Business Administration - Financial Planning RFC225 Lecture Notes - Lecture 2: Retained Earnings, Shares Outstanding, Public Company

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greenmuskrat329

28 Jan 2017

School

Seneca College

Department

Business Administration - Financial Planning

Course

Business Administration - Financial Planning RFC225

Professor

Peter Wan

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Document Summary

Gross profit margin: gross margin = sales costs of goods sold, higher the better. Net return on common equity: = net income/equity. Turnover: how fast turnover inventory, get it in, pick it up, sell it = turnover (with merchandise) Inventory turnover ratio: #x for each # of inventory is going to turnover # times. Eps = earnings per share: earnings/# shares outstanding. Dividend policy: earnings affect dividend, dividend are from retained earnings, rate of return on those earnings. Board of directors: mostly external personnel. Dividend yield: how much dividend paid out versus the price. P/e multiple: the true sentiment of how people look at the company, comparing to industry, similar size company, should have similar ratio. Comparing apples to apples and oranges to oranges: lower the p/e in theory the better buying opportunity. Everyone is different: some people can take risk, some people can take profit, some people can take loss, some people can take both.

Related Questions

E13-5 Matching Each Ratio with Its Computational Formula LO 13-4, 13-5, 13-6, 13-7

Match each definition with its related ratios or percentages by selecting the appropriate letter in the drop down provided.

Definitions:			Ratios or Percentages	Definitions
A.	Net Income (before extraordinary items) Ã· Net Sales	1	Profit margin
B.	Days in Year Ã· Receivable Turnover ratio	2	Inventory turnover ratio
C.	Net Income Ã· Average Stockholdersâ Equity	3	Average collection period
D.	Net Income Ã· Average Number of Shares of Common Stock Outstanding	4	Dividend yield ratio
E.	Return on Equity â Return on Assets	5	Return on equity
F.	Quick Assets Ã· Current Liabilities	6	Current ratio
G.	Current Assets Ã· Current Liabilities	7	Debt-to-equity ratio
H.	Cost of Goods Sold Ã· Average Inventory	8	Price/earnings ratio
I.	Net Credit Sales Ã· Average Net Receivables	9	Financial leverage percentage	E
J.	Days in Year Ã· Inventory Turnover Ratio	10	Receivable turnover ratio
K.	Total Liabilities Ã· Stockholdersâ Equity	11	Average daysâ supply of inventory
L.	Dividends per Share Ã· Market Price per Share	12	Earnings per share
M.	Market Price per Share Ã· Earnings per Share	13	Return on assets
N.	[Net Income + Interest Expense (net of tax)] Ã· Average Total Assets	14	Quick ratio
O.	Cash from Operating Activities (before interest and taxes) Ã· Interest Paid	15	Times interest earned
P.	Net Sales Revenue Ã· Net Fixed Assets	16	Cash coverage ratio
Q.	(Net Income + Interest Expense + Income Tax Expense) Ã· Interest Expense	17	Fixed asset turnover ratio

blackgerbil844

Given the financial statements for Jones Corporation and SmithCorporation:

JONES CORPORATION
Current Assets					Liabilities
Cash			$	22,000	Accounts payable	$	127,000
Accounts receivable				81,100	Bonds payable (long term)		85,600
Inventory				50,000
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	526,000			Common stock	$	150,000
Less: Accumulated depreciation		150,700			Paid-in capital		70,000
Net fixed assets*				375,300	Retained earnings		95,800
Total assets			$	528,400	Total liabilities and equity	$	528,400


Sales (on credit)	$	1,326,000
Cost of goods sold		790,000
Gross profit	$	536,000
Selling and administrative expense^â		304,000
Depreciation expense		59,800
Operating profit	$	172,200
Interest expense		14,500
Earnings before taxes	$	157,700
Tax expense		99,600
Net income	$	58,100

*Use net fixed assets in computing fixed asset turnover.
â Includes $13,500 in lease payments.

SMITH CORPORATION
Current Assets					Liabilities
Cash			$	38,400	Accounts payable	$	83,300
Marketable securities				12,700	Bonds payable (long term)		217,000
Accounts receivable				74,300
Inventory				83,700
Long-Term Assets					Stockholders' Equity
Gross fixed assets	$	504,000			Common stock	$	75,000
Less: Accumulated depreciation		255,800			Paid-in capital		30,000
Net fixed assets*				248,200	Retained earnings		52,000
Total assets			$	457,300	Total liabilities and equity	$	457,300

*Use net fixed assets in computing fixed asset turnover.

SMITH CORPORATION
Sales (on credit)	$	1,100,000
Cost of goods sold		640,000
Gross profit	$	460,000
Selling and administrative expense^â		272,000
Depreciation expense		56,500
Operating profit	$	131,500
Interest expense		24,300
Earnings before taxes	$	107,200
Tax expense		56,500
Net income	$	50,700

^âIncludes $13,500 in lease payments.

a. Compute the following ratios. (Use a360-day year. Do not round intermediate calculations. Input yourprofit margin, return on assets, return on equity, and debt tototal assets answers as a percent rounded to 2 decimal places.Round all other answers to 2 decimal places.)

	Jones Corp.		Smith Corp.
Profit margin		%		%
Return on assets (investments)		%		%
Return on equity		%		%
Receivable turnover		times		times
Average collection period		days		days
Inventory turnover		times		times
Fixed asset turnover		times		times
Total asset turnover		times		times
Current ratio		times		times
Quick ratio		times		times
Debt to total assets		%		%
Times interest earned		times		times
Fixed charge coverage		times		times

ceruleanpug223

Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto:
for the Year Ended December 31, 2015
Sales revenue	$602,000
Less: Cost of goods sold	460000
Gross profits	$142,000
Less: Operating expenses
General and administrative expenses	$29,600
Depreciation expense	30500
Total operating expense	60100
Operating profits	$81,900
Less: Interest expense	10300
Net profits before taxes	$71,600
Less: Taxes	27500
Net profits after taxes (earnings available for common stockholders)	$44,100
Earnings per share (EPS)	$2.17

Use the financial statements for Fox Manufacturing Company for the year ended Decemberâ 31, 2015, along with the industry average ratios âto:

	Industry average, 2015
Current ratio	2.4
Quick ratio	0.91
Inventory turnover*	4.46 times
Average collection period*	35.7 days
Total asset turnover	1
Debt ratio	0.22
Times interest earned	12.3
Gross profit margin	0.204
Operating profit margin	0.138
Net profit margin	0.101
Return on total assets (ROA)	0.092
Return on common equity (ROE)	0.169
Earnings per share (EPS)	$3.16
*Based on a 365-day year and on end-of-year figures. a. Prepare and interpret a complete ratio analysis of theâ firm's 2015 operations. b. Summarize your findings and make recommendations.

Business Administration - Financial Planning RFC225 Lecture Notes - Lecture 2: Retained Earnings, Shares Outstanding, Public Company

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