FIN$-455.$ Understanding Financial Statements

$1.$ Consider the assets on Company's balance sheet and answer the following questions:

a$.$ Which assets are likely to be assessed closest to market value? Explain.

b$.$ Finds Company$$s net fixed assets. Can you estimate how much Company paid for these assets? Is

there any way to know the age of these assets?

c$.$ Compare Company$$s investment in current assets and fixed assets. Which one is greater? Is there

significant difference? Explain.

d$.$ Find out any major operating investment or restructuring the company has made in the past. What

impact this has had in Company$$s balance sheet? You might want to compare Company$$s current

balance sheet to it$$s balance sheet before the restructuring.

$2.$ Examine the liabilities on Company's balance sheet.

a$.$ How much interest$-$bearing debt does Company have outstanding? Check what other liabilities

represent.

b$.$ How much did Company obtain in equity capital when it issued stock originally to the financial

markets?

c$.$ Compare the retained earnings to the original paid$-$in capital. Is there any significance if the

retained earnings amount is much larger$/$smaller than the original paid$-$in capital?

d$.$ What is the market value of Company's equity? What is the book value of equity in Company?

Why is there such a large difference between the market value of equity and the book value of

equity?

$3.$ Normally, any Company's most valuable asset is its brand name. Is this true for your Company?

Where in the balance sheet do you see its value? Is there any way to adjust the balance sheet to

reflect the value of this asset?

$4.$ Assume that you have been asked to analyze Company's working capital management.

a$.$ Estimate the net working capital and noncash working capital for Company.

b$.$ Estimate the firm's current ratio.

c$.$ Estimate the firm's quick ratio.

d$.$ Would you draw any conclusions about the riskiness of Company as a firm by looking at these

numbers? Why or why not?

The following questions relate to Company's income statements.

$5.$ How much operating income did Company earn, before taxes in the most recent year? How does

this compare to how much Company earned in previous year? What are the reasons for the

difference?

$6.$ What is the biggest expense item for the Company? Check what makes up the selling, generals and

administrative $($G&A$)$ expenses.

$7.$ What effective tax rate did Company have in the most recent year? How does it compare with

what the company paid in previous year as an effective tax rate? What might account for the

difference?

FIN$-455.$ Understanding Financial Statements

$8.$ You have been asked to assess the profitability of Company as a firm. To that end, estimate the

pretax operating and net margins in last two years for the firm. Are there any conclusions you would

draw from the comparisons across the two years?

$9.$ Find the book value of equity at Company and the book value of interest$-$bearing debt.

Estimate:

a$.$ The return on equity $($beginning of the year$)$ in the current year.

b$.$ The pretax return on capital $($beginning of the year$)$ in the current year.

c$.$ The after$-$tax return on capital $($beginning of the year$)$ in the current year, using the effective tax

rate in the current year.