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ACCTG 211 Lecture Notes - Lecture 16: Shares Outstanding, Balance Sheet, Income Statement

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cerisegiraffe538
23 Oct 2015
School
PSU
Department
Accounting
Course
ACCTG 211
Professor
Collinsand Sohn

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Document Summary

Ratios are standard measures that enable analysts to compare companies of different sizes. Answers question whether company can pay all of its bills. Firms are turning over their inventory faster, so they have less money tied up in inventory. Relative to the assets it is using. Relative to the equity it is using. (net income - preferred dividends) / weighted average number of shares of common stock outstanding. Gives the amount of net income per share of common stock. One of the most widely-used measure of a company"s profitability. Similar to gross margin percentage, but don"t confuse gross margin with net margin. Market price of stock / earning per share. Great basic way to compare valuation of firms. Common stockholder"s equity / no. of common shares outstanding. Accounting value of a company (as opposed to the company"s stock market value) attributed to each common share outstanding. Ncfoa - dividends - purchases of plan assets + sales of plan assets.

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Related Questions

1.) analyze ratios

liquidity ratios

LIQUIDITY Ratios Are wemeeting our current obligations?
Working Capital $ 7,143 $ 2,162 $ 2,357 $ (1,204) $ 1,888
Current Ratio 1.55 1.51 1.52 1.57

1.52

2.) Solvency ratio: analyze the ratio

SOLVENCY Ratios Are wehandling debt appropriately?
Financial LEVerage 2.82 2.95 2.91 2.74 2.94
Debt ratio 65% 66% 66% 64% 66%
Free Cash Flow $ (1,066) $ (2,048) $ (3,067) $ 6,225 $ 7,282

3.) Investment Appeal of Target analysis

Dividends per share $ (1.10) $ (1.32) $ (1.58) $ (1.90) $ (2.13)
Market Value per share $ 59.00 $ 56.00 $ 54.00 $ 53.00 $ 53.00
Dividend Yield -1.87% -2.37% -2.93% -3.59% -4.01%
Price-to-Earnings (P/E) ratio -53.49 -42.27 -34.14 -27.84 -24.91
Price-to-Sales (P/S) ratio 38.09 37.00 35.44 33.69 34.98
Price-to-Book (P/B) ratio 22.00 23.64 25.13 25.56 25.57

4.) Du pont Analyis analysis

DuPont Analysis of ROE = ROS xAsset turnover = ROA x Financial LEVerage = ROE
Return on Sales(ROS), also known as Net Profit Margin 4.19% 4.09% 2.77% -2.25% 4.56%
Asset Turnover 1.60 1.57 1.48 1.63 1.79
Return on Assets (ROA) 6.70% 6.43% 4.09% -3.67% 8.17%
Financial LEVerage 2.82 2.95 2.91 2.74 2.94
Return on Equity (ROE) 18.91% 18.96% 11.90% -10.08% 24.03%

e.) How does your stack up against its competiton?graph/charts

(1.) is your company in attractive industry? Yes/No

(2.) What metrics determine superior companies for yourindustry?

f.) State your investment thesis-investment philosophy(graphs/charts) (target corporation ) 2011-2015

a.) Sustainability economic moats profitability ? your test yourcompany pass/fail explain

b) growth? stable? dividends ? your test yours company pass/failexplain

c.) financial health? financial risk? your test your companypass/fail explain

d.) quality of income? your test your company pass/failexplain

e.) good value? buy now your test your company pass/failexplain

This stock appears to be trading below/ about /over theprice.

g.) investment decisions (target corporation)

overall, this company is a long term buy/ review again at lowprice / bust )

Why? list 5 good reasons 1, 2, 3, 4, 5,

Complete one paragraph, profiling each company's business, including information such as brief histories, where each company is located, number of employees, the products each company sells, and so forth. Please reference any websites that you used for the profiles on the Bibliography tab.
Tootsie Roll Industries began in a small candy store in New York in 1896. Tootsie Roll is now headquartered in Chicago and primarily sells its products in the United States, Canada, and Mexico. According to Yahoo! Finance, Tootsie Roll has 2,000 full-time employees. Tootsie Roll sells the following branded candy: Tootsie Roll, Tootsie Roll Pop, Charms Blow Pop, Mason Dots, Andes, Sugar Daddy, Charleston Chew, Double Bubble, Razzles, Caramel Apple Pop, and Junior Mints. Tootsie Roll had 2014 net product sales of $539.9 million.

Hershey Company was founded by Milton S. Hershey in 1893 and is headquartered in Hershey, Pennsylvania. According to Yahoo! Finance, Hershey has 20,800 full-time employees. Hershey is famous for Good & Plenty, Hershey Bar, Hershey's Kisses, Hershey's Bliss, Reese's, Rolo, Twizzlers, Almond Joy, Kit Kat, and Ice Breakers. Hershey had net product sales of $7.4 billion for 2014.

Tootsie Roll Hershey Interpretation and comparison between the two companies' ratios (reading Chapter 13 will help you prepare the commentary)
The comparison of the ratios is an important part of the project. A good approach is to briefly explain what the ratio tells us. Indicate whether a higher or lower ratio is better. Then compare the two companies on this basis. Remember that each ratio below requires a comparison.
$ 1.05 $ 3.91
$264,621 = 4.11 $2,247,047 = 1.16
$64,459 $1,935,647
$198,962 = 36.9% $3,336,166 = 45.0%
$539,895 $7,421,768
$63,298 = 11.7% $846,912 = 11.4%
$539,895 $7,421,768
$340,933 5.2 $4,085,602 5.6
$66,118 times $730,289 times
365 = 71 365 = 65
5.2 days 5.6 days
$539,895 = 12.9 $7,421,768 = 13.8
$41,987 $537,426
365 = 28.4 365 = 26.4
12.9 days 13.8 days
$539,895 = 0.60 $7,421,768 = 1.35
$899,398 $5,493,502
= 7.0% = 15.4%
$219,250 = 24.1% $4,109,986 = 73.0%
$910,386 $5,629,516
$83,923 = 847.7 1,389,575 = 16.6
$99 83,532
$0.36 = 1.1% $2.33 = 2.6%
$32.04 $90.32
$63,298 = 9.2% $846,912 = 54.0%
$685,721 $1,567,791
= $78,065 $ 492,274
=
$30.65 = 29 $103.93 = 27
$1.05 $3.91
You all get the chance to play the role of financial analyst below. The summary should be a comparison of each company's performance for each major category of ratios listed below. Focus on major differences as you compare each company's performance. A nice way to conclude is to state which company you feel is the better investment and why.
Measuring Ability to Pay Current Liabilities: Tootsie Roll has the advantage for the current ratio. Tootsie Roll has $4.11 in current assets for every dollar in current liabilities, while Hershey has only $1.16 in current assets for every dollar in current liabilities.
Measuring Turnover: Hershey has the advantage for the inventory turnover and accounts receivable turnover ratios. Hershey turns over its inventory 5.6 times to Tootsie Roll's 5.2 times, and Hershey turns over its accounts receivable 13.8 times to Tootsie Roll's 12.9 times.
Measuring Leverage - Overall Ability to Pay Debts: Tootsie Roll has significantly less debt than Hershey as evidenced by Tootsie Roll's 24.1% debt-to-asset ratio as compared to Hershey's 73% debt-to-asset ratio. Tootsie Roll can cover its interest expense 847.7 times with income before interest and taxes, while Hershey can only cover its interest expense 16.6 times with their income before interest and taxes. Tootsie Roll has the advantage for each of these ratios.
Measuring Profitability: Hershey has the advantage for 4 of the 5 profitability ratios. Hershey has a significant edge in return on common stockholders' equity, with a 54% return on common stockholders' equity, as compared to Tootsie Roll's 9.2% return on common stockholders' equity. Hershey has a higher gross profit rate (45.0%–36.9%), while Tootise Roll has a higher net profit margin ratio (11.7%–11.4%). Hershey also has a significant advantage for asset turnover (1.35–.60) and rate of return on total assets (15.4%–7.0%).
Analyzing stock as an investment: Hershey returns a 2.6% dividend yield to its investors, while Tootsie Roll's yield is 1.1%. Hershey has positive free-cash flow of $492.2 million, whereas Tootsie Roll has positive free-cash flow of $78.1 million. Free-cash flow can be used to undertake acquisitions, pay additional dividends, pay down debt, or buy back stock.
Conclusion: Tootsie Roll is the safer investment when you examine the ability to pay current liabilities and overall liabilities, but Hershey has the advantage for the turnover and profitability ratios. For the conservative investor, Tootsie Roll looks like the way to go because of its strong current and times interest–earned ratios. For the growth-oriented investor, Hershey is the way to go because of its stronger profitability ratios and large amount of free-cash flow.

I am having a problem getting my memo right for this math done already class, I have the math done. Heres the directions and Ill post the memo outline they gave us and the math I have doneI have to tell them yes on the loan as you will see in my answer to Part 3

Precision company wishes to expand but needs a $300,000 loan. The bank requests that Precision prepare a balance sheet and key financial ratios. Precision has kept formal records and is able to provide financial statements as of December 31, 2017. The industry debt ratio averages 45.00%. The industry return on assets is 2.0%.

You represent Ideal Bank and will present your findings in a memo to report the ratios for Precision, and identify the conclusion of your opinion reached from your analysis of the company’s financials. The memo is to be copied and distributed to the VP of Ideal Bank, so a well-written and detailed memo is crucial. Your memo will be crucial to bank leaders’ decision to lend Precision the $300,000.

Make sure you use complete sentences. Check your work for proper spelling, grammar and punctuation.

Part 1(a) - Return on Total assets

Return on Total Assets = (Earning Before Income And Taxes)/Total Assets*100

Total Assets = $1684000

Earning before Interest and Taxes = $185000

Return on Total Assets = ($185000/$1684000)*100 = 10.99%

Part 1(b) - Its Building Block is Profitability. Profitability ratios measure the how effectively company uses its assets in generating revenue. The ratio explain the relationship between income and Resources.

Company is generating more return on total assets than the industry average. Industry average is 2% and company's return on total assets is 10.99%

Also company is having the very high profit Margin, High Return on Equity. Hence overall Position regarding Profitability is Higher than Industry's average

Part 2(a) - Debt Ratio = Total Debts/Shareholders Equity

Total Debts = $400000

Shareholders Equity = $1019000

Debt Ratio = ($400000/$1019000)*100 = 39.25%

Part 2(b) - Its Building Block is Solvency. Solvency ratio determines the ability of company to meet the liabilities of long term debts. It analyses that whether company has sufficient cash flows to repay the long term debts.

Company debt ratio is 39% which is lesser than Industry Average ratio. It says that company better manages its long term debt financing. Lower debt equity ratio is better. And debt equity ratio of more than 50% is considered unhealthy. Hence company is very much performing better than its Industries sector.

Part 3- Yes, Company is highly able to get the loan of $300000. Company is performing better than Industry averages in terms of profitability and Solvency. Also Company has current ratio of more than 2.0 which says that company has high liquidity. Hence company is Growing in business and has strong financials better than industry average. Hence Company can get the loan of $300000 for expansion

Precision Company

Memorandum

To: Recipient Name

From: Your Name

CC: CC Name

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