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financial reporting financial statement analysis and valuation

Questions and Answers of Financial Reporting Financial Statement Analysis And Valuation

Q3-7.Discontinued operations are typically viewed as a nonoperating activity in the analysis of the balance sheet and the income statement. What is the rationale for this treatment?
Q3-8. Describe what is meant by the "tax shield."
Q3-9. What is meant by the term "net" in net operating assets (NOA)?
Q3-10. Why is it important to disaggregate RNOA into net operating profit margin (NOPM) and net operating assets turnover (NOAT)?
Q3-11. What insights do we gain from the graphical relation between profit margin and asset turnover?
Q3-12. What analysis challenge arises when a company's equity is negative? What can be done to meet the challenge?
Q3-13. Identify at least two factors that limit the usefulness of ratio analysis.
Q3-14. Define (1) net nonoperating obligations and (2) net nonoperating expense.
Q3-15. What is the chief difference between the traditional DuPont disaggregation of ROE and the disaggre- gation based on RNOA?
Q3-16. What is meant by the term "cash conversion cycle"?
Q3-17. What insights can be gained from a common-size (vertical analysis) income statement or balance sheet?
M3-18. Compute ROE Selected balance sheet and income statement information for Facebook Inc. follows. Compute the return on equity for the year ended December 31, 20 18.$millions Dec.31 , 2018
M3-19. Apply DuPont Disaggregation of ROE Refer to the balance sheet and income statement information for Facebook Inc. from M3-18.a. Compute ROE and disaggregate the ratio into its DuPont components
M3-20. Compute Net Oper ating Assets (NOA)Refer to the balance sheet information below for Home Depot. Compute net operating assets for the years ended February 3, 2019, and January 28, 2018
M3-21. Compute Net Operating Profit after Tax Refer to the income statement information for Home Depot from M3-20.Assume a statutory tax rate of 22% .a. Compute NO PAT using the formula: NOPAT =Net
M3-22. Compute RNOA with Disaggregation Refer to the balance sheet and income statement information for Home Depot from M3-20.a. Compute return on net operating assets (RNOA) .b. Disaggregate RNOA
M3-23. Compute RNOA, Net Operating Profit Margin, and NOA Turnover Selected balance sheet and income statement information for Netflix I nc. the world's leading Internet entertainment service,
M3-2 4. Ide ntif y and Compute Net Operating Assets Foll owin g is th e b alan ce s heet for Lowe ' s Compa nies Inc. Identify and co mpute net o pe rating assets(NOA) as of Fe bruary l , 20 19.
M3-25. Id e ntify a nd C ompute NOPAT Feb. 1, 2019$ 511 218 12,56 1 938 14,228 1 8,432 256 294 303 995$34,508$ 722 1, 11 0 8,279 662 1,299 2,425 14,497 14,39 1 827 1,149 30,864 0401
M3-26. Compute DuPont Analysis Ratios Selected balance sheet and income statement information for Humana Inc., a health and well-being company, follows .$millions 2018 Ticker Revenue Humana Inc . . .
M3-27. Compute RNOA, Net Operating Profit Ma rgin, and NOA Turnover for Competitors Selected balance sheet and income statement information for the fiscal year ended February 2, 20 19, for
M3-28. Compute NOPAT Selected income statement information for 201 8 is presented below for Home Depot Inc. and Lowe's Companies Inc. Assume the statutory tax rate is 22%.Pretax Net Average Net
E3-29.Compute Cash Conversion Cycle for Competing Firms Halliburton and Schlumberger compete in the oil field services sector. Refer to the following 2018 financial data for the two companies to
E3-30.Compute Measures for DuPont Disaggregation Analysis ANALYST ADJUSTMENTS 3.1 Use the information below for 201 8 for 3M Company to answer the requirements (perform these computations from the
E3-31.Compute ROA and Adjusted ROA ANALYST ADJUSTMENTS 3.1 CSX Corpor ation reported the following in its tax footnote to its 2019 financial statements. Use this information to answer the
E3-32.Compute ROA and Adjusted ROA ANALYST ADJUSTMENTS 3.1 The following information was reported by Yum Brands in its form 10-K. Use this information to answer the requirements.$millions Net income
LOS E3-33.Determine Marginal Tax Rate and the Tax on Operating Profit ANALYST ADJUSTMENTS 3.3 Amgen Inc. reported the following in its tax footnote to its 201 8 financial statements. Use this
L06 E3-34.Compare GAAP and non-GAAP Measures ANALYST ADJUSTMENTS 3.4 FedEx Corporation reported the following in its May 3 1, 2019 annual earnings release.Dollars in millions, except EPS Net Income
E3-35. Adjusting for Negative Equity ANALYST ADJUSTMENTS 3.2 Phillip Morris reported the following information in its 2018 Form I 0-K.$millions 31-Dec-18 31-Dec-17 Stockholders' (Deficit) Equity
E3-36.Compare GAAP and non-GAAP Measures ANALYST ADJUSTMENTS 3.4 FMC Corpor ation reports the following non-GAAP information in its 2018 form 10-K. Use this information to answer the requirements.The
E3-37.Compute, Disaggregate, and Interpret RNOA of Competitors Ha llibur ton and Schlumberger compe te in the oil field services sector. Refer to the following 2018 financial data for the two
L01, 2, 3 E3-38.Disaggregate Traditional DuPont ROE Graphical representations of the KLA-Tencor 2018 income statement and average balance sheet numbers(2017-2018) fo llow($ thousands).Average Balance
L01, 6, 7 E3-39.Compute, Disaggregate, and Interpret ROE and RNOA Graphical representations of the Ingersoll Rand 2018 income statement and average balance sheets(2017-2018) follow .a. Compute the
E3-40. Compute and Compare ROE, ROA, and RNOA Refer to the balance sheet and income statement infonmation for KLA-Tencor Corpor ation in E3-38.a. Compute return on equity (ROE).b. Compute return on
E3-41.Directly Compute Nonoperating Return with Noncontrolling Interest Selected balance sheet and income statement information from Abbott Laboratories for 201 8 follows($ millions).Net income . ..
E3-42.Directly Compute Nonoperating Return with Negative NNO LOS Selected balance sheet and income statement information from Amgen Inc. for 2018 follows ($ millions).Net income . .. .
E3-43.Compute NOPAT The income statement for TJX Companies follows.TJX COMPANIES$ 8,394 8,954 560 18,015(856)18,871 Consolidated Statement of Income Fiscal Year Ended ($thousands)Net sales . .
P3-44.L04, 5, 6, 7, 8 Analysis and Interpretation of Profita bility Balance sheets and income statements for 3M Company fo llow.3M COMPANY Consolidated Statements of Income For Years Ended December
3 -45. Compute the DuPont Disaggr egation o f R OE Refer to the balance s heets and in come s tatement be low for Facebook Inc.FACEBOOK INC.Consolidated Statement of Income For Year Ended December
P3-46.Direct Computation of Nonoperating Return Refer to the financial information of 3M Company in P3-44 to answer the fo llowing requirements. In 20 18, 3M's return on equity (ROE) is 50.09% and
P3-47. A nal ysi s and Interpretatio n o f Profitability Bal ance sheet s and i ncome st atement s for Costco W ho lesal e Corpor atio n follow.COSTCO WHOLESALE CORPORATION Consolldated Statement of
P3-48.Direct Computation of Nonoperating Return with Noncontrolling Interest Refer to the financial information of Costco Wholesale Corpor ation in P3-47 to answer the following requirements. In 201
L01, 4, 5, 6, 7 P3-49.Analysis and Interpretation of Ratios When RNOA Exceeds ROE The balance sheets and income statement for Facebook Inc. are found in P3-45. Use these financial statements to
L01, 8 P3-50 Compute ROE and Nonoperating Return with Negative NNO and No Noncontrolling Inter est Refer to the balance sheets and income s tatement for Facebook Inc. in P3-45. Use these financials
P3-5l.Analysis and Interpretation of ROE and RNOA with No Noncont rolling Interest The 2018 balance sheets and income statement for Netflix Inc. follow. Refer to these financial statements to answer
P3-52.Compute and Analyze Measures for DuPont Disaggregation Analysis Refer to the 201 8 financial data of Netflix Inc. in P3-5 l to answer the following requirements.Requireda. Compute ROE and ROA
L07 P3-53.Analysis and Interpretation of Profit Margin, Asset Turnover, and RNOA Net operating profit margin (NOPM) and net operating asset turnover (NOAT) for several selected companies for the most
L03 P3-54.Compute Cash Conversion Cycle for Competing Firms Kellogg's Compa ny and General Mills compete in the consumer packaged goods (CPG) sector. Refer to the following 2018 financial data for
P3-55.Using Compustat Data and Data Visualization Software to Interpret ROE, RNOA, and ROA Consider the data graphics for Boston Scientific at the start of the Module. Access the Excel file of
13-56.Compute, Disaggregate, and Interpret ROE and RNOA Headquartered in Calgary, Alberta, Husky Energy Inc. is a publicly traded, integrated energy company.Selected fiscal year balance sheet and
D3-57. Gross Profit and Strategic Management L03 One way to increase overall profitability is to increase gross profit. This can be accomplished by raising prices and/or by reducing manufacturing
D3-58. Asset Turnover and Strategic Management L03 Increasing net operating asset turnover requires some combination of increasing sales and/or decreasing net operating assets. For the latter, many
L03 03-59. Ethics and Governance: Earnings Management Companies are aware that analysts focus on profitability in evaluating financial performance. Managers have historically utilized a number of
Q2-l.The balance sheet consists of assets, liabilities, and equity. Define each category, and provide two examples of accounts reported within each category.
Q2-3.GAAP is based on the concept of accrual accounting. Define and describe accrual accounting.
Q2-4.Analysts attempt to identify transitory items in an income statement. Define transitory items. What is the purpose of identifying transitory items?
Q2-S.What is the statement of stockholders' equity? What useful information does it contain?
Q2-6.What is the statement of cash flows? What useful information does it contain?
Q2-7.Define and explain the concept of financial statement articulation. What insight comes from understanding articulation?
Q2-9.What are the two essential characteristics of an asset?
Q2-10.What does the concept of liquidity refer to? Explain.
Q2-11.Why do companies "close" their books at the end of each accounting period?
Q2-12.Assets are recorded at historical costs even though current market values might, arguably, be more relevant to financial statement readers. Describe the reasoning behind historical cost usage.
Q2-13.Ide ntify three intangible assets that are likely to be excluded from the balance sheet because they cannot be reliably measured. Identify three intangible assets that are recorded on the
Q2-14.What types of accounts are closed at the end of the accounting year? What are the three major steps in the closing process?
Q2-15.What are accrued liabi lities? Provide an example.
Q2-16.Define net working capital. Explain how increasing the amount of trade credit can reduce the net working capital for a company.
Q2-17.What is the difference between company book value and market value? Explain why these two amounts differ.
Q2-18Describe the linkage between the income statement and the equity section of the balance sheet. Describe the linkage between the statement of cash flows and the equity section of the balance
M2-19. Identify and Classify Financial Statement Items L01, 2 For each of the following items, indicate whether they would be reported in the balance sheet (B) or -1-0"'• .. ., income statement
M2-20..Identify and Classify Financial Statement Items For each of the following items, indicate whether they would be reported in the balance sheet (B) or income statement (I)._a. Machinery __e.
M2-21.Collect and Use Information from Form 8-K On February 28, 2019, Kraft Heinz filed a Form 8-K Current Report with the SEC. What important announcement did Kraft make that day? Hint: Use the SEC
M2-22.Assign Accounts to Sections of the Balance Sheet Identify each of the following accounts as a component of assets (A), liabilities (L), or equity (E).__a. Cash and cash equivalents _e.
M2-23.Determine Missing Information Using the Accounting Equation Use knowledge of accounting relations to complete the following table for Boatsman Company.Beginning retained earnings ..........
M2-24. Reconcile Retained Earnings Following is financial information from J ohnson & J ohnson for the year ended December 30, 2018.Prepare the retained earnings reconciliation for Johnson & Johnson
M2-2S. Assessing Financial Statement Effects of Adjustments Selected accounts of Portage Properties, a real estate management firm, are shown below as of January 3 1, before any accounts have been
M2-26. Preparing Closing Journal Entries KLA-Tencor provides process control and yield management solutions for the semiconductor industry.Selected financial information for the year ended June 30,
M2-27. Inferring Transactions from Financial Statements Lowe's is the second-largest home improvement retailer in the world, with 2,002 stores. During its fiscal year ended in February 2019, Lowe's
M2-28. Computing and Comparing Income and Cash Flow Measures Penno Corporation recorded service revenues of $200,000 in 2020, of which $170,000 were on credit and $30,000 were for cash. Moreover, of
M2-29. Analyzing Discontinued Operations ANALYST ADJUSTMENTS 2.2 Johnson Controls International discontinued its Power Solutions business. Johnson Controls reports the following information in its 20
E2-30. Financial Analysis Using Adj usted Account Data L01, 2, 7 Selected T-account balances for Bloomfield Company are shown below as of January 3 1, which reflect ~o ... .. ., its accounting
E2-31.Inferring Transactions from Financial Statements The GAP is a global clothing retailer for men, women, children, and babies. The following information is taken from The Gap's annual report for
E2-32.Inferring Transactions from Financial Statements Costco Wholesale Corpor ation operates membership warehouses selling food, appliances, consumer electronics, apparel, and other household goods
LOS, 9 E2-33. •Preparing Financial Statements and Closing Process Beneish Company has the fo llowing account balances at December 31, the end of its fiscal year .Debit Credit Cash ................
L06 E2-34.Analyzing and Reporting Financial Statement Effects of Transactions M. E. Carter launched Carter Company, a professional services firm on March I. The firm will prepare financial statements
L01 O E2-35. Use Information from Form 20-F CREDIT SUISSE GROUP(CS)Stock of Credit Suisse Group trades on the New York Stock Exchange as well as in various European stock markets. The company's Form
E2.36 Use Information from Form 20-F H&R Block reports the following information in Schedule II of its 2018 Form I 0-K. Accounts receivable represents the amount customers owe the company at
E2-37. Construct Financial Statements from Account Data L01, 2, 8 Barth Company reports the following year-end account balances at December 3 1, 2019. Prepare the 2019 l:wi income statement and the
E2-38. Construct Fina ncial Statements from Transaction Data$ 36,000 80,000 8,000 160,000 500,000 3,000 6,000 40,000 Baiman Corporation commences operations at the beginning of January. It provides i
E2-39.Ident ify and Classify Balance Sheet and Income Statement Accounts Following are selected accounts for Best Buy Inc. for the fiscal year ended February 2, 2019 ..a. I ndicate whether each
L01, 2 E2-40.Ident ify and Classify Balance Sheet and Income Statement Accounts Following are selected accounts for Terex Corp for the fiscal year ended December 3 1, 2018.a. Indicate whether each
L01, 2 E2-41.Compare Income Statements and Balance Sheets of Competitors Classification Following are selected income statement and balance sheet data from two retailers, Abercrombie &Fitch (clothing
E2-42.Compare Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data from two pharmaceutical companies, Pfizer and Dr. Reddy' s, for their
E2-43.Compare Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data for two communications companies, Comcast and Verizon, for the year
E2-44.Compare Financial Information Across Industries Use the data and computations required in parts a and b of exercises E2-4 I and E2-42 to compare TJX Companies and Pfizer, Inc.a. Compare gross
L01, 2, 3, 4, 5 E2-45.Apply Financial Statement Linkages to Under stand Tra nsactions Consider the effects of the independent transactions, a through h, on a company's balance sheet, income
P2-46. Construct and Analyze Balance Sheet Amounts from Incomplete Data L01 Selected balance sheet amounts for 3M Company, a manufacturer of consumer and business products, 3M COMPANY for three
P2-47.Use Additional Information from 10-K to Analyze Financial Statements Community Health Systems operates general ac ute care hospitals in communities across the United States. The company reports
P2-48. Collect and Use Additional Information from 10-K Use the SEC website (www.sec.gov/edgar/searchedgar/companysearch.html) to download the 2018 10-K for Facebook Inc. and answer the fo llowing
L01, 2 P2-49.Compare Oper ating Cha racter istics Across Industries Following are selected income statement and balance sheet data for companies in different industries .Cost of Goods Net

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