Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

9. Analyzing accounting data for managerial decisions Aa Aa E Accounting data is used to generate a firm's financial statements, but a firms intrinsic value

image text in transcribed
image text in transcribed
9. Analyzing accounting data for managerial decisions Aa Aa E Accounting data is used to generate a firm's financial statements, but a firms intrinsic value is based on its free cash flows, which are the cash flows available for distribution to the company's investors after the company has made all of the investments necesary to sustain its ongoing operations. Consider the following car 18H Corp. recently hired Jeffery. His immediate mandate was to analyze the company. He has to submit a report on de company's op.ational efficiency and estimate its potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. Last year, J&H Corp. reported a book value of $300,000 in current assets, of which 35% is cash, 37% is short-term investments, and the rest is accounts receivable and Inventory. The company reported $255,000 of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable outstanding, and there were no changes in the company's accounts payable during the year. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $480,000 for its long-term assets last year. Income Statement For the Year Ended on December 31 Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest expense Earnings before taxes (EBT) Less: Taxes (40%) Net income J&H Corp. $45,000,000 36,000,000 1,800,000 37,800,000 $7,200,000 720,000 $6,480,000 2,592,000 $3,888,000 Industry Average $56,250,000 45,000,000 2,250,000 47,250,000 $9,000,000 1,350,000 $7,650,000 3,060,000 $4,590,000 Based on the information given to him, Jeffery submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Complete the following statements in his report. Statement #1: J&H Corp.'s NOPAT is , which is lower than the industry average of in operating assets and in operating Statement #2: The company has liabilities. Statement #3: J&H Corp. has in noncash charges, and a net cash flow of Statement #4:J&H Corp.'s total , which consists of its net operating working capital and its total investment in long-term assets, is equal to

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

What are common costs?

Answered: 1 week ago

Question

Let {X(t), Answered: 1 week ago

Answered: 1 week ago