ACC-202 Lecture Notes - Lecture 33: Inventory Turnover, Under Armour, Edgar
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| Industry Average | |||||||||||||||
| Financial Ratios | 　 | 2015 | 　 | 2016 | 　 | 2017 | 　 | ||||||||
| Liquidity | 　 | 　 | 　 | ||||||||||||
| Accounts receivables turnover(times) | 8.08 | 　 | 6.34 | 　 | 5.11 | 　 | 9.4 | ||||||||
| Average Collection Period (days) | 45.17 | 　 | 57.59 | 　 | 71.46 | 　 | 38.8 | ||||||||
| Inventory turnover (times) | 7.81 | 　 | 5.85 | 　 | 4.54 | 　 | 3.8 | ||||||||
| Average days in inventory (days) | 46.73 | 　 | 62.37 | 　 | 80.35 | 　 | 96.1 | ||||||||
| Current ratio (times) | 2.04 | 　 | 1.70 | 　 | 1.53 | 　 | 1.6 | ||||||||
| Quick or Acid-test ratio (times) | 0.99 | 　 | 0.80 | 　 | 0.71 | 　 | 0.8 | ||||||||
| Solvency | 　 | 　 | 　 | ||||||||||||
| Debt to Equity Ratio | 94.7% | 　 | 164.1% | 　 | 229.8% | 　 | 0.667 | ||||||||
| Times interest earned (times) | 5.99 | 　 | 4.26 | 　 | 4.19 | 　 | 3.4 | ||||||||
| Profitability | 　 | 　 | 　 | ||||||||||||
| Gross profit ratio (%) | 29.7% | 　 | 29.5% | 　 | 29.8% | 　 | 5.4% | ||||||||
| Profit margin (%) [before tax] | 2.2% | 　 | 2.5% | 　 | 3.5% | 　 | 4.4% | ||||||||
| Asset Turnover | 2.26975906 | 　 | 1.977221 | 　 | 1.705226 | 　 | 1.8 | ||||||||
| Return on assets (%) [before tax] | 7.5% | 　 | 7.5% | 　 | 9.0% | 　 | 8.0% | ||||||||
| Return on equity (%) [before tax] | 14.7% | 　 | 19.8% | 　 | 29.6% | 　 | 17.10% | ||||||||
| Price to earnings ratio | $ 24.46 | 　 | $18.62 | 　 | $10.37 | 　 | |||||||||
| Cash Flow Statement | 　 | 　 | 　 | 2016 | 　 | 　 | 2017 | 　 | 　 | ||||||
| Cash, beginning of year | 　 | $ 1,512.00 | 　 | $ 1,176.00 | 　 | ||||||||||
| Operating Activities | |||||||||||||||
| Net Income | 　 | $ 1,627.00 | 　 | $ 2,827.00 | 　 | ||||||||||
| Plus Depreciation | 　 | $ 908.00 | 　 | $ 1,292.00 | 　 | ||||||||||
| Minus increase in accounts receivable | 　 | $ (4,034.00) | 　 | $ (5,648.00) | 　 | ||||||||||
| Minus increase in inventory | 　 | $ (3,302.00) | 　 | $ (4,732.00) | 　 | ||||||||||
| Minus increase in prepaid expenses | 　 | $ (1,360.00) | 　 | $ (1,700.00) | 　 | ||||||||||
| Plus increase in accounts payable | 　 | $ 2,388.00 | 　 | $ 3,997.00 | 　 | ||||||||||
| Plus increase in income taxes payable | 　 | $ 252.00 | 　 | $ - | 　 | ||||||||||
| Plus increase in accruals & other cur.Liab. | 　 | $ 1,365.00 | 　 | $ 1,656.00 | 　 | ||||||||||
| Net Cash from operating activities | 　 | $ (2,156.00) | 　 | 　 | $ (2,308.00) | 　 | 　 | ||||||||
| Investment Activities | |||||||||||||||
| Fixed asset acquisitions | 　 | $ (2,780.00) | 　 | $ (3,838.00) | 　 | ||||||||||
| Change in intangible assets | 　 | $ (21.00) | 　 | $ (17.00) | 　 | ||||||||||
| Change in all other noncurrent activities | 　 | $ (467.00) | 　 | $ (195.00) | 　 | ||||||||||
| Net Cash from investing activities | 　 | $ (3,268.00) | 　 | 　 | $ (4,050.00) | 　 | 　 | ||||||||
| Financing Activities | |||||||||||||||
| Change in notes payable | 　 | $ 2,038.00 | 　 | $ 3,080.00 | 　 | ||||||||||
| Change current maturities--L.T.D. | 　 | $ 452.00 | 　 | $ 786.00 | 　 | ||||||||||
| Change in long-term debt | 　 | $ 3,160.00 | 　 | $ 3,250.00 | 　 | ||||||||||
| Change in Com Stock & paid-in cap | 　 | $ - | 　 | $ - | 　 | ||||||||||
| Dividends paid | 　 | $ (562.00) | 　 | $ (837.00) | 　 | ||||||||||
| Net Cash from financing Activities | 　 | $ 5,088.00 | 　 | $ 6,279.00 | 　 | ||||||||||
| Net Change in Cash | 　 | $ (336.00) | 　 | $ (79.00) | 　 | ||||||||||
| Cash, end of year | 　 | $ 1,176.00 | 　 | $ 1,097.00 | 　 | ||||||||||
4. What is your assessment of the manner in which HTCM ismanaging its assets? Pay attention to both trends and industryaverages.
SOLVENCY (Financing of Assets)
5. What is your assessment of the manner in which HTCM isfinancing its assets? Pay attention to both trends and industryaverages. What is the relationship between the debt to equity ratioand times interest earned as these relate to HTCM? And is there anyother possible explanation (outside of the firm’s financialstatements) for the observed trend in times interest earned?
PROFITABILITY
6. What can you say about HTCM’s gross profit ratio and netprofit ratio? Explain any patterns observed.
7. How are HTCM’s net profit ratio, and asset turnover ratioaffecting the firm’s pre-tax return on assets (ROA) and return onequity (ROE)? What is your overall assessment of the firm’sprofitability, including its earnings per share (EPS)?
CASH FLOW
8. Referring to HTCM’s statement of cash flow for 2016 and 2017,assess HTCM’s cash flow situation noting both inflows andoutflows?
OVERALL EVALUATION
9. Based on your answers to the questions above, what is youroverall evaluation of HTCM’s financial condition? (Pull all youranalysis together in answering this question.)
10. What is the market’s assessment of HTCM’s financialcondition? Explain. Does the market’s assessment confirm or refuteyour analysis?
11. Based on your evaluation of HTCM and the market’s assessmentof the firm, would you accept employment with the company?Explain.
| Balance Sheet | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash | 807,000 | 628,000 | 612,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivables | 2,582,000 | 2,896,000 | 4,605,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 2,870,000 | 5,181,000 | 7,319,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Assets | 6,259,000 | 8,705,000 | 12,536,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Fixed Assets | 2,216,000 | 2,423,000 | 5,538,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable | 961,000 | 1,648,000 | 3,137,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 400,000 | 800,000 | 2,860,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accruals | 440,000 | 800,000 | 1,150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilities | 1,801,000 | 3,248,000 | 7,147,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term Debt | 1,350,000 | 1,908,000 | 1,867,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | 3,650,000 | 3,650,000 | 3,650,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retained Earnings | 1,674,000 | 2,322,000 | 2,410,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Equity | 5,324,000 | 5,972,000 | 6,060,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Equity | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Statement | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | 26,820,000 | 28,966,000 | 30,703,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Sales | 21,216,000 | 23,550,000 | 26,140,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 5,604,000 | 5,416,000 | 4,563,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Expenses | 2,574,000 | 3,225,000 | 3,866,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Profit | 3,030,000 | 2,191,000 | 697,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | 91,000 | 275,000 | 469,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Before Taxes | 2,939,000 | 1,916,000 | 228,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes (48%) | 1,411,000 | 919,000 | 110,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | 1,528,000 | 997,000 | 118,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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ABC Company, a toy manufacturer, believes the coming holiday season (between Thanksgiving in late November and Christmas on the 25thof December) will be a very good one, expecting an increase of 20% in its sales. Outside economic analysts believe the effects of the recent recession are over. Consumer confidence is high. To meet that 20% increase, however, inventories must be built up so, to finance that expansion, ABC wants to borrow $1,000,000 from its bank.
You are the loan officer who must make the decision as to whether or not to give ABC the money. You are going to prepare ratios for 3 years, the Cash Conversion Cycle for the same period and operating cash flow for the years for which you have figures.
Review the Balance Sheets and Income Statements for ABC over the 3 years and answer the following questions (20 points each).
3) Operating Cash Flow is the first of the 3 parts to the Statement of Cash Flows.
a) Define operating cash flow. What does it tell us?
b) Calculate ABC’s operating cash flows for those years for which figures are available.
c) Does your analysis of ABC’s operating cash flows change your conclusions listed in 1) and 2) above?
4) Do you believe ABC’s cash position and its management of cash needs improvement? If so, how would you recommend they do it?
Answer Questions in Bold!
Financial Statement Analysis Project—A Comparative Analysis ofOracle Corporation and Microsoft Corporation
Here is the link for the financial statements for OracleCorporation for the fiscal year ending 2011. First, select 2011using the drop-down arrow labeled Year on the right-hand side ofthe page, and then select Annual Reports using the drop-down arrowlabeled Filing Type on the left-hand side of the page.
You should select the 10k dated 6/28/2011 and choose to downloadin PDF, Word, or Excel format.
http://www.oracle.com/us/corporate/investor-relations/sec/index.html
Here is the link for the financial statements for MicrosoftCorporation for the fiscal year ending 2011. You need to press theword Go on the left-hand side of the page. Then you shouldselect the 10k dated 7/28/2011 and choose to download in Word orExcel format.
http://www.microsoft.com/investor/SEC/default.aspx?year=2011&filing=annual
A sample project template is available for download in DocSharing. The sample project compares the ratio performance ofTootsie Roll and Hershey using the 2012 financial statements ofTootsie Roll and Hershey provided at their websites.
Description | |
This course contains a Course Project. You will be required tosubmit one draft of the project at the end of Week 5 and the final,completed project at the end of Week 7. Using the financialstatements for Oracle Corporation and Microsoft Corporation,respectively, you will calculate and compare the financial ratioslisted further down this document for the fiscal year ending 2011and prepare your comments about the two companies’ performancebased on your ratio calculations. The entire project will be gradedby the instructor at the end of the final submission in Week 7, andone grade will be assigned for the entire project.
Overall Requirements | |
For the Final Submission
Your final Excel workbook submission should contain thefollowing items. You cannot use any software but Excel to completethis project.
A completed worksheet title page tab, which is really acoversheet with your name, the course, the date, your instructor’sname, and the title for the project.
A completed worksheet profiles tab that contains a one-paragraphdescription regarding each company with information about theirhistories, what products they sell, where they are located, and soon.
All 16 ratios for each company, with the supporting calculationsand commentary on your worksheet ratio tab. Supporting calculationsmust be shown either as a formula or as text typed into a differentcell. The ratios are listed further down this document. Yourcomments for each ratio should include more than just a definitionof the ratio. You should focus on interpreting each ratio numberfor each company and support your comments with the numbers foundin the ratios.
The Summary and Conclusions worksheet tab is an overallcomparison of how each company compares in terms of the majorcategory of ratios described in Chapter 13 of your textbook. A niceway to conclude is to state which company you think is the betterinvestment and why.
The Bibliography worksheet tab must contain at least yourtextbook as a reference. Any other information you use to profilethe companies should also be cited as a reference.
Required Ratios for Final ProjectSubmission
Earnings per Share of Common Stock
Current Ratio
Gross Profit Margin
Rate of Return on Sales (Net Profit Margin)
Inventory Turnover
Days’ Inventory Outstanding (DIO)
Accounts Receivable Turnover
Days’ Sales Outstanding (DSO)
Asset Turnover
Rate of Return on Total Assets (ROA)
Debt Ratio
Times Interest Earned Ratio
Dividend Yield (For the purposes of this ratio, useYahoo Finance to look up current dividend yield and stock price;just note the date that you looked up thisinformation.)
Rate of Return on Common Stockholders’ Equity (ROE)
Free Cash Flow
Price/Earnings Ratio (Multiple) (For the purpose of thisratio, for Oracle, use the market price per share on May 30, 2011and for Microsoft, use the market price per share on June 30,2011.)
The Excel files uploaded inthe Dropboxes should not include any unnecessary numbers orinformation (such as previous years' ratios, ratios that were notspecifically asked for in the project, etc.).
Here are some of theMicrosoft Ratios – (first 12) to ensure you are on the righttrack.
1. EPS – $2.73
2. Current ratio – 2.6
3. Gross profit rate – 77.7%
4. Profit margin ratio – 33.1%
5. Inventory turnover – 14.8
6. Day in inventory – 25 days
7. Receivable turnover – 5.0
8. Average Collection Period – 73 days
9. Asset Turnover Ratio – 0.72
10. Return on Assets Ratio –23.8%
11. Debt to Total AssetsRatio – 47.5%
12. Times Interest Earned –96.2
Thank you.
