AFM101 Chapter Notes -Asset, Asset Turnover, Weighted Arithmetic Mean
AFM101 Full Course Notes
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Narratives on the following: Based on the information in the attached pictures.
at least one ratio from each category (liquidity, asset management, debt management, profitability, and market value)
a comparison of the results of the two fiscal years for the ratios chosen (i.e., increase, decrease, ideas as to why this might have occurred)
a comparison to the industry average for the ratios chosen (i.e., how the company compares to the industry and what this means for the company)
What risk is the company facing? Is this true for the entire industry? How can the company mitigate this risk? What is the industry Beta and the company's Beta?
recommendations for individuals who may be considering investing in the chosen company
Given the model of valuation is the company priced fairly? What recommendations would you make to increase the value of the company (be thorough make specific recommendations tied back to the company's stated financial goals).
Assume that you were given an early inheritance of $50,000 and on January 2, 2015, you used the money to invest in your chosen company's stock. You held the company's stock during 2015, selling all of your shares on December 31, 2015. Answer the following:
How many shares did you purchase on January 2, 2015?
What was the initial purchase price per share of stock?
Did you earn any dividends during 2015? Cash or stock? What was the value of your dividends? Would you have received a stock-split or been part of a repurchase program?
At what price per share did you sell your stock at on December 31, 2015?
Did you make any money on your investment? If so, how much? If not, how much did you lose?
Answer based on this info:
| All Figures in 000's | |||
| Particulars | 2014 | 2015 | 2016 |
| Current Asset | 2764538 | 3133214 | |
| Current Liability | 1049014 | 1187659 | |
| Cash & Cash Equivalents | 441850 | 600646 | |
| Investment others | 268720 | 310072 | |
| Investments fixed maturity | 1304962 | 1510538 | |
| Receivables | 189869 | 175210 | |
| Total Assets | 5998978 | 6872175 | 8150175 |
| Shareholders Equity | 1527368 | 1884359 | 2251406 |
| Total debt | 2190869 | 2688758 | |
| Sales | 3074531 | 3275656 | |
| Operating profit | 663024 | 866814 | |
| Net profit | 356741 | 489001 | |
| Price on the last day ($) | 330.62 | 345.05 | |
| EPS ($ per share) | 18.21 | 24.95 | |
| Particulars | Formula | 2015 | 2016 |
| Current Ratio | current assets/current liabilities | 2.64 | 2.64 |
| Quick Ratio | (cash + investments + receivables)/curretn liabilities | 2.10 | 2.19 |
| Operating Margin | (Operating Profit/Sales)*100 | 21.57% | 26.46% |
| Net Profit Margin | (Net Profit/Sales)*100 | 11.60% | 14.93% |
| Return on Total assets | (Net profit/Average assets)*100 | 5.54% | 6.51% |
| Return on common equity | (Net profit/Average shareholders equity)*100 | 20.91% | 23.65% |
| Return on invested capital | (Net income -dividends)/(Debt+quity) | 8.27% | 7.92% |
| Price/Earnings | Price/EPS | 18.16 | 13.83 |
| Market Capitalisation | Price * Bumber of shares outstanding | 6475732602 | 6761637756 |
| Share outstanding | NA | 19586633 | 19596110 |
| Dividend per share ($) | NA | 1 | 5 |
| Dividend Yield | (Dividend/Price)*100 | 0.30% | 1.45% |
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 Keeper’s 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 Keeper’s 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 Stockholders’ 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 |
| Stockholders’ 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 stockholders’ equity | 2,261,228 | 1,912,215 |
| Total liabilities and stockholders’ 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 – 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 |
