财务管理课后答案第三章.docx

财务管理课后答案第三章.docx

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财务管理课后答案第三章

Chapter3

DiscussionQuestions

3-1.

Ifwedivideusersofratiosintoshort-termlenders,long-termlenders,andstockholders,inwhichratioswouldeachgroupbemostinterested,andforwhatreasons?

Short-termlenders–liquidityratiosbecausetheirconcerniswiththefirm’sabilitytopayshort-termobligationsastheycomedue.

Long-termlenders–leverageratiosbecausetheyareconcernedwiththerelationshipofdebttototalassets.Theyalsowillexamineprofitabilitytoinsurethatinterestpaymentscanbemade.

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

3-2.

ExplainhowtheDuPontsystemofanalysisbreaksdownreturnonassets.Alsoexplainhowitbreaksdownreturnonstockholders’equity.

TheDuPontsystemofanalysisbreaksoutthereturnonassetsbetweentheprofitmarginandassetturnover.

ReturnonAssets=ProfitMargin×AssetTurnover

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

ThemodifiedformoftheDuPontformulashows:

Thisindicatesthatreturnonstockholders’equitymaybeinfluencedbyreturnonassets,thedebt-to-assetsratiooracombinationofboth.Analystsorinvestorsshouldbeparticularlysensitivetoahighreturnonstockholders’equitythatisinfluencedbylargeamountsofdebt.

3-3.

Iftheaccountsreceivableturnoverratioisdecreasing,whatwillbehappeningtotheaveragecollectionperiod?

Iftheaccountsreceivableturnoverratioisdecreasing,accountsreceivablewillbeonthebooksforalongerperiodoftime.Thismeanstheaveragecollectionperiodwillbeincreasing.

3-4.

Whatadvantagedoesthefixedchargecoverageratioofferoversimplyusingtimesinterestearned?

Thefixedchargecoverageratiomeasuresthefirm’sabilitytomeetallfixedobligationsratherthaninterestpaymentsalone,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.

a.

Inflationmaycausenetincometobeoverstatedandtotalassetstobeunderstatedcausinganartificiallyhighratiothatismisleading.

b.

Inflationmaycausesalestobeoverstated.IfthefirmusesFIFOaccounting,inventorywillalsoreflect“inflation-influenced”dollarsandtheneteffectwillbenil.

IfthefirmusesLIFOaccounting,inventorywillbestatedinolddollarsandtoohigharatiocouldbereported.

c.

Fixedassetswillbeunderstatedrelativetotheirreplacementcostandtosalesandtoohigharatiocouldbereported.

d.

Sincebotharebasedonhistoricalcosts,nomajorinflationaryimpactwilltakeplaceintheratio.

3-8.

Whateffectwilldisinflationfollowingahighlyinflationaryperiodhaveonthereportedincomeofthefirm?

Disinflationtendstolowerreportedearningsasinflation-inducedincomeissqueezedoutofthefirm’sincomestatement.Thisisparticularlytrueforfirmsinhighlycyclicalindustrieswherepricestendtoriseandfallquickly.

3-9.

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.Whatisthereturnonstockholders’equity?

3-1.Solution:

GriffeyJuniorWear

a.

b.

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

3-2.Solution:

HughSnoreBedding,Inc.

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?

3-3.Solution:

OneSize-Fits-AllCasketCo.

a.Profitmarginfor2008

b.Sales$3,300,000*

Costofgoodssold2,625,000**

Grossprofit675,000

Sellingandadministrativeexpense450,000

Operatingprofit225,000

Interestexpense75,000

Incomebeforetaxes150,000

Taxes（30%）45,000

Incomeaftertaxes（2008）$105,000

*$3,000,000×1.10=$3,300,000

**$2,100,000×1.25=$2,625,000

ProfitMarginfor2009

4UsingtheDuPontmethod,evaluatetheeffectsofthefollowingrelationshipsfortheButtersCorporation.

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

b.IftheButtersCorporationhasadebt-to-total-assetsratioof50percent,whatwouldthefirm’sreturnonequitybe?

c.Whatwouldhappentoreturnonequityifthedebt-to-total-assetsratiodecreasedto

35percent?

3-4.Solution:

ButtersCorporation

a.

b.

3-14.（Continued）

c.

5.AssumethefollowingdataforInteractiveTechnologyandSiliconSoftware.

InteractiveTechnology（IT）

SiliconSoftware（SS）

Netincome…………………..

$15,000

$50,000

Sales…………………………

150,000

1,000,000

Totalassets…………………..

160,000

400,000

Totaldebt…………………….

60,000

240,000

Stockholders’equity………….

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

a.InteractiveSilicon

Technology（IT）Software（SS）

SiliconSoftware（SS）hasamuchhigherreturnonstockholders’equitythanInteractiveTechnology（IT）.

3-5.（Continued）

b.InteractiveSilicon

Technology（IT）Software（SS）

c.Aspreviouslyindicated,SiliconSoftware（SS）hasasubstantiallyhigherreturnonstockholder’sequitythanInteractiveTechnology（IT）.ThereasoniscertainlynottobefoundonreturnonthesalesdollarwhereInteractiveTechnologyhasahigherreturnthanSiliconSoftware（10%vs.5%）.

However,SiliconSoftwarehasahigherreturnthanInteractiveTechnologyontotalassets（12.5%versus9.37%）.Thereasonisclearlytobefoundintotalassetturnover,whichstronglyfavorsSiliconSoftwareoverInteractiveTechnology（2.5xversus.937x）.Thisfactoraloneleadstothehigherreturnontotalassets.

6.PerezCorporationhasthefollowingfinancialdatafortheyears2007and2008:

2007

2008

Sales…………………………

$8,000,000

$10,000,000

Costofgoodssold……………

6,000,000

9,000,000

Inventory……………………..

800,000

1,000,000

a.Computeinventoryturnoverbasedonrationumber6,Sales/Inventory,foreachyear.

b.C