FIN 360 Chapter Notes - Chapter 3: Deferral, Deferred Tax, Common Stock

98 views4 pages

sapphiregnat826

9 Nov 2016

School

Quinnipiac University

Department

Finance

Course

FIN 360

Professor

Thomas Coe

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

Operating activities are the core activities of a company. Return on equity(roe) - is the principal summary measure of company performance and is broadly defined as follows: Retu(cid:396)(cid:374) o(cid:374) e(cid:395)uity = net i(cid:374)(cid:272)o(cid:373)e/a(cid:448)e(cid:396)age to(cid:272)kholde(cid:396)s" e(cid:395)uity. Return on equity = operating return + non-operating return. Return on net operating assets (rnoa) operating returned are reflected: Return on net operating assets = net operating profit after tax (nopat)/ average net. The income statement reflects operating activities through revenues, costs of goods sold (cogs), and other expenses. Non-operating activities relate to borrowed money that creates interest expense. Non- operating activities also relate to investments such as marketable securities and other investments that yield interest or dividend revenue and capital gains or losses from any sales of non-operating investments during the period. Net operating profit after tax(nopat) = net operating profit before tax(nopbt) tax on. Tax on operating profit = tax expense + (pretax net non-operating expense * statutory tax.

Related Questions

6. The Santa Fe Mutual Automobile Insurance Company has the following financial statements. 2016 2015

Net Premiums Written 48,612 47,398

-------------------------------------------------------------------------------

Income Statement ($ mils.)

Premiums Earned 37,094 36,297

Loss Expenses 25,379 23,771

Operating Expenses 15,921 15,484

Total Policy Expenses 41,300 39,255

Net Underwriting Gain/Loss (4,206) (2,958)

Net Investment Income 5,340 3,512

Operating Income before taxes 1134 554

Dividends to Policyholders 0 0

Income Tax Recovered (Plus) 1,003 492

Net Income $2,137 $1,046

Ave Investment Yield 6.29% 3.83%

Balance Sheet (mils.) 2016 2015

Assets

Cash & ST Investments 1,345 1,397

Bonds 41,766 43,834

Common & Preferred Stock 43,120 47,863

Equity in Insurance Subsidiaries 34,842 31,529

Other Assets 17,422 14,175

Total Assets $138,495 $138,798

Liabilities

Claims & Claim Expenses 28,566 28,534

Unearned Premiums 11,518 11,101

Other Liabilities 15,780 19,568

Total Liabilities 55,864 59,203

Equity Accounts 82,631 79,595

Total Liabs. & Equity 138,495 138,798

6a. Calculate and evaluate the Net Underwriting Margin (NUM); Loss Ratio

Expense Ratio; Combined Ratio; and Overall Profitability Ratio for each year

using the information in the income statement above. Also calculate the firmâs OPM, OROA, ROA, ROE, and equity multiplier (EM).

Recall NUM = (Premiums Earned â Total Policy Expenses) / Total Assets

NUM 2016 __________ NUM 2015 ______________

Recall: expense ratio = (operating expenses/net premiums written) and loss ratio = (loss expenses/premium earned), and combined ratio = (loss ratio + expense ratio), and overall profitability ratio = {[100% - Combined Ratio%] + (Investment Yield% } for the firm each year) Also calculate asset turnover (revenues/total assets), net profit margin [net income/revenues], OROA (operating income/total assets), return on assets (net income/total assets) and return on equity (net income/equity accounts) & equity multiplier (total assets / equity).

2016 2015

Expense ratio

Loss ratio

Combined ratio

Average Investment Yield

Overall Profitability

Dupont Analysis:

Asset Turnover

Net Profit Margin

OROA

ROA

ROE

Equity Multiplier (EM)

6b. Analyze the trends in all of the ratios, and the other financial information provided. What do they reveal for trends over time including trends as well on the firmâs balance sheet? What areas of strength & weakness are revealed? What advice for improvement would you give?

Part 5: Module 7: Mutual Funds & Security Firms (see Module 7 lecture notes, pp. 10 to 12)

7. a. Briefly discuss different types of mutual funds that mutual fund companies offer including: (1) index funds, (2) actively managed diversified funds; (3) mutual funds with a diversified allocation; (4) sector investing; (5) style investing including different types of style investing (value, growth, blend, aggressive growth); (6) hybrid asset allocation or balanced funds; (7) target date funds; (8) Socially Responsible Mutual funds (often called impact funds).; and (9) Multi-alternative Strategy Funds and Commodity Funds.

b. Why are index funds cheaper than actively managed funds?

pinkkoala157

Analysis of a company's financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. What is Toys by Tom, Inc. return on assets (ROA)?
6.9%
0.86
18%
1.2

Income Statement â Year ending Dec 31 2006
Sales $12.00
Less Cogs 8.40
Less Depreciation 0.80
Gross Profit 2.80
Less â SG & A 1.20
Operating Profit 1.60
Less â Interest Expense 0.25
Profit before tax 1.35
Less â Income Tax 0.54
Net Income 0.81
Items in $1000

Balance Sheet
Assets Liablities and owners equity
Current assets Current Liabilities
Cash $0.50 Current Portion, LTD 0.75
Accts receivables 1.00 Accts Payables 2.50
Inventories 2.50 Other Acrued expenses 1.75
Total Current assets 4.00 Revolving credit,bank 2.00
Next fixed assets 10.00 Total Current Liablities 7.00
Total assets 14.00 Long term mortgage debt 2.50
Net worth 4.50
Total Liab and net worth 14.00

1. Use the attached balance sheet and income statement to compute the required financial ratios for 2012. Use 360 for the number of days in a year. The computations for 2011 are already done for you.

Current ratio_________________________

Quick ratio__________________________

Inventor turnover____________________

Average Collection Period_____________

Total asset turnover__________________

Net profit margin____________________

Operating profit margin_______________

Times Interest Earned_________________

Debt/Net Worth Ratio_________________

Return on Equity ratio__________________

2. Using the computed financial ratios from question 1, compare Grounds Keeperâs performance from 2011 to 2012. Address what areas the company has improved and what areas it has not

A.)Liquidity

B.) Activity / turnover / efficiency

C.) Profitability

D.) Leverage / use of debt / solvency

3. If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?

4. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.

5. Determine Grounds Keeperâs capital structure and working capital.

6. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.

7. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?

8. Explain what Grounds Keeper should consider when deciding whether to issue stocks or bonds? Answer using at least 3 different characteristics comparing and contrasting stocks and bonds.

9. Define money market instruments; list at least one type of security that would be considered a money market instrument. What are the advantages to Grounds Keeper in using money market instruments as financing? What are the disadvantages?

	Grounds Keeper
	Consolidated Balance Sheets
	(Dollars in thousands)
	2012	2011
Assets
Current assets:
Cash and cash equivalents	78,240	44,395
Receivables	399,891	340,062
Inventories	844,737	736,677
Total current assets	1,322,868	1,121,133

Fixed assets, net	1,244,384	889,613
Other long-term assets	1,048,537	1,187,141
Total assets	3,615,789	3,197,887

Liabilities and Stockholdersâ Equity
Current liabilities:
Accounts payable	309,222	319,465
Accruals	201,017	145,240
Notes payable	9,748	6,669
Total current liabilities	519987	471374
Long-term debt	834574	814298
Total liabilities	1,354,561	1,285,672
Stockholdersâ equity:
Common stock, $0.10 par value:	15,268	15,447
Additional paid-in capital	1,464,560	1,499,616
Retained earnings	781400	397152
Total stockholdersâ equity	2,261,228	1,912,215
Total liabilities and stockholdersâ equity	3,615,789	3,197,887

Grounds Keeper

Consolidated Statements of Operations

(Dollars in thousands except per share data)

2012

2011

Net sales

3,889,426

2,642,390

Cost of sales

2,589,799

1,746,274

Gross profit

1,299,627

896,116

Selling and operating expenses

481,493

348,696

General and administrative expenses

219,010

187,016

Operating income

599,124

360,404

Interest expense

22,983

57,657

Income before income taxes

576,141

302,747

Income tax expense

212,641

101,699

Net Income

363,500

201,048

Basic income per share:

Average shares outstanding

154,933,948

146,214,860

Earnings per common share

2.35

1.38

Current Ratio	Current assets/ Current liabilities
Quick Ratio	Current assets â inventory/ Current liabilities
Inventory Turnover	Cost of goods sold/ Inventory
Receivables Turnover	Sales/ Accounts receivables
Average Collection Period	Receivables/ Sales per day
Fixed Asset Turnover	Sales/ Fixed assets
Total Asset Turnover	Sales/ Total Assets
Gross Profit Margin	Revenues - Cost of goods sold/ Sales
Operating Profit Margin	Earnings before interest and taxes/ Sales
Net Profit Margin	Net income/ Sales
Return on Total Assets	Net income/ Total assets
Debt/Net Worth Ratio	Total Debt/ Total Equity
Times-Interest-Earned	Operating Income/ Interest expense
Return on Equity	Net income/ Total equity

magentalouse290

FIN 360 Chapter Notes - Chapter 3: Deferral, Deferred Tax, Common Stock

Document Summary

Get access

Related Documents

FIN 360 Chapter Notes - Chapter 5: Preferred Stock, Deferred Tax, Shares Outstanding

FIN 360 Chapter Notes - Chapter 7: Accounts Payable, Promissory Note, Current Liability

FIN 360 Chapter Notes - Chapter 2: Accounts Payable, Current Liability, Accrued Interest

Related Questions