Question 4

Dawning Company Consolidated Balance Sheet (in millions, except per share amounts)

As of December 31 2011 2010 Assets Current assets Cash and cash equivalents $ 878 $ 490 Receivables (net of allowances of $49 and $53, respectively) 1,675 1,610 Inventories 1,327 1,222 Other current assets 522 408 Total current assets 4,402 3,730

Property, plant and equipment, net 3,668 3,693 Goodwill, net 2,657 2,362 Other intangible assets, net 1,341 831 Deferred income taxes 115 8 4 Other assets 541 472 Total assets $12,724 $ 11,172

Liabilities and Shareholders Equity Current liabilities Notes and loans payable $ 34 $ 48 Current portion of long-term debt 346 561 Accounts payable 1,244 1,165 Accrued income taxes 392 272 Other accruals 1,700 1,682 Total current liabilities 3,716 3,728

Long-term debt 4,430 2,815 Deferred income taxes 252 108 Other liabilities 1,785 1,704 Total liabilities 10,183 8,355

Commitments and contingent liabilities Shareholders equity Common stock, $1 par value (2,000,000,000 shares authorized, 732,853,180 shares issued) Additional paid-in capital 1,336 1,132 Retained earnings 15, 649 14,329 Accumulated other comprehensive income (loss) (2,475) (2,115) 15,243 14,079

Unearned compensation (60) (99) Treasury stock, at cost (12,808) (11,305) Total Dawning Company shareholders equity 2,375 2,675 Noncontrolling interests 166 142 Total shareholders equity 2,541 2,817 Total liabilities and shareholders equity $ 12,724 $ 11,172

Dawnings Comparative Income Statements (in millions) 2011 2010 Change % Change Net sales $16,734 $15,564 $1,170 7.5% Cost of sales 7,144 6,360 784 12,3% Gross Profit 9,590 9,204 386 4.2%

Selling, general, and administrative expenses 5,758 5,414 344 6.4% Other (income) expense, net (9) 301 (310) (103.0%) Operating profit 3,841 3,489 352 10.1%

Interest expense, net 52 59 (7) (11.9%) Income before income taxes 3,789 3,430 359 10.5% Provision for income taxes 1,235 1,117 118 10.6% Net income including noncontrolling interests 2,554 2,313 241 10.4%

Net income attributable to noncontrolling interests 123 110 13 11.8% Net income attributable to Dawning Company $2,431 $2,203 $228 10.3%

Required to: a) Compute the following ratios in the year 2011: Each question is worth 3 marks i. Gross profit margin ii. Net profit margin iii. Current ratio iv. Acid test ratio v. Total debt to equity vi. Return on assets vii. Return on equity viii. Accounts receivable turnover ix. Inventory turnover x. Total assets Turnover xi. Price to earnings xii. Dividend yield

b) Required: Interpret the above ratios on the companys credit, solvency and profitability status.

Dawnings Common-Size Income Statement Common size 2011 2010 2009 2008 2007 2006 Net sales 100.00 100.00 100.00 100.00 100.00 100.00 Cost of sales 42.69 40.86 41.23 41.20 40.41 41.08 Gross profit 57.31 59.14 58.77 58.80 59.59 58.92 Selling, general and administrative Expenses 34.41 34.79 34.46 34.84 35.70 35.21 Other (income) expense, net (0.05) 1.93 0.72 3.61 4.04 5.49 Operating profit 22.95 22.42 23.59 20.35 19.84 18.22 Interest expense, net. 0.31 0.38 0.50 0.75 1.25 1.39 Income before income taxes 22.64 22.04 23.08 19.60 18.59 16.83

Provision for income taxes 7.38 7.18 7.44 6.31 5.50 5.30 Net income including interests 15.26 14.86 15.64 13.29 13.08 11.53 Less: Net income attributable to interests 0.74 0.71 0.69 0.52 0.49 0.47 Net income attributable to Dawning Company 14.53 14.15 14.95 12.77 12.60 11.06

Required: analyse and interpret the Common-Size Income statement on the company performance for the period 2006 to 2011