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MGAB02H3 Lecture Notes - Lecture 5: Free Cash Flow, Playstation 3, Newstalk Zb

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peachturtle345
6 Jan 2016
School
UTSC
Department
Financial Accounting
Course
MGAB02H3
Professor
George Quan Fun

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Document Summary

While depreciation is indeed added to net earnings to compute cash flow from operating activities, the new controller"s idea will not work. If depreciation expense is increased, net earnings will decrease by exactly the same amount. When depreciation is added to the new net earnings amount, the sum will be exactly the same as the amount that was computed before depreciation was increased. The only way to increase cash flow from operation is to increase cash revenues, decrease cash expenses (other than depreciation), or improve the efficiency of operations (such as collecting receivables more quickly or operating with less inventory). Cash flows from operating activities indirect method. Decrease in trade receivables (,000 ,000) Increase in salaries payable (,000 ,000) Decrease in other accrued liabilities (,000 ,100) Net cash provided by operating activities (,900) The reasons that caused capaz to report a net loss but positive cash flow are: (1) depreciation expense, and (2) changes in non-cash working capital items.

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Related Questions

I need Answers to Question from P - V!

I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.

Dallas & Associates Financial Statement Preparation & Analysis

You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.

Overview of Dallas & Associate’s Balance Sheet

The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associate’s only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firm’s current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.

Dallas & Associates Income Statement in 2017 (dollars are in millions)

Sales 15

Operating costs excluding depreciation and amortization

 5
EBITDA 10

Depreciation & Amortization

 0.6
EBIT 9.4
Interest 0.4
EBT 9

Taxes (40%)

 3.6

Net Income

Cash Dividends

5.4

2.0

Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.

Questions:

a. Prepare the balance sheet.

Total Assets

Liabilities & Shareholder’s Equity

b. What is the amount of total liabilities and equity that appears on the firm’s balance?

c. What is the amount of current assets?

d. What is the balance of current liabilities?

e. What is the amount of company’s inventory?

f. What is the amount of total liabilities?

g. What is the amount of total debt?

h. What is the amount of total capital?

i. What is the amount of net working capital?

j. What is the amount of net operating working capital?

k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?

l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?

m. As the Income of Statement shows in 2017 Dallas associates actually gave out $2 million cash dividends, what is the amount of retained earnings?

n. What is the amount of operating income?

o. What are the operating margin and the profit margin?

p. What is the average length of time that Dallas associates must wait after making a sale before it receives cash?

q. What is the ratio we generally use to estimate a firm’s ability to meet its annual interest payments? And calculate that ratio for Dallas associates.

r. What are the fixed assets turnover ratio and the total asset turnover ratio?

s. What is the ratio of total debt to total capital?

t. What is the ratio of return on common equity?

u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate Dallas & Associates free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] – [Capital Expenditures + Change on Net Operating Working Capital])

v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?

THANK YOU!

I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.

Dallas & Associates Financial Statement Preparation & Analysis

You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.

Overview of Dallas & Associate’s Balance Sheet

The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associate’s only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firm’s current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.

Dallas & Associates Income Statement in 2017 (dollars are in millions)

Sales 15

Operating costs excluding depreciation and amortization

 5
EBITDA 10

Depreciation & Amortization

 0.6
EBIT 9.4
Interest 0.4
EBT 9

Taxes (40%)

 3.6

Net Income

Cash Dividends

5.4

2.0

Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.

Questions:

a. Prepare the balance sheet.

Total Assets

Liabilities & Shareholder’s Equity

b. What is the amount of total liabilities and equity that appears on the firm’s balance?

c. What is the amount of current assets?

d. What is the balance of current liabilities?

e. What is the amount of company’s inventory?

f. What is the amount of total liabilities?

g. What is the amount of total debt?

h. What is the amount of total capital?

i. What is the amount of net working capital?

j. What is the amount of net operating working capital?

k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?

l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?

m. As the Income of Statement shows in 2017 John & Jon actually gave out $2 million cash dividends, what is the amount of retained earnings?

n. What is the amount of operating income?

o. What are the operating margin and the profit margin?

p. What is the average length of time that John & Jon must wait after making a sale before it receives cash?

q. What is the ratio we generally use to estimate a firm’s ability to meet its annual interest payments? And calculate that ratio for John and Jon.

r. What are the fixed assets turnover ratio and the total asset turnover ratio?

s. What is the ratio of total debt to total capital?

t. What is the ratio of return on common equity?

u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate John & Jon’s free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] – [Capital Expenditures + Change on Net Operating Working Capital])

v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?

THANK YOU!

GOOGLE: Morningstar® Document Research FORM 10-K GENERAL MILLS INC - GIS Filed: June 29, 2017 (period: May 28, 2017) Annual report with a comprehensive overview of the company​ FOR THE ANNUAL REPORT

Instructions: Use the financial statements from the annual report for the year ended 5/28/2017 for General Mills. The Annual Report is on MOODLE. Answer the questions after each question. Use a different font to distinguish your answer from the question. All answers should be in your own words. Do not cut and paste from the annual report. Answers will be graded for content and written communication skills. Use complete sentences.

*****MAKE A NOTATION HERE IF THE DOLLAR AMOUNTS ARE STATED IN MILLIONS.

1. Who are the external auditors for General Mills? What does their Report of Independent Registered Public Accounting firm indicate about the amounts represented in the company’s financial statements?

2. What specific title does General Mills use for its income statement? What type of income
statement does General Mills issue? (multi-step, single–step, or condensed multi-step)
Explain.

3. Did they disclose EPS as discussed in class? Explain. What about the EPS presentation
did we not discuss in ACC 3100?

4. How does General Mills define Cash Equivalents? Is this consistent with the textbook?

5. What is the amount of cash and cash equivalents reported for the year ended at May 28, 2017 and for the year ended at May 29, 2016. By how much has cash and cash equivalents increased/decreased? Show calculations.

6. Create a table illustrating the amount General Mills reports for net cash flows from operating, investing, and financing activities in its statement of cash flow for the year ended May 28, 2017. (Note: Include any effect of exchange rates on cash.) Show calculations. Compare your answers to question 5.


7. What amount is the balance in the Allowance for Doubtful Accounts at 5/28/2017? How is the estimate for Allowance for Doubtful Accounts determined?

8. What was the gross balance of trade receivables at 5/28/2017? What was the dollar amount of bad debt expense for the year ended 5/28/2017? How many accounts were written off (Dollar amount)?

9. What inventory method is used to value inventory in and out of the US?

10. What is the balance of their LIFO reserve account 5/28/2017?

11. What impact (dollar amount and increase or decrease) did the LIFO Reserve adjustment have on Cost of Goods Sold?

12. Which depreciation method(s) is used for PP& E? What estimates are made for the useful life of the different categories of assets?

13. What was total depreciation and amortization expense fiscal year ended 5/28/2017? Where were these amounts reported in the financial statements?

14. What was the major component of total PP&E? What was its amount and what percentage was it of the total for the year ended 5/28/2017?

15. What percentage of total PP&E has been depreciated as of 5/28/2017?

16. Did General Mills capitalize any interest in the fiscal year ended 5/28/2017? If so, what was the amount?

17. Did General Mills dispose of any property and equipment during the year ended 5/28/2017? If so, what was the cash proceeds?

18. Did General Mills issue more new long term debt than they paid in long term debt payments for the year ended 5/28/2017? Explain, show amounts.

19. Create a table to show the components of Comprehensive Income that was attributable to General Mills for the year ending 5/28/2107?

20. Create a table to show the components and amounts of General Mills’ Accumulated Other Comprehensive income(loss) for the year ending 5/28/2017 and 5/29/2016?

21. When does General Mills review impairment for long-lived assets? What is their measurement of an impairment loss based on for long-lived assets?

22. What is the amount of General Mills goodwill? Did General Mills have an impairment loss on Goodwill during fiscal year ended 5/28/2017? What are the standards for testing goodwill(How often and how is it tested)?

23. List any other indefinite life intangibles? How much was the impairment loss General Mills recorded for fiscal year ending 5/31/2015 and why was impairment indicated?

24. The Financial Accounting Standards Board (FASB) issued two new accounting requirements in 2017 that were mentioned in General Mills’ annual report? What are the standards and what is the expected impact of these new standards to the financial statements?

25. General Mills uses the three-level fair value hierarchy for disclosure. What level are the majority of their assets and liabilities measured at 5/28/2017? According to your textbook, how is this level defined?

26. When does General Mills recognize revenue? Do they handle consistently with the material presented in ACC 3100?

27. What was General Mills’ current ratio and working capital as of 5/28/2017? Show calculations.

28. Is the Statement of Changes in Stockholder’s Equity (Consolidated Statements of Total Equity, and Redeemable Interest) consistent with what we learned in class? Explain-indicate similarities and differences.

29. According to the MD&A (begins on p. 15) did General Mills’ Selling, general, and
administration expenses increase or decrease in fiscal year ended 5/28/2017? What was
the primary reason for the change?

30. In two detailed paragraphs, indicate a couple of interesting items you learned while
reading this annual report.