Accessing SEC Reports and Calculating Ratios Access the financial reports for the fiscal year ending in 2018 at the SEC website (http://www.sec.gov) for Medtronic and Boston Scientific, two competitors in the medical device industry. a. Use data from the companies' balance sheets and income statements to complete the following table. Round answers to the nearest million, when applicable. $ millions Total assets, beginning of fiscal year $ Total assets, end of fiscal year Average total assets Net income (consolidated) Revenue Medtronic 99,948 * $ 91,403 x 95,675.5 x 3,095 29,953 Boston Scientific 19,042 20,999 20.020.5 x 1,671 9,823 b. Calculate the following ratios for each company. Use rounded answers from above to compute answers. Round ROA and PM to one decimal place (ex: 9.6%). Round AT to two decimal places (ex: 0.52). Boston Scientific 8.3 % 17% Medtronic 3.2 % 10.3 % 0.31 Return on assets (ROA) Profit margin (PM) Asset turnover (AT) 0.49 C. Which company has the better ROA? Boston Scientific d. Which of the following is true? 01. As compared to Boston Scientific, Medtronic has a better profit margin and a weaker asset turnover. 2. As compared to Boston Scientific, Medtronic has a weaker profit margin and a weaker asset turnover. 03. As compared to Boston Scientific, Medtronic has a better profit margin and a better asset turnover. 4. As compared to Boston Scientific Medtronic has a weaker profit margin and a better asset turnover. Comparing Ratios for Luxury and Budget Retailers Following are selected financial statement data from Capri Holdings (a retailer that owns upscale brands Michael Kors, Jimmy Choo, and Versace) and Five Below (a value-priced toy and novelty retailer). Capri Holdings Five Below ($ millions) ($ thousands) 2018 2017 2018 2017 Sales $4,718.6 $4,493.7 $1,559,563 $1,278,208 Cost of sales 1,859.3 1,832.3 994,478 814,795 Net income 592.1 551.5 149,645 102,451 Average equity 1,805.0 1,794.0 536,826 394,982 Required a. Calculate the gross profit for each company for both years. Gross profit is equal to sales minus the cost of sales. b. Calculate gross profit as a percentage of sales for each company for both years. C. Compute the return on equity for each company for both years. Notes: For gross profit, enter Capri Holdings in millions and Five Below in thousands. Round gross profit percentage and ROE to one decimal place (example: 0.2345 = 23.5%). Capri Holdings Five Below 2018 2017 2018 2017 a. Gross profit $ 2,859.3$ 2,661.4 $ 565,085$ 463,413 b. Gross profit percentage 60.6% 59.23 % x 36.23 % x 36.25% c. Return on equity (ROE) 32.8 % 30.7496 x 27.88 % X 25.94 % x d. Which of the following best explains why the ratios for Five Below and Capri Holdings differ? Select the corresponding number for the correct answer: 3. 1. Capri Holdings is much larger than Five Below and so its ratios are naturally larger. 2. Five Below is a younger company and so its ratios are naturally lower. 3. Capri Holdings' brand recognition creates a competitive advantage, which allows the company to add a bigger markup to the products it sells. 4. Five Below imports its products from Southeast Asia, which allows the company to keep product costs down. Applying Financial Statement Linkages to understand Transactions Consider the effects of the independent transactions, a through g, on a company's balance sheet, income statement, and statement of cash flows. Complete the table below to explain the effects an financial statement linkages. Refer to Exhibit 2.10 as a guide for the linkages. a. Owners invested cash in the company in exchange for shares of common stock. b. The company received cash from the bank for a loan. c. The company purchased equipment to manufacture goods for sale and paid with cash. d. The company manufactured a custom piece of inventory and paid cash for materials and labor. The company sold the inventory for more than cost, and the customer promised to pay for the inventory in 30 days. e. The company paid monthly rent for a manufacturing space. f. The company paid cash dividends to the owners. g. The company received cash from the customer in transaction d. a. e. f. 8. 2 1 x x 2x 0 2 x 0 x 2 0 X 2x 0 0 To indicate the account increases (+), enter"1" in the answer box. To indicate the account decreases (-), enter "2" in the answer box. Leave other answers boxes blank, if the account is not impacted by the transaction. b. d. d Balance sheet Cash 1 2 X 1 x 0 X Noncash assets 1 x 0 x 17 Total liabilities 0 x Contributed capital 1 0 0 Retained earnings 2x 1 x 1 Other equity 0 0 Statement of cash flows Operating cash flow 2 x 1 x 0 x Investing cash flow 1 x 0 x 0 Financing cash flow 1 0 X 0 Income statement Revenues 0 1 x 1 Expenses 1 x 0 0 x Net income 0 2 x 1 x 17 Statement of stockholders' equity Contributed capital 17 1 Retained earnings 0 2 2 X 1 x x 1 2 0 x 1 x 0 0 0 0 x 2 X 0 0 0 0 1 2 0 2 2 X Accessing SEC Reports and Calculating Ratios Access the financial reports for the fiscal year ending in 2018 at the SEC website (http://www.sec.gov) for Medtronic and Boston Scientific, two competitors in the medical device industry. a. Use data from the companies' balance sheets and income statements to complete the following table. Round answers to the nearest million, when applicable. $ millions Total assets, beginning of fiscal year $ Total assets, end of fiscal year Average total assets Net income (consolidated) Revenue Medtronic 99,948 * $ 91,403 x 95,675.5 x 3,095 29,953 Boston Scientific 19,042 20,999 20.020.5 x 1,671 9,823 b. Calculate the following ratios for each company. Use rounded answers from above to compute answers. Round ROA and PM to one decimal place (ex: 9.6%). Round AT to two decimal places (ex: 0.52). Boston Scientific 8.3 % 17% Medtronic 3.2 % 10.3 % 0.31 Return on assets (ROA) Profit margin (PM) Asset turnover (AT) 0.49 C. Which company has the better ROA? Boston Scientific d. Which of the following is true? 01. As compared to Boston Scientific, Medtronic has a better profit margin and a weaker asset turnover. 2. As compared to Boston Scientific, Medtronic has a weaker profit margin and a weaker asset turnover. 03. As compared to Boston Scientific, Medtronic has a better profit margin and a better asset turnover. 4. As compared to Boston Scientific Medtronic has a weaker profit margin and a better asset turnover. Comparing Ratios for Luxury and Budget Retailers Following are selected financial statement data from Capri Holdings (a retailer that owns upscale brands Michael Kors, Jimmy Choo, and Versace) and Five Below (a value-priced toy and novelty retailer). Capri Holdings Five Below ($ millions) ($ thousands) 2018 2017 2018 2017 Sales $4,718.6 $4,493.7 $1,559,563 $1,278,208 Cost of sales 1,859.3 1,832.3 994,478 814,795 Net income 592.1 551.5 149,645 102,451 Average equity 1,805.0 1,794.0 536,826 394,982 Required a. Calculate the gross profit for each company for both years. Gross profit is equal to sales minus the cost of sales. b. Calculate gross profit as a percentage of sales for each company for both years. C. Compute the return on equity for each company for both years. Notes: For gross profit, enter Capri Holdings in millions and Five Below in thousands. Round gross profit percentage and ROE to one decimal place (example: 0.2345 = 23.5%). Capri Holdings Five Below 2018 2017 2018 2017 a. Gross profit $ 2,859.3$ 2,661.4 $ 565,085$ 463,413 b. Gross profit percentage 60.6% 59.23 % x 36.23 % x 36.25% c. Return on equity (ROE) 32.8 % 30.7496 x 27.88 % X 25.94 % x d. Which of the following best explains why the ratios for Five Below and Capri Holdings differ? Select the corresponding number for the correct answer: 3. 1. Capri Holdings is much larger than Five Below and so its ratios are naturally larger. 2. Five Below is a younger company and so its ratios are naturally lower. 3. Capri Holdings' brand recognition creates a competitive advantage, which allows the company to add a bigger markup to the products it sells. 4. Five Below imports its products from Southeast Asia, which allows the company to keep product costs down. Applying Financial Statement Linkages to understand Transactions Consider the effects of the independent transactions, a through g, on a company's balance sheet, income statement, and statement of cash flows. Complete the table below to explain the effects an financial statement linkages. Refer to Exhibit 2.10 as a guide for the linkages. a. Owners invested cash in the company in exchange for shares of common stock. b. The company received cash from the bank for a loan. c. The company purchased equipment to manufacture goods for sale and paid with cash. d. The company manufactured a custom piece of inventory and paid cash for materials and labor. The company sold the inventory for more than cost, and the customer promised to pay for the inventory in 30 days. e. The company paid monthly rent for a manufacturing space. f. The company paid cash dividends to the owners. g. The company received cash from the customer in transaction d. a. e. f. 8. 2 1 x x 2x 0 2 x 0 x 2 0 X 2x 0 0 To indicate the account increases (+), enter"1" in the answer box. To indicate the account decreases (-), enter "2" in the answer box. Leave other answers boxes blank, if the account is not impacted by the transaction. b. d. d Balance sheet Cash 1 2 X 1 x 0 X Noncash assets 1 x 0 x 17 Total liabilities 0 x Contributed capital 1 0 0 Retained earnings 2x 1 x 1 Other equity 0 0 Statement of cash flows Operating cash flow 2 x 1 x 0 x Investing cash flow 1 x 0 x 0 Financing cash flow 1 0 X 0 Income statement Revenues 0 1 x 1 Expenses 1 x 0 0 x Net income 0 2 x 1 x 17 Statement of stockholders' equity Contributed capital 17 1 Retained earnings 0 2 2 X 1 x x 1 2 0 x 1 x 0 0 0 0 x 2 X 0 0 0 0 1 2 0 2 2 X