B407 Lecture Notes - Lecture 4: Credit Enhancement, Disintermediation, Startup Company

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scarletferret128

10 Mar 2016

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The material wealth of a society is ultimately determined by the productive capacity of its economy, the good and services its member can create. This capacity is a function of the real assets of the economy: the land, building, equipment, and knowledge that can be used to produce goods and services. Investment is the current commitment of money or other resources in the expectation of. Investments lead to a reduction in current consumption patterns. On the other hand, investments cause a better and planned future consumption. They are the assets to produce goods and services in the economies. Example: land, buildings, machinery, accessories, knowledge, etc. (financial assets. They are the assets having claims on or income generated from real assets. ( or claims on income from the government ) When households buy stocks, bonds and shares, these become financial assets of them, where they become liabilities of the issuers.

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Using the 2005 and 2006 Statement of Financial Position (SFP) and the Statement of Earnings (SE) found on pages 465 and 466, complete a vertical analysis (common-sized statements) for both years and a horizontal analysis (trend) from 2005 to 2006.Please show work.......thanks

Table13:1

Bayside Memorial Hospital Statements of Operations (Income Statements) Years Ended December 31, 2006 and 2005 (Thousands of dollars 2006 2005

Net Patient Service Revenue $108,600 $97,393

Premium revenue 5,232 4,622

Other revenue $ 3,644 6,014

Total revenues $117,476 $108,029

Expense:

Nursing Services $58,245 56,752

Dietary Services 5,424 4,718

General services 13,198 11,655

Administrative services 11,427 11,585

Employee health and welfare 10,250 10,705

Provision for uncollectible 3,328 3,469

Provision for malpractice 1,320 1,204

Depreciation 4,130 4,025

Interest expense 1,542 1,521

Total Expense $108,904 $105,634

Net Income $8,572 $2,395

Balance Sheet

Table 13.2 contains Bay sideâs 2005 and 2006 balance sheets. Although the assets are all stated in terms of dollars, only cash represents actual money we see that bayside can if it liquidated its short-term investment securities. Write checks at the end of 2006 for a total $6,263,000 (verse total current liabilities of $13,332,000 due during 2006). The noncash current assets will presumably be converted to cash within a year, but they do not represent cash on hand.

Then Claims against assets are two types: 1) liabilities, or money the firm owes, and 2) equity, also called net assets or fund capital. Equity is a residual, so for 2006

Assets -Liabilities = Equity

151,278,000 - ($13,332,000+$30,582,000) =$107,364,000

Liabilities consist of $(13,332,000 of current liabilities plus $30,582,000of long-term liabilities. If assets decline in value-suppose some of Baysideâ s fixed assets were sold at less that book value-liabilities remain constant, so the value of the equity capital declines.

Table 13:2 Bayside Memorial Hospital Balance Sheets December 31, 2006 and 2005 (thousand of dollars)

2006 2005

Cash $4,263 $5,095

Short-term investments 2,000 0

Accounts receivable 21,840 20,738

Inventories 3,177 2,982

Total current assets $31,280 $28,815

Gross plant and equipment $145,168 $140,865

Accumulated depreciations 25,160 21,030

Net plant and equipment $119,998 $119,835

Total assets $151,278 $148,650

Accounts payable $4,707 $5,145

Accrued expenses 5,650 5,421

Notes payable 825 4,237

Current portion of long-term debt 2,150 2,000

Total current liabilities $13,332 $16,803

Long-term debt $28,750 $30,900

Capital lease obligations 1,832 2,155

Total long-term liabilities $30,582 $33,055

Net assets (equity) $107,364 $98,792

Total liabilities and net assets $151,278 $148,650

The study of finance consists of the following interrelated area(s):

a) Financial markets and institutions

b) Financial services

c) Investments

d) Managerial (business finance)

e) All of the above

The liquidity asset is one that can be easily converted to __________ without significant loss of its original value.

a) Bonds

b) Cash

c) Gold

d) Liquid

e) Silver

A goal of financial intermediaries is to improve the economic well-being. Other benefits include:

a) Diversification (risk)

b) Financial flexibility

c) Funds divisibility/pooling

d) Reduced costs

e) Related services

f) All of the above

4.____________ represents the current value of some future amount.

a)Assumed value

b)Future value

c)Present value

d)Zero value

The cost of money (interest rates) is based on (1) the rate of return that borrowers expect to earn on their investments, (2) saversâ preferences to spend income in the current period rather than delay consumption until some future period, _____________________________, and (4) expected inflation.

a) the level of economic activity

b) the risks associated with investments/loans

c) the trade deficit

d) the yield, or return that is earned on an investment

6.Short-term debt includes all of the following EXCEPT:

a)Bankerâs Acceptances

b)Certificates of Deposits (CDâs)

c)Commercial Paper

d)Eurodollar Deposits

e)Federal Funds

f)Government Bonds

g)Money Market Mutual Funds

h)Repurchase Agreements (Repos)

i)Treasury Bills (T-bills)

7.Common stockholders are usually referred to as the owners of the firm because investors in common stock have certain rights and privileges generally associated with ________________.

a)Contracts

b)Income stocks

c)Property ownership

d)Treaties

8.The concept of reducing the stand-alone risk of an individual investment by combining it with other investments to form a portfolio is called ______________.

a)Correlation coefficient

b)Diversification

c)Realized rate of return

d)Risk aversion

9.A _____________ is defined as the cash flows that could be generated from assets the firm already owns if they are not used for the project in question.

a)Balance Sheet

b)Budget

c)Income Statement

d)Opportunity Cost

e)Sunk Cost

To determine its required rate of return, the firm must compute the cost of each source of funds of capital that investors provide; that is, the firm must compute the ___________, the cost of preferred stock, the cost of retained earnings, and the cost of new common equity.

a) Cost of debt

b) Cost of equity

c) Cost of living

d) Cost of unemployment

ivorybat714

I need proof reading help with my assignment please. Due tonight. Thank you.

Gross Margin shows what a company retains after incurring the direct costs associated with producing the goods and services sold. EBayâs gross margin shows they are more efficient than Amazon. Amazon has a larger cost than eBay. Amazon may sell more than eBay, but due to their cost their gross margins are far less than eBayâs. When considering gross margin for an investment opportunity it shows eBay is safer than Amazon for an investment.

After operating margin analysis we can say that eBay has a larger amount of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. In this case eBay will have some revenue left over after paying debt, interest, or other payments.

It goes without saying that most investors pay very close attention to a companyâs Net Profit Margin before they invest their money into a company or a project. Thatâs why after reviewing the Net Profit Margin of both eBay and Amazon, I would suggest investing in eBay, since they are a more profitable company than Amazon.

Interest coverage ratio arises because how effortlessly a company can pay interest on outstanding debt. In this case eBay makes their place safe since they donât have to pay any interest. On the other hand, Amazon has 12.59. In consideration of interest coverage ration it is also could be a good investment.

Market to book ratio is significant to financiers to comprehend how much are they paying for each dollar in net assets. Here Iâve calculated the total book value of its assets and its current market value. Thatâs why I can say that they have enough assets for both them to be strong in future.

ROE is expressed as the amount of net income returned as a percentage of shareholders equity. When an investor decided to finance in some company or project, he also chooses how much he will get back in the future because of their risk taking. In this case it would be more suitable for the financier to invest their money into eBay based on their return.

When somebody is getting ready to invest theyâre always attempting to know where their money goes or is their money appropriately being used? Its gives them a sense of how well a company is using its money to generate returns. Thatâs why its help investors to understand efficiency of allocating the capital under its control to make profitable investments. Since no dividends were declared their efficiency results are the same as their ROE.

In this breakdown we can see that both companies are worthwhile in related to its assets. Though further scrutiny into the figures will show the eBay is more efficient in using its assets to generate earnings. For investment perspectives eBay is the safer place to invest your money.

After all analysis we see Amazon has by far larger sales, but their profit margins are less than eBayâs this is due to their cost being too high. Though eBay may have smaller number of sales they have better profits than Amazon. This is all due to their cost efficiency and well-managed activities. As far as asset turnover Amazon did get the best of eBay, but in the end, after all my analysis I would consider eBay the better option for investment.

B407 Lecture Notes - Lecture 4: Credit Enhancement, Disintermediation, Startup Company

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