7. Analyzing accounting data for managerial decisions

Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case:

J&H Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the companys operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the companys financial reports as well as some industry averages.

	Last year, J&H Corp. reported a book value of $600 million in current assets, of which 10% is cash, 12% is short-term investments, and the rest is accounts receivable and inventory.
	The company reported $510.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period.
	The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $960 million in long-term assets last year.

Income Statement For the Year Ended on December 31 (Millions of dollars)
	J&H Corp.	Industry Average
Net sales	$3,900	$4,875
Operating costs, except depreciation and amortization	3,120	3,900
Depreciation and amortization	156	195
Total operating costs	3,276	4,095
Operating income (or EBIT)	$624	$780
Less: Interest	62	117
Earnings before taxes (EBT)	$562	$663
Less: Taxes (40%)	225	265
Net income	$337	$398

Based on the information given to Jeffrey, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Which of the following statements in his report are true? Check all that apply.

Based on the information on industry averages, other players in the industry would generate higher profits than J&H Corp. if they had no debt and held no financial assets.

J&H Corp. has $392.4 million of net operating capital.

J&H Corp. has $18.0 million of noninterest-bearing current assets net of noninterest-charging liabilities.

J&H Corp.s total net operating capital consists of its net operating working capital and total investment in long-term assets.

The company has $528.0 million in operating assets and $510.0 million in operating liabilities.