Deck 9: Analyzing and Forecasting Financial Statements

Question 1

What is the biggest difference between the income statement and the balance sheet?

Answer 1

The income statement indicates revenues, expenses and profits over a period of time, while the balance sheet shows the assets owned and the source of funds for those assets at a point in time.

Question 2

What purpose does the statement of cash flows serve?

Answer 2

It shows the flow of cash throughout the firm over a period of time and explains the changes in the firm's cash account balance.

Question 3

Harvest Biotech recently ended their fiscal year by paying $3,000,000 in total dividends and retaining $4,500,000 in earnings. If they have 10 million shares outstanding, what are their earnings per share and dividends per share for the fiscal year just ended?

Answer 3

EPS = NI / Shares OS = 7.5 / 10 = .75; DPS = Dividends / Shares OS = 3 / 10 = .30

Question 4

Burger Baron has a DSO of 45 days. Their annual sales are $3.6 million. What is the value of their accounts receivable?

Question 5

Brand X has current assets of $30 million. Their current ratio is 1.5 and their quick ratio is 1.0. What are Brand X's current liabilities and inventory?

Question 6

Bumstead Beauty Products has an ROA of 15%, a NM of 3%, and an ROE of 18%. What is their TAT ratio and EM?

Question 7

Ipswich Insurance has an equity multiplier of 2.5. The firm's assets are financed with a combination of long-term debt and common equity. What is their debt ratio?

Question 8

Main Street Motors has $600,000 of debt on its balance sheet, on which it pays 15% interest annually. Their sales are $5 million per year, and the net margin on those sales is 4%. The corporate tax rate for Main Street is 35%. Their debt agreement requires them to maintain a times interest earned (TIE) ratio of 4, or else their loans will not be renewed and they will face bankruptcy. Should the managers be concerned?

Question 9

A firm has a current ratio of 2.0 and a quick ratio of 1.6. If the firm doubles their inventory and intends to pay for it within 30 days of receipt, what will be their new current ratio?

Question 10

The controller of the firm where you work has determined that the firm's return on equity (ROE) is 15%. The president is interested in the various components that went into this calculation. You are given the following information: Total Debt / Total Assets = 0.35, and the total assets turnover ratio (TAT) is 2.8. What is the net margin (NM)?

Question 11

You are given the following data for the Susquahanna Hat Company:

Question 12

Scranton Rubber has $1.5 million in current assets and $650,000 in current liabilities. Their present inventory level is $350,000. They want to increase inventory, and they intend to raise the funds by issuing short-term notes payable. How much can they increase their short-term debt (notes payable) without pushing their current ratio below 2.0?

Question 13

Hang Ten Surfing Supplies have annual sales of $25 million, of which 3% goes to net margin. Their balance sheet indicates that they carry $7.5 million in debt, on which they pay interest of 10%. They pay corporate taxes of 40%. What is their EBIT?