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ADM 1340 Study Guide - Midterm Guide: Promissory Note, Share Capital, Issued Shares

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School
University of Ottawa
Department
Administration
Course
ADM 1340
Professor
Heri Rakotovololona

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ADM 1340 Full Course Notes
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ADM 1340 Full Course Notes
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Document Summary

Presents a snapshot of the company"s financial position (cid:523)assets, liabilities, and shareholder"s equity(cid:524) at a point in time. Liquidity order: from the most to least liquid (north american companies) Reverse liquidity order: from the least to most liquid (international. A resource controlled by the company as a result of past events from which future economic benefits are expected to flow to the company. Expected to be converted into cash, sold, or used up within one year of the company"s financial statement date or its operating cycle (cid:523)whichever is. Cash, short-term investments, receivables, inventories, supplies, prepaid expense. Assets that are not classified as current assets. Long-term investments, ppe (tangible/capital/fixed assets), intangible assets, goodwill. A present obligation of the company arising from past events where the settlement of which is expected to result in an outflow from the company of resources embodying economic benefits.

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Related Questions

Which statement is TRUE?

A. The relation between a company's return on common equity (ROCE) and return on net operating assets (RNOA) reveals information about the company's financial leverage.

B. Return on equity is the percentage increase in stock prices.

C. The accounting-based stock valuation formula calculates the value of a stock as the book value plus the present value of future expected dividends discounted at the cost of equity.

D. Practice considers a segment significant if its sales, operating income (or loss), or identifiable assets are 30% or more of the combined amounts of all the company's operating assets.

5. Which statement is TRUE?

A. Once the projected financial statements are prepared, there is no need for sensitivity analysis to examine the assumptions used in the preparation.

B. Prospective analysis should be performed after historical financial statements have been adjusted.

C. Prospective analysis should only be based on the firm’s historical financial statements.

D. Prospective analysis can only be used to project an income statement, a balance sheet, and a statement of cash flows.

6. Which statement is TRUE?

A. As cash is the most liquid of all assets and liquidity is crucial to a company, all companies should hold as much cash as possible.

B. If the company has available cash, they should always pay their bills immediately, even if suppliers give them time to pay before charging penalties.

C. It is possible for a profitable company to go out of business because of severe short-term liquidity problems.

D. Free cash flow in a given year is a better indicator of profitability than earnings.

Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.

Use formulas to calculate the following financial indicators for each year of data: Three fiscal years for Netflix and GEO Holdings for:

o Price to earnings ratio

o Debt to equity ratio

o Free cash flow

o Earnings per share

o Return on equity

o Net profit margin

V. Performance Over Time

A. Analyze the performance of the Netflix over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

B. Analyze the performance of your GEO Holdings over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

C. Analyze how the data differ between these two companies. Why do you think this is? Consider addressing the free cash flows and ratios you calculated earlier.

VI. Investment

A. Are the companies considered growth or value companies? Why?

B. Which company’s stock is the better investment?

Netflix Inc. (NMS: NFLX)
Exchange rate used is that of the Year End reported date
As Reported Annual Balance Sheet
Report Date 12/31/2016 12/31/2015 12/31/2014
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands
Cash & cash equivalents 1467576 1809330 1113608
Short-term investments 266206 501385 494888
Current content library, net - - 2125702
Current content assets, net 3726307 2905998 -
Other current assets 260202 215127 206271
Total current assets 5720291 5431840 3940469
Non-current content library, net - - 2773326
Non-current content assets, net 7274501 4312817 -
Information technology assets 185345 194054 189274
Furniture & fixtures 32185 30914 25758
Building 40681 40681 40681
Leasehold improvements 107945 107793 57339
DVD operations equipment 70152 88471 89144
Capital work-in-progress 108296 8845 12495
Property & equipment, gross 544604 470758 414691
Less: accumulated depreciation 294209 297346 264816
Property & equipment, net 250395 173412 149875
Other non-current assets 341423 284802 192981
Total assets 13586610 10202871 7056651
Current content liabilities 3632711 2789023 2117241
Accounts payable 312842 253491 201581
Accrued expenses 197632 140389 69746
Deferred revenue 443472 346721 274586
Total current liabilities 4586657 3529624 2663154
Non-current content liabilities 2894654 2026360 1575832
Long-term debt 3364311 2371362 900000
Other non-current liabilities 61188 52099 59957
Total liabilities 10906810 7979445 5198943
Common stock 1599762 1324809 60
Additional paid-in capital - - 1042810
Foreign currency -47966 -42502 -4615
Change in unrealized gains on available for sale securities -599 -806 169
Accumulated other comprehensive income (loss) -48565 -43308 -4446
Retained earnings (accumulated deficit) 1128603 941925 819284
Total stockholders' equity (deficiency) 2679800 2223426

1857708
Geo Holdings Corp (TOK: 2681)
Due to changes with International Financial Reporting Standards (IFRS), recent financials statement presentations have been adjusted to meet this standard. Please note the original historical presentations have remained in the original format
Exchange rate used is that of the Year End reported date
As Reported Annual Balance Sheet
Report Date 03/31/2016 03/31/2015 03/31/2014
Currency JPY JPY JPY
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Millions Millions Thousands
Cash & deposits 37683 32052 19869000
Trade notes & accounts receivables 4100 4077 3992000
Merchandise 24894 23834 23495000
Deferred tax assets 2156 1806 1773000
Other current assets 5462 7181 5942000
Allowance for doubtful accounts -281 -292 343000
Total current assets 74015 68659 54729000
Asset for rent, gross 100974 104514 104647000
Accumulated depreciation - asset for rent -95154 -97475 96055000
Asset for rent, net 5820 7038 8591000
Buildings & structures, gross 40872 39984 39478000
Accumulated depreciation - buildings & structures -27470 -26362 25976000
Buildings & structures, net 13402 13622 13501000
Land, net 5844 6356 6651000
Leased assets, gross 2176 3519 4576000
Accumulated depreciation - leased assets -681 -1764 2588000
Leased assets, net 1495 1754 1988000
Other property, plant & equipment, gross 24838 20562 17708000
Accumulated depreciation - other property, plant & equipment -18391 -15292 13236000
Other property, plant & equipment, net 6447 5270 4471000
Total property, plant & equipment 33010 34043 35205000
Total intangible assets 1865 1277 2028000
Investment securities 926 1002 1266000
Long-term loans receivable 2250 6682 6628000
Lease & guarantee deposits 14905 14735 15034000
Deferred tax assets 3342 3774 2845000
Other investments & other assets 1222 1188 1760000
Allowance for doubtful accounts -1332 -3751 3917000
Total investments & other assets 21315 23632 23617000
Total non-current assets 56192 58952 60851000
Total assets 130207 127612 115581000
Trade accounts payable 12631 13540 13124000
Current portion of long-term borrowings 8333 7097 8754000
Current portion of bonds 149 149 249000
Income taxes payable 4815 265 1170000
Reserve for bonuses 1665 1420 1135000
Other current liabilities 10135 12595 10279000
Total current liabilities 37731 35068 34713000
Bonds 105 254 403000
Long-term borrowings 19509 21843 13910000
Lease liabilities 1612 1660 1590000
Deferred tax liabilities 23 22 26000
Asset retirement obligations 4406 3994 3898000
Other non-current liabilities 1857 1554 1839000
Total non-current liabilities 27514 29329 21668000
Total liabilities 65246 64398 56381000
Capital stock 8871 8615 8603000
Capital surplus 3283 6090 6078000
Retained earnings 52542 49998 44381000
Treasury shares - -1979 334000
Total shareholders' equity 64697 62724 58729000
Valuation difference on available-for-sale securities 166 282 297000
Loss (gain) on deferred hedge -15 - 297000
Total accumulated other comprehensive income 150 282 172000
Stock acquisition rights 113 206 59199000
Net assets 64961 63214 115581000
Total liabilities & net assets 130207 127612
Netflix Inc. (NMS: NFLX)
Exchange rate used is that of the Year End reported date
As Reported Annual Income Statement
Report Date 12/31/2016 12/31/2015 12/31/2014
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands
Revenues 8830669 6779511 5504656
Cost of revenues 6029901 4591476 3752760
Marketing expenses 991078 824092 607186
Technology & development expenses 852098 650788 472321
General & administrative expenses 577799 407329 269741
Operating income (loss) 379793 305826 402648
Interest expense 150114 132716 50219
Interest & other income (expense) 30828 -31225 -3060
Income before income taxes - United States 188078 95644 325081
Income (loss) before income taxes - foreign 72429 46241 24288
Income (loss) before income taxes 260507 141885 349369
Current tax provision (benefit) - federal 54315 52557 86623
Current tax provision (benefit) - state 5790 -1576 9866
Current tax provision (benefit) - foreign 60571 26918 16144
Total current tax provision (benefit) 120676 77899 112633
Deferred tax provision (benefit) - federal -24383 -37669 -10994
Deferred tax provision (benefit) - state -14080 -17635 -17794
Deferred tax provision (benefit) - foreign -8384 -3351 -1275
Total deferred tax provision (benefit) -46847 -58655 -30063
Provision for (benefit from) income taxes 73829 19244 82570
Net income (loss) 186678 122641 266799
Weighted average shares outstanding - basic 428822 425889 420546
Weighted average shares outstanding - diluted 438652 436456 431893
Year end shares outstanding 430054.212 427940.44 422910.887
Net income (loss) per share - basic 0.44 0.29 0.634
Net income (loss) per share - diluted 0.43 0.28 0.617
Number of full time employees 4500 3500 2189
Number of part time & temporary employees 200 400 261
Total number of employees 4700 3700 2450
Number of common stockholders 290 237 203
Foreign currency translation adjustments -5464 -37887 -
Geo Holdings Corp (TOK: 2681)
Exchange rate used is that of the Year End reported date
As Reported Annual Income Statement
Report Date 03/31/2016 03/31/2015 03/31/2014
Currency JPY JPY JPY
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Millions Millions Thousands
Total revenue 267910 270308 262324000
Cost of sales -151798 -157825 152301000
Gross profit 116112 112483 110022000
Selling, general & administrative expenses -99559 -102925 100823000
Operating income 16552 9558 9198000
Interest & dividend income 49 114 111000
Rental income 1268 1167 1193000
Other non-operating income 1043 1062 453000
Total non-operating income 2361 2343 1758000
Interest expense -230 -231 332000
Rental expenses -759 -609 595000
Transfer to reserve for doubtful account - -227 -
Other non-operating expenses -100 -803 -
Total non-operating expenses -1089 -1871 684000
Ordinary income 17824 10030 1612000
Imapirment loss -1319 -1543 9344000
Other extraordinary losses -13 - 203000
Total extraordinary losses -1333 -1543 203000
Income before income taxes 16491 8486 1218000
Income taxes - current -5779 -2074 514000
Income taxes - deferred -147 925 87000
Total income taxes -5927 -1149 1821000
Profit 10563 7337 7726000
Profit attributable to owners of parent 10563 7337 4027000
Average number of shares outstanding - basic 51.331 53.169 -39000
Average number of shares outstanding - diluted 51.623 53.29 3987000
Year end shares outstanding 48.244 52.295 3738000
Earnings per share - basic 205.78 137.99 -70000
Earnings per share - diluted 204.62 137.68 3808000
Number of full time employees 3825 3579 53996.5
Number of part time employees 10421 10114 54066.499
Number of common stockholders 57105 65030 53996.5

Financing Decisions

Acme Inc. is a wholesaler and distributor of electricalcomponents. The most recent draft financial statements of thebusiness revealed the following:

Income statement for the year (in millions)

Sales revenue 14.2

Opening inventories 3.2

Purchases 8.4

Goods Available for Sale 11.6

Closing inventories (3.8)

Cost of Goods Sold (7.8)

Gross profit 6.4

Administration expenses (3.0)

Distribution expenses (2.1)

Operating profit 1.3

Finance costs (0.8)

Profit before taxation 0.5

Tax (0.2)

Profit for the period 0.3

Statement of financial position as at the end of theyear (in millions)

ASSETS

Non-current assets

Property, plant and equipment

Land and buildings 4.0

Equipment 1.1

Motor vehicles 4

5.5

Current assets

Inventories 3.8

Trade receivables 2.9

Cash at bank .2

6.9

Total assets 12.4

EQUITY AND LIABILITIES

Equity

Share capital 2.1

Retained earnings 1.6

3.7

Non-current liabilities

Loan notes (secured on property) 3.9

Current liabilities

Trade payables 2.2

Short-term borrowings 2.6

4.8

Total equity and liabilities 12.4

1. Land and buildings are shown at their current market value.Equipment and motor vehicles are shown at their carrying amount(that is, cost less accumulated depreciation).

2. No dividends have been paid to ordinary shareholders for thepast three years.

In recent months, suppliers (trade payables) have been pressingfor payment. The chief executive has therefore decided to reducetheir level to an average of 40 days outstanding. To achieve this,she has decided to approach the bank with a view to increasing theoverdraft (the short-term borrowings comprise only a bankoverdraft). The business is currently paying 10 per cent a yearinterest on the overdraft.

Required:

(i) Comment on the liquidity position of the business.

(Ii) Calculate the amount of finance required to reduce tradepayables, from the level shown on the statement of financialposition, to an average of 40 days outstanding.

(iii) State, with reasons, how you consider the bank would reactto the proposal to grant an additional overdraft facility.

(iv) Identify four sources of finance (internal or external, butexcluding a bank overdraft) that may be suitable to finance thereduction in trade payables, and state, with reasons, which ofthese you consider the most appropriate.