FIN 300 Lecture Notes - Lecture 5: Effective Interest Rate, Operating Margin, Gross Margin

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6 Dec 2017

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Shares within tfsa allows you to keep . 25 of the original in earnings: Your total effective tax rate is the corporate tax rate of 35% Shares outside your tfsa allows you to keep . 47 of the original in earnings: Your total effective tax rate is (1. 75 + 0. 78)/5 =2. 53/5 = 50. 6% The capital available in the short term to run the business: Net working capital = current assets - current liabilities. Market price per share x number of shares. Does not depend on historical cost of assets. Quick ratio = (cid:3048)(cid:3045)(cid:3045)(cid:3041)(cid:3047) (cid:3046)(cid:3046)(cid:3047)(cid:3046) (cid:3041)(cid:3049)(cid:3041)(cid:3047)(cid:3042)(cid:3045)(cid:3046) (cid:3048)(cid:3045)(cid:3045)(cid:3041)(cid:3047) (cid:3028)(cid:3029)(cid:3047)(cid:3046) Roe = net profit margin x asset turnover x (total assets/book value of equity) Answer: 3 x 2 x (40/17) = 14. 1. Answer: 3 x (2x1. 2) x (40/17) = 16. 9. Actual growth rate = (sales this year - sales last year) / sales last year. Sustainable growth rate = roe x (1 - payout ratio) or (net income/beginning) x (1 - payout ratio)

Related Questions

Use the following information to answer the following questions.

ABC, Inc. Income Statement (in thousands)

December 31, 2014

Sales $200,000

Cost of goods sold 140,000

Gross profit on sales 60,000

Operating expenses 56,000

Operating income (EBIT) 4,000

Interest expense 1,000

Earnings before tax 3,000

Income tax 1,050

Net income available to common stockholders $1,950

Number of shares outstanding 1, 500

Market price per share $22

ABC, Inc. Balance Sheet (in thousands)

December 31, 2014

Assets

Cash $2,000

Accounts receivable 17,800

Inventories 8,700

Total current assets 28,500

Gross fixed assets 70,000

Accumulated depreciation 26,500

Net fixed assets 43,500

Total assets $72,000

Liabilities and Equity

Accounts payable $18,000

Accruals 13,350

Total current liabilities 31,350

Long-term debt 8,250

Total liabilities 39,600

Common stock (par value and paid in capital) 2,000

Retained earnings 30,400

Total stockholders' equity 32,400

Total liabilities and equity $72,000

Industry Key Ratios

Industry Average Ratios

Current ratio 1.1

Quick ratio 0.60

Days Sales Outstanding (DSO) 25 days

Fixed assets turnover 5.8

Total asset turnover 2.95

Liabilities-to-assets ratio 65%

Times-interest-earned 3.2

Net profit margin 1.3%

Return on equity 7.32%

Price/earnings ratio 20.38

Market/book ratio 3.19

Calculate current ratio and acid test ratio for the firm.

Calculate DSO, fixed assets turnover, and total asset turnover for the firm.

Calculate liabilities-to-assets ratio and times-interest-earned ratio for the firm.

Calculate net profit margin and return on equity for the firm.

Evaluate the performance of the firm in the following areas:

Liquidity management

Asset management

Debt management

Profitability management

When you explain the firm

skymallard37

Millions of USD (except for per share items)	2015	2014
Sales	$ 114,826	$ 114,960
Cost of Goods Sold	86,483	86,714
Gross Profit	28,343	28,246
Selling/General/Admin. Expenses, Total	22,663	22,053
Operating Income	5,680	6,193
Interrest and Taxes	2,336	2,600
Net Income	$ 3,344	$ 3,593


Market Price/Share	$ 65.68	$ 84.26
Shares Outstanding	3,210	3,210

Millions of USD (except for per share items)	As of 2015	As of 2014
Cash & Equivalents	$ 7,759	$ 6,012
Total Receivables, Net	5,813	6,096
Total Inventory	46,310	45,315
Prepaid Expenses	2,251	1,811
Total Current Assets	62,133	59,687
Property/Plant/Equipment, Total - Gross	138,614	142,830
Total Assets	$ 200,747	$ 202,517

Accounts Payable	37,224	36,347
Accrued Expenses	18,685	17,807
Notes Payable/Short Term Debt	799	3,517
Current Port. of LT Debt/Capital Leases	6,468	3,566
Other Current liabilities, Total	6,448	6,684
Total Current Liabilities	69,624	67,921
Total Long Term Debt	42,964	48,233
Deferred Income Tax	8,169	8,164
Minority Interest	3,416	5,111
Total Liabilities	124,173	129,429
Total Equity	76,574	73,088
Total Liabilities & Shareholders' Equity	200,747	202,517
	-	-
Total # Common Shares Outstanding	$ 3,227	$ 3,230

Category	Two Ratios from Each Category	Ratio	Formula	2015	2014
Liquidity	Current and Quick Ratio	Current	Current Assests/Current Liabilites
		Quick	(CA - Inventories)/Current Liabilites
Asset Management	Total Assets Turnover, Total Fixed Asset Turnover	Total Assets Turnover,	Sales/Total Assets
		Total Fixed Asset Turnover	Sales/Total Fixed Assets
Debt Management	Debt to Assets and Debt to Equity	Debt to Assets	Total Liabilities / Total Assests
		Debt to Equity	Total Liabilities / Common Stockholders Equity
Profitability Ratio	Return on Assets and Return on Equity	Return on Assets	Net Income/Total Assets
		Return on Equity	Net Income/Common Equity
Market Ratio	Earnings Per Share and Price to Earnings Ratio	Earnings Per Share	Net Income / Common Shares Outstanding
		Price to Earnings Ratio	Market Price of Shares/Earning Per Share

whitemoose644

Given the financial statements for Jones Corporation and SmithCorporation:

JONES CORPORATION
Current Assets					Liabilities
Cash			$	22,000	Accounts payable	$	127,000
Accounts receivable				81,100	Bonds payable (long term)		85,600
Inventory				50,000
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	526,000			Common stock	$	150,000
Less: Accumulated depreciation		150,700			Paid-in capital		70,000
Net fixed assets*				375,300	Retained earnings		95,800
Total assets			$	528,400	Total liabilities and equity	$	528,400


Sales (on credit)	$	1,326,000
Cost of goods sold		790,000
Gross profit	$	536,000
Selling and administrative expense^â		304,000
Depreciation expense		59,800
Operating profit	$	172,200
Interest expense		14,500
Earnings before taxes	$	157,700
Tax expense		99,600
Net income	$	58,100

*Use net fixed assets in computing fixed asset turnover.
â Includes $13,500 in lease payments.

SMITH CORPORATION
Current Assets					Liabilities
Cash			$	38,400	Accounts payable	$	83,300
Marketable securities				12,700	Bonds payable (long term)		217,000
Accounts receivable				74,300
Inventory				83,700
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	504,000			Common stock	$	75,000
Less: Accumulated depreciation		255,800			Paid-in capital		30,000
Net fixed assets*				248,200	Retained earnings		52,000
Total assets			$	457,300	Total liabilities and equity	$	457,300

*Use net fixed assets in computing fixed asset turnover.

SMITH CORPORATION
Sales (on credit)	$	1,100,000
Cost of goods sold		640,000
Gross profit	$	460,000
Selling and administrative expense^â		272,000
Depreciation expense		56,500
Operating profit	$	131,500
Interest expense		24,300
Earnings before taxes	$	107,200
Tax expense		56,500
Net income	$	50,700

^âIncludes $13,500 in lease payments.

a. Compute the following ratios. (Use a360-day year. Do not round intermediate calculations. Input yourprofit margin, return on assets, return on equity, and debt tototal assets answers as a percent rounded to 2 decimal places.Round all other answers to 2 decimal places.)

	Jones Corp.		Smith Corp.
Profit margin		%		%
Return on assets (investments)		%		%
Return on equity		%		%
Receivable turnover		times		times
Average collection period		days		days
Inventory turnover		times		times
Fixed asset turnover		times		times
Total asset turnover		times		times
Current ratio		times		times
Quick ratio		times		times
Debt to total assets		%		%
Times interest earned		times		times
Fixed charge coverage		times		times

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FIN 300 Lecture Notes - Lecture 5: Effective Interest Rate, Operating Margin, Gross Margin

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