FINANCIAL MANAGEMENT

CHAPTER 8: FINANCIAL ANALYSIS

Question 1:
Balance sheet for Lowe’s Companies:
Year 2008 2007
Assets
Current assets:
Cash and marketable securities 661 530
Accounts receivable 166 247
Inventories 8,209 7,611
Other current assets 215 298
Total current assets 9,251 8,686

Fixed assets:
Tangible fixed assets
Property, plant, and equipment 31,477 28,836
Less accummulated depreciation 8,755 7,475
Net tangible fixed assets 22,722 21,361

Long-term investments 253 509

Other long-term assets 460 313
Total assets 32,686 30,869

Liabilities and Shareholders' Equity:

Current liabilities:
Debt due for repayment 1,021 1,104
Accounts payable 4,543 4,137
Other current liabilities 2,458 2,510
Total current liabilities 8,022 7,751

Long-term debt 5,039 5,576

Deferred income taxes 660 670
Other long-term liabilities 910 774
Total liabilities 14,631 14,771

Common Stock and other paid-in capital 735 729

Retained earnings and capital surplus 17,320 15,369
Total shareholders' equity 18,055 16,098
Total liabilities and shareholders' equity 32,686 30,869

Market price per share (2008): $18.19/share

Total number of oustanding shares (2008): 1,470 shares

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Income statement: 2008

Net sales 48,230
Cost of goods sold 31,729
Selling, general, and administrative expenses 11,158
Depreciation 1,539
Earning before interest and tax (EBIT) 3,804
Interest expense 298
Taxable income 3,506
Tax 1,311
Net Income 2,195

Dividends 491
Addition to retained earnings 1704

Calculate the following financial ratios:

 Performance: Market to book ratio, Market value added (MVA)

 Profitability: ROA, ROE, and ROS.
 Efficiency: asset turnover, receivable turnover, inventory turnover, and payable turnover.
 Leverage: Long-term debt ratio, Debt-Equity ratio, and Debt ratio.
 Liquidity: Net working capital, Net working capital to Total Asset, Current ratio, Quick ratio
and Cash ratio.
 Cash cycle (Average Days in Inventory, Average collection period, Average payment
period).

Question 2:
Income Statement 2018
Cost of goods sold $ 6,220.00
Depreciation $ 890.00
Interest $ 460.00
Dividend paid $ 140.00
Selling and general expenses $1,950.00
Addition to retained earnings $ 330.00
Tax rate 34%
What are the sales for 2018?

Question 3:

Net Sales ????

Cost of Goods Sold $6,800

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Depreciation $500
Tax 20%
Selling and Administrative Expense $2,300
Interest Payment $347
Dividend Paid $1,400 (30% of net income)
Question 4:
As you can see, someone has spilled ink over some of the entries in the balance sheet and
income statement of Transylvania Railroad (Table 1 and Table 2). Can you use the following
information to work out the missing entries?

Times-interest-earned 8.0
Current ratio 2.5
Quick ratio 1
Cash ratio 0.8
ROE 0.9
Inventory turnover ratio 5
Receivable turnover ratio 12.2
Receivables collection period 30
Table 1: Balance sheet of Transylvania Railroad
Balance sheet Dec-09 Dec-08
Cash 150
Account Receivable 180
Inventory 250
Total current assets 580
Net fixed assets 1290
Total assets 1870
Notes payable 130 180
Accounts payable 268 234
Total current liabilities 414
Long-term debt 500
Equity 956
Total liability and equity 1580 1870
Table 2: Income statement of Transylvania Railroad
Sales
Cost of goods sold
Selling, general, and administrative expenses 89
Depreciation 120
EBIT
Interest
Earnings before tax

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Tax (20%)
Net income
Question 5:
Balance Sheet
Assets 2018 2017
Current assets
Cash and marketable securities 661 530
Accounts receivable 166 247
Inventories 8,209 7,611
Other current assets 215 298
Total current assets 9,251 8,686

Fixed assets
Tangible fixed assets
Property, plant, and equipment 31,477 28,836
Less accumulated depreciation 8,755 7,475
Net tangible fixed assets 22,722 21,361

Long term investments 253 509

Other long-term assets 460 313
Total assets 32,686 30,869

Liabilities and Shareholders' Equity 2018 2017

Current liabilities
Debt due for repayment 1,021 1,104
Accounts payable 4,543 4,137
Other current liabilities 2,458 2,510
Total current liabilities 8,022 7,751

Long term debt 5,039 5,576

Deferred income taxes 660 670
Other long term liabilities 910 774
Total liabilities 14,631 14,771

Common Stock and other paid-in- 735 729

capital
Retained earnings and capital surplus 17,320 15,369
Total shareholders' equity 18,055 16,098
Total liabilities and shareholders' 32,686 30,869
equity

Income Statement 2018

Net sales 48,230

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Cost of goods sold 31,729

Selling, general, and administrative 11,158
expenses
Depreciation 1,539
Earning before interest and taxes (EBIT) ?
Interest expense 298
Earning before taxes (EBT) ?
Tax (20%) ?
Net Income ?

Dividends (30%) ?
Addition to retained earnings (70%) ?
Look up the latest financial statement for a company:
a. Fill in the blank (?) of Income statement.
b. Calculate the following financial ratios:
 Return on asset (ROA), return on equity (ROE)
 Current ratio, quick ratio
 Cash cycle (Average Days in Inventory, Average collection period, Average payment
period).

THE END

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