财务管理课后答案第三章docx.docx

财务管理课后答案第三章docx.docx

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财务管理课后答案第三章docx

Chapter3

DiscussionQuestions

3-1.Ifwedivideusersofratiosintoshort-termlenders,long-termlenders,and

stockholders,inwhichratioswouldeachgroupbemostinterested,andforwhatreasons?

Short-termlenders-Iiquidityratiosbecausetheirconcerniswiththefirm'sabilitytopayshort-termobligationsastheycomedue.

Long-termlenders-leverageratiosbecausetheyareconcernedwiththerelationshipofdebttototalassets-Theyalsowillexamineprofitabilitytoinsurethatinterestpaymentscanbemade・

Stockholders-profitabilityratios,withsecondaryconsiderationgiventodebtutilization,liquidity,andotherratios.Sincestockholdersaretheultimateownersofthefirm,theyareprimarilyconcernedwithprofitsorthereturnontheirinvestment.

3-2.ExplainhowtheDuPontsystemofanalysisbreaksdownreturnonassets.Also

explainhowitbreaksdownreturnonstockholders'equity.

TheDuPontsystemofanalysisbreaksoutthereturnonassetsbetweentheprofitmarginandassetturnover.

ReturnonAssets二ProfitMarginxAssetTurnover

NetincomeNetincomeSales

=x

TotalassetsSalesTotalassets

Inthisfashion,wecanassessthejointimpactofprofitabilityandassetturnoverontheoverallreturnonassets.Thisisaparticularlyusefulanalysisbecausewecandeterminethesourceofstrengthandweaknessforagivenfirm.Forexample,acompanyinthecapitalgoodsindustrymayhaveahighprofitmarginandalowassetturnover,whileafoodprocessingfirmmaysufferfromlowprofitmargins,butenjoyarapidturnoverofassets.

ThemodifiedformoftheDuPontformulashows:

“•Returnonassets（investment）

Returnonequity=r-~.丄；

M）（1-Debt/Assets）

Thisindicatesthatreturnonstockholders'equitymaybeinfluencedbyreturnonassets,thedebt-to-assetsratiooracombinationofboth.Analystsorinvestorsshouldbeparticularlysensitivetoahighreturnonstockholders9equitythatisinfluencedbylargeamountsofdebt.

3-3.

Iftheaccountsreceivableturnoverratioisdecreasing,whatwillbehappeningtotheaveragecollectionperiod?

Iftheaccountsreceivableturnoverratioisdecreasing,accountsreceivablewillbeonthebooksforalongerperiodoftime.Thismeanstheaveragecollectionperiodwillbeincreasing.

3-4.

Whatadvantagedoesthefixedchargecoverageratioofferoversimplyusingtimesinterestearned?

ThefixedchargecoverageratiomeasuresthefinrTsabilitytomeetallfixedobligationsratherthaninterestpaymentsalone,ontheassumptionthatfailuretomeetanyfinancialobligationwillendangerthepositionofthefirm.

3-5.

Isthereanyvalidityinrule-of-thumbratiosforallcorporations,forexample,acurrentratioof2to1ordebttoassetsof50percent?

Norule-of-thumbratioisvalidforallcorporations-Thereissimplytoomuchdifferencebetweenindustriesortimeperiodsinwhichratiosarecomputed.Nevertheless,rules-of-thumbratiosdooffersomeinitialinsightintotheoperationsofthefirm,andwhenusedwithcautionbytheanalystcanprovideinformation.

3-6.

Whyistrendanalysishelpfulinanalyzingratios?

Trendanalysisallowsustocomparethepresentwiththepastandevaluateourprogressthroughtime.Aprofitmarginof5percentmaybeparticularlyimpressiveifithasbeenrunningonly3percentinthelasttenyears.Trendanalysismustalsobecomparedtoindustrypatternsofchange.

3-7.

Inflationcanhavesignificanteffectsonincomestatementsandbalancesheets,andthereforeonthecalculationofratios.Discussthepossibleimpactofinflationonthefollowingratios,andexplainthedirectionoftheimpactbasedonyourassumptions.

a.Returnoninvestment.

b.Inventoryturnover

c.Fixedassetturnover.

d.Debt-to-assetsratio.

r•Netincome

a.Returnoninvestment=

Totalassets

Inflationmaycausenetincometobeoverstatedandtotalassetstobeunderstatedcausinganartificiallyhighratiothatismisleading.

Salesb・Inventoryturnover=

Inventory

Inflationmaycausesalestobeoverstated.IfthefirmusesFIFOaccounting,inventorywillalsoreflect"inflation-influenced^dollarsandtheneteffectwillbenil.

IfthefirmusesLIFOaccounting,inventorywillbestatedinolddollarsandtoohigharatiocouldbereported.

Fixedassetswillbeunderstatedrelativetotheirreplacementcostandtosalesandtoohigharatiocouldbereported.

3-8.

Sincebotharebasedonhistoricalcosts,nomajorinflationaryimpactwilltakeplaceintheratio.

Whateffectwilldisinflationfollowingahighlyinflationaryperiodhaveonthereportedincomeofthefirm?

Disinflationtendstolowerreportedearningsasinflation-inducedincomeissqueezedoutofthefirm5sincomestatement.Thisisparticularlytrueforfirmsinhighlycyclicalindustrieswherepricestendtoriseandfallquickly.

Whymightdisinflationprovetobefavorabletofinancialassets?

Becauseitispossiblethatpriorinflationarypressureswillnolongerseriouslyimpairthepurchasingpowerofthedollar,lesseninginflationalsomeansthattherequiredreturnthatinvestorsdemandonfinancialassetswillbegoingdown,andwiththislowerdemandedreturn,futureearningsorinterestshouldreceiveahighercurrentevaluation.

3-10.

Comparisonsofincomecanbeverydifficultfortwocompanieseventhoughtheysellthesameproductsinequalvolume.Why?

TherearemanydifferentmethodsoffinancialreportingacceptedbytheaccountingprofessionaspromulgatedbytheFinancialAccountingStandardsBoard.Thoughtheindustryhascontinuallytriedtoprovideuniformguidelinesandprocedures,manyoptionsremainopentothereportingfirm.Everyitemontheincomestatementandbalancesheetmustbegivencarefulattention.Twoapparentlysimilarfirmsmayshowdifferentvaluesforsales,researchanddevelopment,extraordinarylosses,andmanyotheritems.

Chapter3

Problems

1.GriffeyJuniorWear,Inc.,has$800,000inassetsand$200,000ofdebt.Itreportsnetincomeof$100,000.

a.Whatisthereturnonassets?

b.Whatisthereturnonstockholders9equity?

3-1.Solution:

GriffeyJuniorWear

$800,000

Stockholders1equity=totalassets一totaldebt

=$800,000—$200,000=$600,000

Debt/Ass如沁四=25%

$800,000

Returnonequity=4

（1-.25）

2.HughSnoreBedding,Inc.,hasassetsof$400,000andturnsoveritsassets1.5timesperyear.Returnonassetsis12percent.Whatisitsprofitmargin（returnonsales）?

3-2.Solution:

HughSnoreBedding,Inc.

Sales=Assetsxtotalassetturnover

=$400,000x1.5%

=$600,000

Netincome=AssetsxReturnonassets

$48,000=$400,000x12%

Netincome=$48,000/$600,000=8%Sales

3One-Size-Fits-AllCasketCo/sincomestatementfor2008isasfollows:

Sales$3,000,000

Costofgoodssold2,100,000

Grossprofit900,000

Sellingandadministrativeexpense450、000

Operatingprofit450,000

Interestexpense75、000

Incomebeforetaxes375,000

Taxes（30%）112,500

Incomeaftertaxes$262,500

a.Computetheprofitmarginfor2008-

b.Assumein2009,salesincreaseby10percentandcostofgoodssoldincreasesby25%.Thefirmisabletokeepallotherexpensesthesame.Onceagain,assumeataxrateof30percentonincomebeforetaxes.Whatareincomeaftertaxesandtheprofitmarginfor2009?

c.

3-3.Solution:

OneSize-Fits-AllCasketCo.

a.Profitmarginfor2008

b.Sales$3,300,000*

Costofgoodssold2,625,000**

Grossprofit675,000

Sellingandadministrativeexpense450Q00

Operatingprofit225,000

Interestexpense75,000

Incomebeforetaxes150,000

Taxes（30%）45,000

Incomeaftertaxes（2008）$105,000

*$3,000,000x1.10=$3,300,000

**$2,100,000x1.25=$2,625,000

ProfitMarginfor2009

NetIncome_$105,000_3冷屮

Sales—$3,300,000一’°

4UsingtheDuPontmethod,evaluatetheeffectsofthefollowingrelationshipsfortheButtersCorporation.

a.ButtersCorporationhasaprofitmarginof7percentanditsreturnonassets（investment）is25.2percent.Whatisitsassetsturnover?

b.IftheButtersCorporationhasadebt-to-total-assetsratioof50percent,whatwouldthefirm5sreturnonequitybe?

c.Whatwouldhappentoreturnonequityifthedebt-to-total-assetsratiodecreasedto35percent?

3-4.Solution:

ButtersCorporation

a.ProfitmarginxTotalassetturnover=Returnonasset（investment）7%x?

=25.2%

丁.25.2%

Totalassetturnover=

7%

=3.6x

（1-Debt/Assets）

Returnonassets（investment）

25.2%

"（1-0.50）

_25.2%

0.50

=50.40%

3-14.（Continued）

“.Returnonassets（investment）

c.Returnonequity=

（1-Debt/Asse⑸

_25.2%

一（1-.35）

_25.2%

0.65

=38.77%

5.AssumethefollowingdataforInteractiveTechnologyandSiliconSoftware.

Interactive

Technology（IT）

Silicon

Software（SS）

Netincome

…$15,000

$50,000

Sales

•-150,000

1,000,000

Totalassets

…160,000

400,000

Totaldebt

…60,000

240,000

Stockholders9equity

.…100,000

160,000

a.Computereturnonstockholders'equityforbothfirmsusingratio3ainthetext.Whichfirmhasthehigherreturn?

b.Computethefollowingadditionalratiosforbothfirms.

Netincome/Sales

Netincome/Totalassets

Sales/Totalassets

Debt/Totalassets

c.Discussthefactorsfrompartbthataddedordetractedfromonefirmhavingahigherreturnonstockholders^equitythantheotherfirmascomputedinparta.

3-5.Solution

InteractiveTechnologyandSiliconSoftware

SiliconSoftware（SS）hasamuchhigherreturnonstockholders9equitythanInteractiveTechnology（IT）.

3-5.（Continued）

b.Interactive

Technology（IT）

Netincome_$15,000_

~~Sales-$150,000~°

Netincome$15,000

==9.3/%

Silicon

Software（SS）

$50,00°二5%

$1,000,0000

时°°°=12.5%$400,000

Totalassets$160,000

c.Aspreviouslyindicated,