. Net operating profit after taxes (NOPAT) is defined as whichof the following? A. Net profit a firm earns before taxes, butafter any financing costs B. Net profit a firm earns after taxes,and after any financing cots C. Net profit a firm earns aftertaxes, but before any financing costs D. Net profit a firm earnsbefore taxes, and before any financing cost __________________ isdefined as after-tax operating profit minus the amount of newinvestment in working capital, fixed assets, and the development ofnew products. 12. Which of the following can be considered a sourceof cash by the organization: A. Depreciation B. Payment ofdividends C. Decrease in a current liability D. Increase in a noncash current asset.
. Net operating profit after taxes (NOPAT) is defined as whichof the following? A. Net profit a firm earns before taxes, butafter any financing costs B. Net profit a firm earns after taxes,and after any financing cots C. Net profit a firm earns aftertaxes, but before any financing costs D. Net profit a firm earnsbefore taxes, and before any financing cost __________________ isdefined as after-tax operating profit minus the amount of newinvestment in working capital, fixed assets, and the development ofnew products. 12. Which of the following can be considered a sourceof cash by the organization: A. Depreciation B. Payment ofdividends C. Decrease in a current liability D. Increase in a noncash current asset.
Related questions
1. Use the attached balance sheet and income statement to compute the required financial ratios for 2012. Use 360 for the number of days in a year. The computations for 2011 are already done for you.
Current ratio_________________________
Quick ratio__________________________
Inventor turnover____________________
Average Collection Period_____________
Total asset turnover__________________
Net profit margin____________________
Operating profit margin_______________
Times Interest Earned_________________
Debt/Net Worth Ratio_________________
Return on Equity ratio__________________
2. Using the computed financial ratios from question 1, compare Grounds Keeperâs performance from 2011 to 2012. Address what areas the company has improved and what areas it has not
A.)Liquidity
B.) Activity / turnover / efficiency
C.) Profitability
D.) Leverage / use of debt / solvency
3. If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?
4. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.
5. Determine Grounds Keeperâs capital structure and working capital.
6. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.
7. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?
8. Explain what Grounds Keeper should consider when deciding whether to issue stocks or bonds? Answer using at least 3 different characteristics comparing and contrasting stocks and bonds.
9. Define money market instruments; list at least one type of security that would be considered a money market instrument. What are the advantages to Grounds Keeper in using money market instruments as financing? What are the disadvantages?
| Grounds Keeper | ||
| Consolidated Balance Sheets | ||
| (Dollars in thousands) | ||
| 2012 | 2011 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | 78,240 | 44,395 |
| Receivables | 399,891 | 340,062 |
| Inventories | 844,737 | 736,677 |
| Total current assets | 1,322,868 | 1,121,133 |
| Fixed assets, net | 1,244,384 | 889,613 |
| Other long-term assets | 1,048,537 | 1,187,141 |
| Total assets | 3,615,789 | 3,197,887 |
| Liabilities and Stockholdersâ Equity | ||
| Current liabilities: | ||
| Accounts payable | 309,222 | 319,465 |
| Accruals | 201,017 | 145,240 |
| Notes payable | 9,748 | 6,669 |
| Total current liabilities | 519987 | 471374 |
| Long-term debt | 834574 | 814298 |
| Total liabilities | 1,354,561 | 1,285,672 |
| Stockholdersâ equity: | ||
| Common stock, $0.10 par value: | 15,268 | 15,447 |
| Additional paid-in capital | 1,464,560 | 1,499,616 |
| Retained earnings | 781400 | 397152 |
| Total stockholdersâ equity | 2,261,228 | 1,912,215 |
| Total liabilities and stockholdersâ equity | 3,615,789 | 3,197,887 |
| Grounds Keeper | |||||
| Consolidated Statements of Operations | |||||
| (Dollars in thousands except per share data) | |||||
| 2011 | ||||
| Net sales | 3,889,426 | 2,642,390 | |||
| Cost of sales | 2,589,799 | 1,746,274 | |||
| Gross profit | 1,299,627 | 896,116 | |||
| Selling and operating expenses | 481,493 | 348,696 | |||
| General and administrative expenses | 219,010 | 187,016 | |||
| Operating income | 599,124 | 360,404 | |||
| Interest expense | 22,983 | 57,657 | |||
| Income before income taxes | 576,141 | 302,747 | |||
| Income tax expense | 212,641 | 101,699 | |||
| Net Income | 363,500 | 201,048 | |||
| Basic income per share: | |||||
| Average shares outstanding | 154,933,948 | 146,214,860 | |||
| Earnings per common share | 2.35 | 1.38 |
| Current Ratio | Current assets/ Current liabilities |
| Quick Ratio | Current assets â inventory/ Current liabilities |
| Inventory Turnover | Cost of goods sold/ Inventory |
| Receivables Turnover | Sales/ Accounts receivables |
| Average Collection Period | Receivables/ Sales per day |
| Fixed Asset Turnover | Sales/ Fixed assets |
| Total Asset Turnover | Sales/ Total Assets |
| Gross Profit Margin | Revenues - Cost of goods sold/ Sales |
| Operating Profit Margin | Earnings before interest and taxes/ Sales |
| Net Profit Margin | Net income/ Sales |
| Return on Total Assets | Net income/ Total assets |
| Debt/Net Worth Ratio | Total Debt/ Total Equity |
| Times-Interest-Earned | Operating Income/ Interest expense |
| Return on Equity | Net income/ Total equity |
Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)
| 2015 | 2014 | ||
| Sales | $1,100.0 | $1,000.0 | |
| Operating costs excluding depreciation | 825.0 | 850.0 | |
| Depreciation and amortization | 27.0 | 21.0 | |
| Earnings before interest and taxes | $248.0 | $129.0 | |
| Less: Interest | 24.0 | 22.0 | |
| Pre-tax income | $224.0 | $107.0 | |
| Taxes (40%) | 89.6 | 42.8 | |
| Net income available to common stockholders | $134.4 | $64.2 | |
| Common dividends | $121.0 | $51.0 |
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
| 2015 | 2014 | ||
| Assets | |||
| Cash | $15.0 | $12.0 | |
| Short-term investments | 6.0 | 5.0 | |
| Accounts receivable | 138.0 | 120.0 | |
| Inventories | 173.0 | 150.0 | |
| Total current assets | $332.0 | $287.0 | |
| Net plant and equipment | 273.0 | 210.0 | |
| Total assets | $605.0 | $497.0 | |
| Liabilities and Equity | |||
| Accounts payable | $88.0 | $80.0 | |
| Accruals | 91.0 | 70.0 | |
| Notes payable | 22.0 | 20.0 | |
| Total current liabilities | $201.0 | $170.0 | |
| Long-term bonds | 220.0 | 200.0 | |
| Total liabilities | $421.0 | $370.0 | |
| Common stock | 150.6 | 107.0 | |
| Retained earnings | 33.4 | 20.0 | |
| Total common equity | $184.0 | $127.0 | |
| Total liabilities and equity | $605.0 | $497.0 | |
a. What is the net operating profit after taxes (NOPAT) for 2015? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
b. What are the amounts of net operating working capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2015 $ million
2014 $ million
c. What are the amounts of total net operating capital for both years? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
2015 $ million
2014 $ million
d. What is the free cash flow for 2015? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place.
$ million
e. What is the ROIC for 2015? Round your answer to two decimal places.
%
f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to one decimal place.
| After-tax interest payment | $ million |
| Reduction (increase) in debt | $ million |
| Payment of dividends | $ million |
| Repurchase (Issue) stock | $ million |
| Purchase (Sale) of short-term investments | $ million |
