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(5) Because a firm that uses debt can be as profitable as a firmthat does not, some financial ratios are calculated t with NOPAT(Net Operating Profit After Tax) rather than with net income. [7marks]

[1] True or False? (42 points)

(6) In ROC (return on capital) calculations, if the operatingearnings corresponds to profits obtained during 2017, thenthe debt and equity values must be at end of 2017. [7marks]

(7) ROA (return on assets) ca n be estimated by multiplying theoperating profit margin by the asset turnover ratio. [7 marks]

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Keith Leannon
Keith LeannonLv2
28 Sep 2019

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Question 2

To measure how long it takes customers to pay their balances wewould look at the

Question 2 options:

a) Inventory turnover ratio

b) Current ratio

c) Average collection period

d) Receivables turnover

Question 3

A company with a decreasing interest expense would see whatchange to its times interest earned?

Question 3 options:

a) An increase

b) A decrease

c) No change

d) Cannot be determined

Question 4

As we look at how a company’s ratios have changed over time weneed to consider all of these except:

Question 4 options:

a) The company’s industry

b) The direction the values have moved

c) The impact of inflation

d) None of the above

Question 6

Asset utilization ratios include all but which of thefollowing?

Question 6 options:

a) Receivable turnover

b) Inventory turnover

c) Average collection period

d) Return on assets

Question 7

All else staying equal, what impact might we assume if acompany’s debt to total assets increases?

Question 7 options:

a) Times interest earned will increase

b) Times interest earned will decrease

c) Return on equity will decrease

d) Profit margin will increase

Question 8

Higher inflation rates can show ‘false outcomes’ by

Question 8 options:

a) Lowering sales

b) Increasing sales

c) Lowering profits

d) None of the above

Question 9

If a company has a quick ratio very close to its current ratiowhat might we conclude about their inventory?

Question 9 options:

a) Inventory makes up a large portion of their current assets

b) Inventory makes up a small portion of their current assets

c) Inventory makes up all the company’s current assets

d) This does not give us information about inventory

Question 10

A company with an average collection period of 30 days in anindustry where the average collection period is 28 days would besaid to

Question 10 options:

a) Outperform the industry

b) Underperform the industry

c) Have no meaningful difference

d) None of the above

Question 12

What might we conclude about a company with a profit margin of10%?

Question 12 options:

a) It is preforming strongly

b) It is earning a sufficient return on its sales

c) It is outperforming its industry

d) We are limited by not knowing the industry average

Question 15

If a company is becoming less liquid which ratio group would weexpect to be impacted first?

Question 15 options:

a) Profitability ratios

b) Asset utilization ratios

c) Liquidity ratios

d) Debt utilization ratios

NIKE:

Need the following ratios to be calculated using the financial sheets copied at the bottom. Each ratio needs to be calculated using the information from 2016. Each ratio also needs to be broken down and illustrated by the step by step process. Finally, please include any and all observations for each ratio and analysis.

1) Common Size analysis

2) Common size vertical analysis & graph

3) Current Ratio

4) Quick Ratio

5) Cash Ratio

6) Inventory Turnover

7) Receivables Turnover

8) Total Asset Turnover

9) Fixed Asset Turnover

10) Gross profit margin

11) Operating Profit margin

12) Net profit margin

13) Return on total assets

14) return on equity

15) basic earning power

16) Deb/net worth ratio

17) debt ratio

18) DuPont System

19) Times-interest-earned

Balance Sheet:

Consolidated Balance Sheets - USD ($) $ in Millions May 31, 2017 May 31, 2016
Current assets:
Cash and equivalents $ 3,808 $ 3,138
Short-term investments 2,371 2,319
Accounts receivable, net 3,677 3,241
Inventories 5,055 4,838
Prepaid expenses and other current assets 1,150 1,489
Total current assets 16,061 15,025
Property, plant and equipment, net 3,989 3,520
Identifiable intangible assets, net 283 281
Goodwill 139 131
Deferred income taxes and other assets 2,787 2,422
TOTAL ASSETS 23,259 21,379
Current liabilities:
Current portion of long-term debt 6 44
Notes payable 325 1
Accounts payable 2,048 2,191
Accrued liabilities 3,011 3,037
Income taxes payable 84 85
Total current liabilities 5,474 5,358
Long-term debt 3,471 1,993
Deferred income taxes and other liabilities 1,907 1,770
Commitments and contingencies
Redeemable preferred stock 0 0
Shareholders’ equity:
Capital in excess of stated value 8,638 7,786
Accumulated other comprehensive (loss) income (213) 318
Retained earnings 3,979 4,151
Total shareholders’ equity 12,407 12,258
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 23,259 21,379
Class A Convertible Common Stock
Shareholders’ equity:
Common stock at stated value 0 0
Class B Common Stock
Shareholders’ equity:
Common stock at stated value $ 3 $ 3

Income Statement:

Consolidated Statements of Income - USD ($) $ in Millions 12 Months Ended
May 31, 2017 May 31, 2016 May 31, 2015
Income Statement [Abstract]
Revenues $ 34,350 $ 32,376 $ 30,601
Cost of sales 19,038 17,405 16,534
Gross profit 15,312 14,971 14,067
Demand creation expense 3,341 3,278 3,213
Operating overhead expense 7,222 7,191 6,679
Total selling and administrative expense 10,563 10,469 9,892
Interest expense (income), net 59 19 28
Other (income) expense, net (196) (140) (58)
Income before income taxes 4,886 4,623 4,205
Income tax expense 646 863 932
NET INCOME $ 4,240 $ 3,760 $ 3,273
Earnings per common share:
Basic (in dollars per share) $ 2.56 $ 2.21 $ 1.90
Diluted (in dollars per share) 2.51 2.16 1.85
Dividends declared per common share (in dollars per share) $ 0.70 $ 0.62 $ 0.54

Cash Flow Sheet

Consolidated Statements of Cash Flows - USD ($) $ in Millions 12 Months Ended
May 31, 2017 May 31, 2016 May 31, 2015
Cash provided by operations:
Net income $ 4,240 $ 3,760 $ 3,273
Income charges (credits) not affecting cash:
Depreciation 706 649 606
Deferred income taxes (273) (80) (113)
Stock-based compensation 215 236 191
Amortization and other 10 13 43
Net foreign currency adjustments (117) 98 424
Changes in certain working capital components and other assets and liabilities:
(Increase) decrease in accounts receivable (426) 60 (216)
(Increase) in inventories (231) (590) (621)
(Increase) in prepaid expenses and other current assets (120) (161) (144)
(Decrease) increase in accounts payable, accrued liabilities and income taxes payable (364) (889) 1,237
Cash provided by operations 3,640 3,096 4,680
Cash used by investing activities:
Purchases of short-term investments (5,928) (5,367) (4,936)
Maturities of short-term investments 3,623 2,924 3,655
Sales of short-term investments 2,423 2,386 2,216
Investments in reverse repurchase agreements 0 150 (150)
Additions to property, plant and equipment (1,105) (1,143) (963)
Disposals of property, plant and equipment 13 10 3
Other investing activities (34) 6 0
Cash used by investing activities (1,008) (1,034) (175)
Cash used by financing activities:
Net proceeds from long-term debt issuance 1,482 981 0
Long-term debt payments, including current portion (44) (106) (7)
Increase (decrease) in notes payable 327 (67) (63)
Payments on capital lease and other financing obligations (17) (7) (19)
Proceeds from exercise of stock options and other stock issuances 489 507 514
Excess tax benefits from share-based payment arrangements 177 281 218
Repurchase of common stock (3,223) (3,238) (2,534)
Dividends — common and preferred (1,133) (1,022) (899)
Cash used by financing activities (1,942) (2,671) (2,790)
Effect of exchange rate changes on cash and equivalents (20) (105) (83)
Net increase (decrease) in cash and equivalents 670 (714) 1,632
Cash and equivalents, beginning of year 3,138 3,852 2,220
CASH AND EQUIVALENTS, END OF YEAR 3,808 3,138 3,852
Cash paid during the year for:
Interest, net of capitalized interest 98 70 53
Income taxes 703 748 1,262
Non-cash additions to property, plant and equipment 266 252 206
Dividends declared and not paid $ 300 $ 271 $ 240

LULULEMON:

Need the following ratios to be calculated using the financial sheets copied at the bottom. Each ratio needs to be calculated using the information from 2016. Each ratio also needs to be broken down and illustrated by the step by step process. Finally, please include any and all observations for each ratio and analysis.

1) Common Size analysis

2) Common size vertical analysis & graph

3) Current Ratio

4) Quick Ratio

5) Cash Ratio

6) Inventory Turnover

7) Receivables Turnover

8) Total Asset Turnover

9) Fixed Asset Turnover

10) Gross profit margin

11) Operating Profit margin

12) Net profit margin

13) Return on total assets

14) return on equity

15) basic earning power

16) Deb/net worth ratio

17) debt ratio

18) DuPont System

19) Times-interest-earned

Financial Statements:

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands Jan. 29, 2017 Jan. 31, 2016
Current assets
Cash and cash equivalents $ 734,846 $ 501,482
Accounts receivable 9,200 13,108
Inventories 298,432 284,009
Prepaid and receivable income taxes 81,190 91,453
Other prepaid expenses and other current assets 39,069 26,987
Total current assets 1,162,737 917,039
Property and equipment, net 423,499 349,605
Goodwill and intangible assets, net 24,557 24,777
Deferred income tax assets 26,256 11,802
Other non-current assets 20,492 10,854
Total assets 1,657,541 1,314,077
Current liabilities
Accounts payable 24,846 10,381
Accrued inventory liabilities 8,601 25,451
Accrued compensation and related expenses 55,238 43,524
Income taxes payable 30,290 37,736
Unredeemed gift card liability 70,454 57,736
Other accrued liabilities 52,020 50,676
Total current liabilities 241,449 225,504
Deferred income tax liabilities 7,262 10,759
Other non-current liabilities 48,857 50,332
Total liabilities 297,568 286,595
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding 0 0
Exchangeable stock, no par value: 60,000 shares authorized; 9,781 and 9,804 issued and outstanding 0 0
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,781 and 9,804 issued and outstanding 0 0
Common stock, $0.005 par value: 400,000 shares authorized; 127,304 and 127,482 issued and outstanding 637 637
Additional paid-in capital 266,622 245,533
Retained earnings 1,294,214 1,019,515
Accumulated other comprehensive loss (201,500) (238,203)
Total stockholders' equity 1,359,973 1,027,482
Total liabilities and stockholders' equity $ 1,657,541 $ 1,314,077

Income statement:

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands 3 Months Ended 12 Months Ended
Jan. 29, 2017 Oct. 30, 2016 Jul. 31, 2016 May 01, 2016 Jan. 31, 2016 Nov. 01, 2015 Aug. 02, 2015 May 03, 2015 Jan. 29, 2017 Jan. 31, 2016 Feb. 01, 2015
Income Statement [Abstract]
Net revenue $ 789,940 $ 544,416 $ 514,520 $ 495,516 $ 704,276 $ 479,693 $ 453,010 $ 423,544 $ 2,344,392 $ 2,060,523 $ 1,797,213
Cost of goods sold 362,041 265,990 260,359 256,385 349,809 254,896 240,985 217,667 1,144,775 1,063,357 883,033
Gross profit 427,899 278,426 254,161 239,131 354,467 224,797 212,025 205,877 1,199,617 997,166 914,180
Selling, general and administrative expenses 231,270 185,451 180,202 181,542 188,184 156,619 145,446 137,841 778,465 628,090 538,147
Income from operations 196,629 92,975 73,959 57,589 166,283 68,178 66,579 68,036 421,152 369,076 376,033
Other income (expense), net 857 628 578 (486) 938 (2,890) 842 529 1,577 (581) 7,102
Income before income tax expense 197,486 93,603 74,537 57,103 167,221 65,288 67,421 68,565 422,729 368,495 383,135
Income tax expense 61,351 25,318 20,912 11,767 49,805 12,135 19,753 20,755 119,348 102,448 144,102
Net income 136,135 68,285 53,625 45,336 117,416 53,153 47,668 47,810 303,381 266,047 239,033
Other comprehensive income (loss):
Foreign currency translation adjustment 15,941 (24,748) (28,052) 73,562 (47,369) (665) (39,368) 22,606 36,703 (64,796) (105,339)
Comprehensive income $ 152,076 $ 43,537 $ 25,573 $ 118,898 $ 70,047 $ 52,488 $ 8,300 $ 70,416 $ 340,084 $ 201,251 $ 133,694
Basic earnings per share (in dollars per share) $ 0.99 $ 0.50 $ 0.39 $ 0.33 $ 0.85 $ 0.38 $ 0.34 $ 0.34 $ 2.21 $ 1.90 $ 1.66
Diluted earnings per share (in dollars per share) $ 0.99 $ 0.50 $ 0.39 $ 0.33 $ 0.85 $ 0.38 $ 0.34 $ 0.34 $ 2.21 $ 1.89 $ 1.66
Basic weighted-average number of shares outstanding (in shares) 137,086 140,365 143,935
Diluted weighted-average number of shares outstanding (in shares) 137,302 140,610 144,298

Cash Flow Sheet:

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands 12 Months Ended
Jan. 29, 2017 Jan. 31, 2016 Feb. 01, 2015
Cash flows from operating activities
Net income $ 303,381 $ 266,047 $ 239,033
Items not affecting cash
Depreciation and amortization 87,697 73,383 58,364
Stock-based compensation expense 16,822 10,356 8,269
Derecognition of unredeemed gift card liability (4,548) (3,647) (1,468)
Deferred income taxes (17,563) 11,142 2,087
Tax benefits from stock-based compensation (1,273) 1,202 (413)
Changes in operating assets and liabilities
Inventories (5,403) (83,286) (26,806)
Prepaid and receivable income taxes 11,537 (52,110) (15,234)
Other prepaid expenses and other current assets (6,730) (3,816) (6,444)
Accounts payable 14,080 1,247 (2,198)
Accrued inventory liabilities (18,900) 5,198 8,276
Accrued compensation and related expenses 9,943 14,937 11,561
Income taxes payable (10,020) 19,470 19,304
Unredeemed gift card liability 16,010 16,574 11,326
Other accrued liabilities 467 19,563 3,788
Other non-current assets and liabilities (10,381) 2,480 5,004
Net cash provided by operating activities 385,119 298,740 314,449
Cash flows from investing activities
Purchase of property and equipment (149,511) (143,487) (119,733)
Net cash used in investing activities (149,511) (143,487) (119,733)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation 6,907 4,704 2,913
Tax benefits from stock-based compensation 1,273 (1,202) 413
Taxes paid related to net share settlement of stock-based compensation (3,268) (2,857) (4,972)
Repurchase of common stock (29,327) (274,193) (147,431)
Registration fees associated with prospectus supplement 0 (145) 0
Deferred debt financing costs (923) 0 0
Net cash used in financing activities (25,338) (273,693) (149,077)
Effect of exchange rate changes on cash 23,094 (44,557) (79,809)
Increase (decrease) in cash and cash equivalents 233,364 (162,997) (34,170)
Cash and cash equivalents, beginning of period 501,482 664,479 698,649
Cash and cash equivalents, end of period $ 734,846 $ 501,482 $ 664,479

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