Problem 5.13 Page 385 .13 Calculating and Interpreting Risk Ratios. Refer to the financial state- LO 5-3, LO 5-4 lent data for Hasbro in Problem 4.24 in Chapter 4. Exhibit 5.15 presents risk ratios for Hasbro Year 2 and Year 3. Exhibit 5.15 Risk Ratios for Hasbro (Problem 5.13) Year 4 Year 3 Year 2 Current ratio 1.6 1.5 Quick ratio 1.2 1.1 Operating cash flow to current liabilities ratio 0.479 0.548 Days accounts receivable outstanding 68 73 Days inventory held 51 68 Days accounts payable outstanding 47 49 Net days of working capital financing needed 72 91 Liabilities to assets ratio 0.556 0.621 Liabilities to shareholders' equity ratio 1.251 1.639 Long-term debt to long-term capital ratio 0.328 0.418 Long-term debt to shareholders' equity ratio 0.489 0.720 Operating cash flow to total liabilities ratio 0.215 0.238 Interest coverage ratio 5.6 2.3 REQUIRED a. Calculate the amounts of these ratios for Year 4. b. Assess the changes in the short-term liquidity risk of Hasbro between Year 2 and Year 4 and the level of that risk at the end of Year 4. c. Assess the changes in the long term solvency risk of Hasbro between Year 2 and Year 4 and the level of that risk at the end of Year 4.Exhibit 4.31 Hasbro Income Statements (amounts in millions) (Problem 4.24) For the Year Ended December 31, Year 4 Year 3 Year 2 Sales $ 2,998 $ 3.139 $ 2,816 Cost of goods sold (1,252) (1,788) (1,092) Selling and administrative expenses: Advertising (387) (364) (297) Research and development (157) (143) (154) Royalty expense (2231 (248) (296) Other selling and administrative (687) (66/) (788] Exhibit 4.31 (Continued) Interest expense (53) Income tax expense 291 Net Income 196 $ 175 $ 75 Since: Hasbio, In. Form 10-t for the Fiscal Years Ended 2002 2004. Hasbro Statements of Cash Flows (amounts in millions] [Problem 4.24) For the Year Ended December 31, Year 4 Year 3 Year 1 OPERATIONS Net income $195 $ 175 5 75 Depreciation and amortization 146 164 1 PM Addbacks and subtractions, net 17 (Increase) Decrease in accounts receivable TE (13) (Increase) Decrease In inventories (16) 35 (Increase) Decrease in prepayments 29 8 185 Increme (Decrease) in accounts payable and other current liabilities (90) 17 Cash Flow from Operations $358 $ 454 $ 471Exhibit 4.30 Hasbro Balance Sheets [amounts in millions) (Problem 4.24) December 31, Year 4 Year 3 Year 2 Year 1 ASSETS Cash $ 725 $ 521 Accounts receivable $ 496 5 233 579 607 Inventories 555 572 195 Prepayments 169 190 217 219 Total Current Assets 212 191 346 $1,719 $1.509 $1,432 $1,368 Exhibit 4.30 (Continued) Other assets 1,316 1,454 1,498 1,765 Total Assets $3.241 53,163 53.143 $3.369 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 168 159 $ 166 $ 123 Short-term borrowing 342 24 223 36 Other current liabilities 639 747 578 599 Total Current Liabilities $1,149 $ 930 $ 967 5 758 Long-term debt 303 687 857 1,166 Other noncurrent abilities 149 141 128 92 Total Liabilities $1,601 $1,758 $1,952 $2,016 Common stock $ 105 $ 105 $ 105 $ 105 Additional paid-in capital 381 398 158 455 Retained earnings 1,721 1,567 1,430 1,622 Accumulated other comprehensive Income (loss) 82 30 (471 1687 Treasury stock (649) (6951 (755) (761) Total Shareholders' Equity $1,640 $1/405 $1,191 $1,353 Total Liabilities and Shareholders' Equity 53.241 $3,163 $3,143 53.369 lounge: Hasbio, Inc. Form 10-K for the Fiscal Years Ended 2001-2004. The Assets don't add up. But that is the way the text presented it. Don't worry about that as all of the ratios are based on numbers presented and are correctly calculated
