Ch02 P14 Build a Model Spring 1, 201372212Chapter 2. Ch 02 P14.docx
- 1. Ch02 P14 Build a Model Spring 1, 20137/22/12Chapter 2. Ch 02 P14 Build a ModelExcept for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted.a. Cumberland Industries' most recent sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000; the state-plus-federal corporate tax rate was 40% and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's income statement. Also calculate total dividends and the addition to retained earnings.The input information required for the problem is outlined in the "Key Input Data" section below. Using this data and the balance sheet above, we constructed the income statement shown below.Key Input Data for Cumberland Industries2010 (Thousands of dollars)Sales Revenue$455,000Expenses (excluding depreciation) as a percent of sales85.0%Net fixed assest$67,000Depr. as a % of net fixed assets10.0%Tax rate40.0%Interest expense$8,550Dividend Payout Ratio25%Cumberland Industries: Income Statement (Thousands of dollars)2010SalesOperating costs excluding depreciation EBITDADepreciation (Cumberland has no amortization charges) EBITInterest expense EBTTaxes (40%) Net incomeCommon dividendsAddition to retained earningsb. Cumberland Industries' partial balance sheets are shown below. Cumberland issued $10,000,000 of new common stock in the most recent year. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity. Dollar value of common stock issued (in thousands of dollars)$10,000Cumberland Industries December 31 Balance Sheets(in thousands of dollars)20102009AssetsCash and cash
- 2. equivalents$91,450$74,625Short-term investments11,40015,100Accounts Receivable108,47085,527Inventories38,45034,982 Total current assets$249,770$210,234 Net fixed assets67,00042,436Total assets$316,770$252,670Liabilities and equityAccounts payable$30,761$23,109Accruals30,40522,656Notes payable12,71714,217 Total current liabilities$73,883$59,982Long-term debt80,26363,914 Total liabilities$154,146$123,896Common stock$90,000Retained earnings38,774 Total common equity$128,774Total liabilities and equity$252,670Check for balancing (this should be zero):c. Construct the statement of cash flows for the most recent year. Statement of Cash Flows(in thousands of dollars)Operating ActivitiesNet IncomeAdjustments: Noncash adjustment: Depreciation Due to changes in working capital: Due to change in accounts receivable Kenneth D. Jackson: An increase in accounts receivable from the pevious year to the current year reduces the net cash provided by operating activities Due to change in inventories Kenneth D. Jackson: An increase in Inventory from the previous year to the current year reduces the net cash provided by operation activities Due to change in accounts payable Mike Ehrhardt: An increase in accounts payable increases cash flow. Due to change in accruals Mike Ehrhardt: An increase in accruals is a positive cash flow.Net cash provided (used) by operating activitiesInvesting Activities Cash used to acquire gross fixed assets Christopher Buzzard: Remember, to calculate cash used to acquire fixed assets, we must include depreciation, i.e., assets
- 3. purchased are equal to the increase in net assets plus depreciation. Due to change in short-term investments Mike Ehrhardt: Selling securities is a positive cash flow, buying securities is a negative cash flow.Net cash provided (used) by investing activitiesFinancing Activities Due to change in long-term debt Mike Ehrhardt: An increase in debt is a positive cash flow. Due to change in notes payable Mike Ehrhardt: An increase in debt is a positive cash flow. Due to change in common stock Mike Ehrhardt: An increase in common stock is a positive cash flow. Payment of common dividendsNet cash provided (used) by financing activitiesNet increase/decrease in cashAdd: Cash balance at the beginning of the yearCash balance at the end of the yearCheck: cash balance in statement of cash flows should equal the cash on balance sheets as shown here:$91,450 Sheet27/22/12 Financial Statements, Cash Flow, and Taxes: Spreadsheet Problems (2-14) Build a Model: Free Cash Flows, EVA, and MVA Begin with the partial model in the file Ch02 P14 Build a Model.xls on the textbook's Web site. a. Cumberland Industries's 2010 sales were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of net fixed assets; interest expenses were $8,550,000;
- 4. the state-plus-federal corporate tax rate was 40%; and Cumberland paid 25% of its net income out in dividends. Given this information, construct Cumberland's 2010 income statement. Also calculate total dividends and the addition to retained earnings. ( Hint: Start with the partial model in the file and report all dollar figures in thousands to reduce clutter.) b. Cumberland Industries's partial balance sheets are shown below. Cumberland issued $10,000,000 of new common stock in 2010. Using this information and the results from part a, fill in the missing values for common stock, retained earnings, total common equity, and total liabilities and equity. Cumberland Industries: Balance Sheets as of December 31 (Thousands of Dollars) 2010 2009 Assets Cash $ 91,450 $ 74,625 Short-term investments 11,400 15,100 Accounts receivable 108,470 85,527 Inventories 38,450 34,982 Total current assets $249,770 $210,234 Net fixed assets 67,000 42,436 Total assets
- 5. $316,770 $252,670 Liabilities and Equity Accounts payable $ 30,761 $ 23,109 Accruals 30,405 22,656 Notes payable 12,717 14,217 Total current liabilities $ 73,883 $ 59,982 Long-term debt 80,263 63,914 Total liabilities $154,146 $123,896 Common stock ? $ 90,000 Retained earnings ? 38,774 Total common equity ? $128,774 Total liabilities and equity ? $252,670 Cumberland Industries: Balance Sheets as of December 31 (Thousands of Dollars)View PDF
- 6. Back to Top P. 81 Analysis of Financial Statements: Spreadsheet Problem (3–15) Build a Model: Ratio Analysis Start with the partial model in the file Ch03 P15 Build a Model.xls from the textbook's Web site. Joshua & White (J&W) Technologies's financial statements are also shown below. Answer the following questions. (Note: Industry average ratios are provided in Ch03 P15 Build a Model.xls.) a. Has J&W's liquidity position improved or worsened? Explain. b. Has J&W's ability to manage its assets improved or worsened? Explain. c. How has J&W's profitability changed during the last year? d. Perform an extended Du Pont analysis for J&W for 2009 and 2010. What do these results tell you? e. Perform a common size analysis. What has happened to the composition (that is, percentage in each category) of assets and liabilities? f. Perform a percentage change analysis. What does this tell you about the change in profitability and asset utilization? Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars) Assets 2010 2009 Liabilities &Equity 2010 2009 Cash and cash equivalents
- 7. $ 21,000 $ 20,000 Accounts payable $ 33,600 $ 32,000 Short-term investments 3,759 3,240 Accruals 12,600 12,000 Accounts receivable 52,500 48,000 Notes payable 19,929 6,480 Inventories 84,000 56,000 Total current liabilities $ 66,129 $ 50,480 Total current assets
- 8. $161,259 $127,240 Long-term debt 67,662 58,320 Net fixed assets 218,400 200,000 Total liabilities $133,791 $108,800 Total assets $379,659 $327,240 Common stock 183,793 178,440
- 9. Retained earnings 62,075 40,000 Total common equity $245,868 $218,440 Total liabilities & equity $379,659 $327,240
- 10. Joshua & White Technologies: December 31 Balance Sheets (Thousands of Dollars)View PDF Joshua & White Technologies December 31 Income Statements (Thousands of Dollars) 2010 2009 Sales $420,000 $400,000 Expenses excluding depr. & amort. 327,600 320,000 EBITDA $ 92,400 $ 80,000 Depreciation and amortization 19,660 18,000
- 11. 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 Joshua & White Technologies December 31 Income Statements (Thousands of Dollars)View PDF Back to Top P. 116 Joshua & White Technologies December 31 Income Statements (Thousands of Dollars) (continued)View PDF Other Data
- 12. 2010 2009 Year-end stock price $ 90.00 $ 96.00 Number of shares (Thousands) 4,052 4,000 Lease payment (Thousands of Dollars) $20,000 $20,000 Sinking fund payment (Thousands of Dollars) $ 0 $ 0 Ch03 P15 Build a Model Spring 1, 20137/22/12Chapter 3. Ch 03 P15 Build a ModelExcept for charts and answers that must be written, only Excel formulas that use cell references or functions will be accepted for credit. Numeric answers in cells will not be accepted.Joshua & White Technologies: December 31 Balance Sheets(Thousands of Dollars)Assets20102009Cash and cash equivalents$21,000$20,000Short-term investments3,7593,240Accounts Receivable52,50048,000Inventories84,00056,000 Total current assets$161,259$127,240 Net fixed assets218,400200,000Total assets$379,659$327,240Liabilities and equityAccounts payable$33,600$32,000Accruals12,60012,000Notes payable19,9296,480 Total current liabilities$66,129$50,480Long-term debt67,66258,320 Total liabilities$133,791$108,800Common stock183,793178,440Retained Earnings62,07540,000 Total common equity$245,868$218,440Total liabilities and equity$379,659$327,240Joshua & White Technologies December 31 Income Statements(Thousands of Dollars)20102009Sales$420,000$400,000Expenses excluding
- 13. depr. and amort.327,600320,000 EBITDA$92,400$80,000Depreciation and Amortization19,66018,000 EBIT$72,740$62,000Interest Expense5,7404,460 EBT$67,000$57,540Taxes (40%)26,80023,016 Net Income Michael C. Ehrhardt: Due to rounding, the numbers calculated in the Chapter 2 problem may differ slightly from these.$40,200$34,524Common dividends$18,125$17,262Addition to retained earnings$22,075$17,262Other Data20102009Year-end Stock Price$100.00$96.00# of shares (Thousands)4,0524,000Lease payment (Thousands of Dollars)$20,000$20,000Sinking fund payment (Thousands of Dollars)$0$0Ratio Analysis20102009Industry AvgLiquidity Ratios Current Ratio2.58 Quick Ratio1.53Asset Management Ratios Inventory Turnover7.69 Days Sales Outstanding47.45 Fixed Assets Turnover2.04 Total Assets Turnover1.23Debt Management Ratios Debt Ratio32.1% Times-interest-earned ratio15.33 EBITDA coverage ratio4.18Profitability Ratios Profit Margin8.86% Basic Earning Power19.48% Return on Assets10.93% Return on Equity16.10%Market Value Ratios Earnings per shareNA Price-to-earnings ratio10.65 Cash flow per shareNA Price-to-cash flow ratio7.11 Book Value per shareNA Market-to-book ratio1.72a. 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. What did you find?ROE = PM xTA Turnover x Equity Multiplier20102009e. Perform a common size analysis. What has happened to the composition (that is, percentage in each category) of assets and liabilities?Common Size Balance SheetsAssets20102009Cash and cash equivalentsShort-term investmentsAccounts ReceivableInventories Total current
- 14. assets Net fixed assetsTotal assetsLiabilities and equity20102009Accounts payableAccrualsNotes payable Total current liabilitiesLong-term debt Total liabilitiesCommon stockRetained Earnings Total common equityTotal liabilities and equityCommon Size Income Statements20102009SalesExpenses excluding depr. and amort. EBITDADepreciation and Amortization EBITInterest Expense EBTTaxes (40%) Net Incomef. Perform a percent change analysis. What does this tell you about the change in profitability and asset utilization?Percent Change Balance SheetsBaseAssets20102009Cash and cash equivalentsShort-term investmentsAccounts ReceivableInventories Total current assets Net fixed assetsTotal assetsBaseLiabilities and equity20102009Accounts payableAccrualsNotes payable Total current liabilitiesLong-term debt Total liabilitiesCommon stockRetained Earnings Total common equityTotal liabilities and equityBasePercent Change Income Statements20102009SalesExpenses excluding depr. and amort. EBITDADepreciation and Amortization EBITInterest Expense EBTTaxes (40%) Net Income Sheet27/22/12