. Then, compare each subsequent year’s common-size percent to the base-year percent (abstracts from the growth in assets and sales). Fe IS AA geal Aas See oS leseall gh Upeeh leas cps Aa phe Aaess Guts die Fab US Ge jell (Slagally gual gb gaill Lae ) pl Ais (gf Ay gall Lully A ha apall Gye diy Example: The following are the balance sheet and income statement of one of the companies : Balance Sheet ($ in Millions ) 2008 2009 Cash 84 98 A/R (Accounts receivable) 165 188 Inventory 393 422 Total CA 642 708 Net plant and equipment 2731 2880 Total assets 3373 3588 A/P (Accounts payable) 312 344 N’P (Notes payable) 231 196 Total CL 543 540 Long-term debt 531 457 Common stock and paid-in surplus. 500 550 Retained earnings 1799 2041, 2299 2591 Total liabilities and owners’ equity 3373 3588 : é a5 (Khalidabdelazim@gmaileom — +8+\EEXYA% lys — paialye a: ske|) Income Statement 2009 ($ in Millions ) Sales 2311 Cost of Goods Sold 1344 Depreciation 276 Earnings before interest and taxes 691 Interest paid 141 Taxable Income 350 Taxes (34%) 187 Net Income 363 Dividends 121 Addition to retained earnings 242 (1) Prepare the 2009 common-size Income Statement. (2) Prepare the 2008 and 2009 common-size balance sheets. (3) Prepare the 2009 common-— base year balance sheet (4) Prepare the 2009 combined common-size, common-base year balance sheet Solution : common-size Income Statement 2009 Sales Cost of Goods Sold Depreciation Earnings before interest and taxes Interest paid Taxable Income Taxes (34%) Net Income Dividends 5.2% Addition to retained earnings 10.5 % 100 % 58.2% 11.9% 29.9 % 6.1% 23.8 % 8.1% 15.7% Solution (2) Solution Solution 2008 2009 2008 2009 (3) (4) Current assets Cash 84 98 2.5% 2.7% 117 1.08 Accounts receivable 165 188 4.9% 5.2% 1.14 1.06 Inventory 393 422 11.7% 11.8 % 1.07 1.01 Total CA 642 708 19.1% | 19.7% 1.10 1.03 Fixed assets Net plant and equipment 2.731 2,880 | 80.9% | 80.3 % 1.05 0.99 Total assets 3,373 | 3.588 | 100% 100 % 1.06 1.00 Current Liabilities Accounts payable 312 344 9.2 % 9.6 % 1.10 1.04 Notes payable 231 196 6.8 % 5.5% 0.85 O81 Total CL, 543 540 16 % 15.1% 0.99 0.94 Long-term Liabilities Long-term debt 531 457 15.7% | 12.7% 0.86 0.81 Owners” Equity Common stock and paid-in surplus 500 550 14.8 % 15.3 % 1.10 1.03 Retained earnings 1,799 | 2,041 | 53.3% | 56.9% 1.13 1.07 Total OE 2,299 | 2,591 | 681% | 72.2% 1.13 1.06 Total liabilities and owners’ equity 3.373 3,588 100 %% 100 % 1.06 1.00 ° As wlagll 8 ge Aad y id Rusts Sewy dia (Khalidabdelazim@gmail.com — ++ £E0VA9 diga — pplaliue als : she} ) ig Saal tha Questions From previous exams (1) Increases in a accounts receivable are considered : 1 peat Ladd) ell 24 Sate 3M (a) Depreciation (b) Cash inflow (c) Cash outflow — (d) Losses Solution : (Cc) c28 GS gis (2) Areduction in the inventory is a: 1 Os JAA gd pst (a) Use of Cash. (b) Source of cash (c) Depreciation Solution : (B) 4G jas (3) Increase in net fixed assets is a: a) Depreciation b) Source of cash c) Use of cash Solution: (Cc) (4) The increase in accounts payable is considered: a) Cash outflow b) Cash inflow ©) Losses Solution: (B) (5) The components of the cash flow statement are: got Ayal tds) Lat Ga Ss a) Operating cash flow, capital structure and change in net working capital b) Operating activities, financing activities and investment activities c) Cash flow from assets, cash flow to creditors and cash flow to stockholder Solution: (B) (6) Common-size balance sheets : 13) fide pans Aye geal bp juall (a) Compute all line items as a percent of sales . (b) Compute all accounts as a percent of total assets. (c) Compute all accounts as a percent of last year total assets. (d) Deals with all accounts in the balance sheet with equal size. Solution : (B) geet clbaal Ga 4y gts duds GULuall JS Quast (7) To create a common size income statement .........00.... all items on the income statement by ..............0.. ba one GSA Last (98 9 gill aya Sl fitia pas Ss Lill ebay (a) multiply; net income (b) multiply; total revenue (c) divide; net income (d) divide; total revenue Solution : (D) WINN ellen « aac : é a5 (Khalidabdelazim@gmaileom — +8+\EEXYA% lys — paialye a: ske|) (8) The wo... items are calculated by dividing each item by the total assets . Opal gllan) le oy JS Lands Llu ay (a) common size income statement (b) common base year (c) common size balance sheet Solution : (Cc) Q.. A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory? GABE ppall Lath oy jal ad gt be A. 13.36 % B. 14.16 % C. 19.38 % D. 30.42 % E. 43.06 % Solution : (A) Common-size inventory = 310 / (1600 + 720) = 13.36 % Q. A firm has sales of $3,400, net income of $390, total assets of $4,500, and total equity of $2,750. Interest expense is $40, What is the common-size statement value of the interest expense? Sal ual aaah Lastly Basted) ay pune Lad pa be A. 0.89 % B. 1.18 % C. 3.69 % D. 10.26 % E. 14.55 % Solution : (B) Common-size interest = 40 / 3400 = 1.18 % Q.. Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $218, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $198, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of accounts receivable? +8509 Gg 3dally «8218 Oeurally G52 Ash Ya AS p80) oats

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