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business
financial statement analysis
Questions and Answers of
Financial Statement Analysis
Assess Credit Risk Financial statement information for Cisco Systems Inc. follow. Refer to these financial statements to answer the requirements.CISCO SYSTEMS INC.Consolidated Balance Sheets(in
AAssigning a Long-Term Debt Rating Using Financial Ratios Refer to the Lockheed Martin 2016 financial statements, from P4-29 to answer the following requirements.Requireda. Compute the following
Compute and Interpret Liquidity, Solvency, and Coverage Ratios Information from the balance sheet, income statement, and statement of cash flows for Lockheed Martin Corporation follow. Refer to these
Compute and Interpret Altman’s Z-scores (LO5)Following is selected financial information for eBay Inc., for its fiscal years 2016 and 2015.$ millions, except per share data 2016 2015 Current assets
Compute and Interpret Z-scores Following is selected financial information for Procter & Gamble Co. and Kimberly-Clark Corporation from their fiscal 2016 financial statements.$ millions Procter &
Compute and Interpret Liquidity, Solvency, and Coverage Ratios Selected balance sheet and income statement information for Nordstrom Inc. for 2015 and 2016 follows.$ millions 2016 2015 Cash . . . . .
Compute and Interpret Solvency Ratios for Business Segments Selected balance sheet and income statement information from Ford Motor Company and its two principal business segments, Automotive and
Compute and Interpret Coverage, Liquidity and Solvency Ratios Selected balance sheet and income statement information from CVS Health Corp. for 2014 through 2016 follows ($ millions).Total Current
Compute and Interpret Liquidity, Solvency and Coverage Ratios Selected balance sheet and income statement information from Verizon Communications Inc. follows.$ millions 2016 2015 Current assets . .
AAssigning a Long-Term Debt Rating Using Financial Ratios Refer to the information below from Nordstrom Inc.’s 2016 financial statements. Use the information to answer the requirements ($
Bankruptcy Risk and Z-Score Analysis Following are selected ratios for JetBlue Airways Corp. for two recent fiscal years. Compute and interpret Altman Z-scores for the company for both years. Is the
Bankruptcy Risk and Z-Score Analysis Following are selected ratios for Logitech International SA for the company’s 2016 and 2015 fiscal years. Compute and interpret Altman Z-scores for both
Assume that the company had substantial operating leases that represent material off-balance-sheet liabilities and assets. What types of adjustments would we make to the liquidity and solvency ratios
Off-Balance-Sheet Financing and Liquidity and Solvency Ratios Refer to the liquidity and solvency ratios for Abbott Laboratories in
Risk Analysis Using Profitability, Coverage, Liquidity and Solvency Following are liquidity, solvency and coverage ratios for Baker Hughes Inc. for fiscal years 2016 and 2011. Is the company more or
Risk Analysis Using Liquidity, Solvency and Coverage Ratios Following are liquidity, solvency and coverage ratios for Abbott Laboratories for two recent fiscal years.Is the company more or less risky
Analyzing Notes, Yields, Financial Ratios, and Credit Ratings Following are selected ratios from Exhibit 4.7 computed for Comcast Corp. from its December 2016 Form 10-K. Comcast is rated “A3” by
With respect to bankruptcy prediction, what is a Type I error? A Type II error? If you are a creditor, which type of error is more costly to you? Why?
Explain in general terms, the Altman bankruptcy prediction model. What do each of the five model variables measure?
What is a credit rating? Why do companies care about their credit ratings?
Why do lenders impose debt covenants on borrowers? Explain the three types of debt covenants.
Why do lenders require collateral? What are some common types of collateral?
What two factors determine a company’s level of credit risk? Explain what each factor tries to measure.
Explain the concepts of liquidity and solvency. Why is performance on these two dimensions crucial to company survival? How does coverage analysis differ from measures of liquidity and solvency?
Why are missing or understated liabilities especially critical for credit analysis?
What are the four steps to assess the chance of default for a company?
What is credit risk? What is the main purpose of performing a credit analysis?
Identify and explain at least three means that banks have to extend credit to companies.
Distinguish between a line of credit and a letter of credit. Why do companies obtain lines of credit?
Identify at least three parties that routinely supply credit to companies.
Explain how a company’s need of cash for investing activities differs over that company’s life cycle.Suggest three reasons a company would borrow cash for financing activities.
Companies often borrow money to fund operating activities. Why do lenders distinguish between cyclical cash needs and cash needed to fund operating losses?
Analysis and Interpretation of Liquidity and Solvency BT Group is one of the largest telecommunications services companies in the world, headquartered in London, United Kingdom. Refer to the
Analysis and Interpretation of Profitability BT Group is one of the largest telecommunications services companies in the world, headquartered in London, United Kingdom. Balance sheets and income
Compute and Interpret Liquidity and Solvency Ratios Headquartered in Melbourne, Australia, BHP Billiton, is a leading global resources company that operates in diverse commodity and geographic
Compute, Disaggregate, and Interpret ROE and RNOA Headquartered in Calgary, Alberta, Husky Energy Inc. is a publicly traded, integrated energy company, with extensive conventional oil and natural gas
Compute, Disaggregate, and Interpret RNOA of Competitors Shell Oil Company is the U.S.-based subsidiary of Royal Dutch Shell, a multinational oil company headquartered in The Hague, The Netherlands.
Compute and Analyze Measures for DuPont Disaggregation Analysis Refer to the fiscal 2015 financial data of Mondelez International Inc. in P3-56 to answer the following requirements. (Perform the
Compute and Analyze Measures for DuPont Disaggregation Analysis Refer to the fiscal 2016 financial data of Costco Wholesale Corporation in P3-50 to answer the following requirements. (Perform the
Analysis and Interpretation of Profit Margin, Asset Turnover, and RNOA for Several Companies Net operating profit margin (NOPM) and net operating asset turnover (NOAT) for several selected companies
Direct Computation of Nonoperating Return Refer to the financial information of Mondelez International Inc. in P3-56 to answer the following requirements.Requireda. Assume that 2015 net nonoperating
Analysis and Interpretation of Profitability Balance sheets and income statements for Nordstrom Inc., follow. Refer to these financial statements to answer the requirements.NORDSTROM INC.Consolidated
Use these financials to answer the requirements. For the 2015 fiscal year, Under Armour had a return on net operating assets(RNOA) of 15.17%.a. Compute ROE.b. Compute net nonoperating obligations
Compute ROE and Nonoperating Return Refer to the balance sheets and income statement for Under Armour Inc. in
Use these financial statements to answer the requirements.Requireda. Compute net operating profit after tax (NOPAT) for 2015. Assume that the combined federal and state statutory tax rate is 37%.b.
Analysis and Interpretation of Profitability Balance sheets and income statements for Under Armour Inc. are found in
Direct Computation of Nonoperating Return Refer to the financial information of Costco Wholesale Corporation in P3-50 to answer the following requirements.Requireda. Compute Costco’s financial
Analysis and Interpretation of Liquidity and Solvency Refer to the financial information of Costco Wholesale Corporation in P3-50 to answer the following requirements.Requireda. Compute Costco’s
Analysis and Interpretation of Profitability Balance sheets and income statements for Costco Wholesale Corporation follow.COSTCO WHOLESALE CORPORATION Consolidated Statements of Income For Fiscal
Direct Computation of Nonoperating Return Refer to the financial information of 3M Company in P3-46 to answer the following requirements.Requireda. Compute its financial leverage (FLEV), Spread, and
Analysis and Interpretation of Liquidity and Solvency Refer to the financial information of 3M Company in P3-46 to answer the following requirements.Requireda. Compute the current ratio and quick
Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Under Armour Inc.UNDER ARMOUR INC.Consolidated Statements of Income For 12 Months Ended ($ in 000s)
Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow.3M COMPANY Consolidated Statements of Income For Years Ended Dec. 31 ($ millions) 2015 2014
Compute NOPAT Using Tax Rates from Tax Footnote The income statement for TJX Companies follows.TJX COMPANIES Consolidated Statements of Income Fiscal Year Ended ($ thousands) January 30, 2016 Net
Compute and Interpret Solvency Ratios for Business Segments Selected balance sheet and income statement information from General Electric Company and its two principal business segments (Industrial
Compute and Interpret Liquidity and Solvency Ratios Selected balance sheet and income statement information from Verizon Communications Inc. for 2015 and 2014 follows ($ millions).Total Current
Compute and Interpret Liquidity and Solvency Ratios Selected balance sheet and income statement information from Comcast Corporation for 2015 and 2014 follows ($ millions).Total Current Assets Total
a???? Compute return on equity (ROE).b???? Compute return on net assets (ROA).c???? Compute return on net operating assets (RNOA).d???? Compare the three return metrics and explain what each one
Compute and Compare ROE, ROA, and RNOA Refer to the balance sheet and income statement information for Oracle Corporation in
Compute, Disaggregate and Interpret ROE and RNOA Selected balance sheet and income statement information from Macy’s Inc. follows ($ millions). (Perform the required computations from the
Disaggregate Traditional DuPont ROE Selected balance sheet and income statement information for Oracle Corporation follows. (Perform the required computations from the perspective of an Oracle
Compute, Disaggregate, and Interpret RNOA of Competitors Selected balance sheet and income statement information for the clothing retailers Nordstrom Inc. and L Brands Inc. follows.Company ($
Compute, Disaggregate, and Interpret RNOA of Competitors Selected balance sheet and income statement information for the clothing retailers, Abercrombie & Fitch Co. and The GAP Inc. follows.Company
Compute and Interpret RNOA, Profit Margin, and Asset Turnover of Competitors Selected balance sheet and income statement information for drug store retailers CVS Health Corp. and Walgreens Boots
Compare GAAP and non-GAAP Measures FMC Corporation reports the following non-GAAP information in its 2016 form 10-K. Use this information to answer the requirements.Year Ended December 31 ($ in
Compare GAAP and non-GAAP Measures FedEx Corporation reported the following in its 2016 earnings release.Dollars in millions, except EPS Net Income Diluted EPS Non-GAAP measure. . . . . . . . . . . .
Determine Marginal Tax Rate and the Tax on Operating Profit Amgen Inc. reported the following in its tax footnote to its 2016 financial statements. Use this information to answer the requirements.The
Compute ROA and adjusted ROA The following information was reported by RR Donnelley & Sons in its form 10-K. Use this information to answer the requirements.$ in millions December 31, 2015 December
Compute ROA and adjusted ROA CSX Corporation reported the following in its tax footnote to its 2016 financial statements. Use this information to answer the requirements.$ in millions 2016 2015 2014
Compute and Interpret Measures for DuPont Disaggregation Analysis Refer to the 2015 fiscal year financial data of 3M Company from Problem 3-46 to answer the following requirements (perform these
Compute NOPAT Selected income statement information for 2015 is presented below for Home Depot Inc. and Lowe’s Companies Inc.Company ($ millions) Ticker Net Operating Profit Before Tax Pretax Net
Compute and Interpret Liquidity and Solvency Ratios Selected balance sheet and income statement information from Verizon Communications Inc. follows.$ millions 2015 2014 Current assets . . . . . . .
Compute RNOA, Net Operating Profit Margin, and NOA Turnover for Competitors Selected balance sheet and income statement information from Abercrombie & Fitch Co. and TJX Companies Inc. clothing
Compute and Interpret Disaggregation of DuPont Analysis Ratios Selected balance sheet and income statement information for Macy’s Inc., a retailer, follows.Company ($ millions) Ticker 2015 Sales
Identify and Compute NOPAT Following is the income statement for Lowe’s Companies Inc. Compute its 2016 net operating profit after tax (NOPAT) assuming a 37% total statutory tax rate.LOWE’S
Identify and Compute Net Operating Assets Following is the balance sheet for Lowe’s Companies Inc. Identify and compute its 2016 net operating assets (NOA).LOWE’S COMPANIES INC.Consolidated
Compute RNOA, Net Operating Profit Margin, and NOA Turnover Selected balance sheet and income statement information for Nordstrom Inc., a department store retailer, follows.Company ($ millions)
Compute ROE and RNOA with Disaggregation Refer to the balance sheet and income statement information for Home Depot from M3-18.a. Compute return on equity.b. Compute return on net operating assets
Compute Net Operating Profit after Tax Refer to the income statement information for Home Depot, from M3-18.Compute net operating profit after tax for the year ended January 31, 2016. Assume a
Compute net operating assets for the years ended January 31, 2016 and February 1, 2015.
Compute Net Operating Assets (NOA)Refer to the balance sheet information for Home Depot, from
Apply DuPont Disaggregation of ROE Refer to the balance sheet and income statement information for Home Depot, from M3-18.a. Compute ROE and disaggregate the ratio into its DuPont components of ROA
Compute ROE Selected balance sheet and income statement information for Home Depot follows. Compute the return on equity for the year ended January 31, 2016.$ millions Jan. 31, 2016 Feb. 01, 2015
What insights can be gained from a common-sized income statement or balance sheet?
What is meant by the term cash conversion cycle?
What is the chief difference between the traditional DuPont disaggregation of ROE and the disaggregation based on RNOA?
Define (1) net nonoperating obligations and (2) net nonoperating expense.
Identify at least two factors that limit the usefulness of ratio analysis.
Explain the concept of liquidity and why it is crucial to company survival.
What insights do we gain from the graphical relation between profit margin and asset turnover?
Why is it important to disaggregate RNOA into net operating profit margin (NOPM) and net operating assets turnover (NOAT)?
What is meant by the term “net” in net operating assets (NOA)?
Describe what is meant by the “tax shield.”
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?
Explain what it means when a company’s ROE exceeds its RNOA. What about when the reverse occurs?
Describe the concept of asset turnover. What does the concept mean and why is it so important to understanding and interpreting financial performance?
When might a reduction in operating expenses as a percentage of sales denote a short-term gain at the cost of long-term performance?
Gross profit margin (Gross profit/Sales) is an important determinant of NOPAT. Identify two factors that can cause gross profit margin to decline. Is a reduction in the gross profit margin always bad
Explain in general terms the concept of return on investment. Why is this concept important in the analysis of financial performance?Q3-2.A(a) Explain how an increase in financial leverage can
Comparing Income Statements and Balance Sheets of Competitors ADJUSTMENTS 2.1 and 2.3 Following are selected income statement and balance sheet data from two European grocery chain companies:Tesco
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