FIN 300 Lecture Notes - Call Option, Tax Shield, Accounts Payable

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copperbee918

30 Oct 2012

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Cash ow from assets = cash ow to bondholders. Net working capital to total assets = net working capital/total assets. Interval measure = current assets/average daily operating costs. Total debt ratio = [total assets total equity]/total assets. Days" sales in inventory = 365 days/inventory turnover. Days" sales in receivables = 365 days/receivables turnover. P/e ratio = price per share/earnings per share. Market-to-book ratio = market value per share/book value per share. Roe = net income/sales sales/assets assets/equity. = pro t margin total asset turnover equity multiplier. = a(g) p(s)r (1 + g) Efn = p(s)r + [a p(s)r] g. Efn = p(s)r + [a p(s)r] g g = ps(r)/[a ps(r)] Efn = 0 g* = roe r/[1 roe r] [4. 7] g* = p(s/a)(1 + d/e) r . Efn = increase in total assets addition to retained earnings. = a(g) p(s)r (1 + g) ps(r) (1 + g)[d/e] Future value = (1 + r)t.

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)

2012

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

magentalouse290

Question

Analysis of Financial Statements

Balance Sheets

EXHIBITS: INPUT DATA (XYZ)

Table 1 Balance Sheets

Assets	2013E	2012	2011
cash	$ 85,632	$7,282	$57,600
Acount Receivable	878,000	632,160	351,200
Inventories	1,716,480	1,287,360	715,200
Total current assets	$2,680,112	$1,926,802	$ 1,124,000
Gross fixed assets	1,197,160	1,202,950	491,000
Less: accumulated depreciation	380,120	263,160	146,200
Net fixed assets	$ 817,040	$ 939,790	$ 344,800
Total assets	$3,497,152	$2,866,592	$ 1,468,800


Liabilities and equity
Accounts payable	$ 436,800	$ 524,160	$ 145,600
Notes payable	300,000	636,808	200,000
Accruals	408,000	489,600	136,000
Total current liabilities	$1,144,800	$1,650,568	$ 481,600
Long term bonds	400,000	723,432	323,432
Total debt	$1,544,800	$2,374,000	$ 805,032
Common stock (100,000 shares)	1,721,176	460,000	460,000
Retained earnings	231,176	32,592	203,768
Total common equity	$1,952,352	$ 492,592	$ 663,768
Total liabilities and equity	$3,497,152	$2,866,592	$ 1,468,800

Analysis of Financial Statements

Income Statements

Table 2

Income Statements

	2013E	2012	2011
Sales	$7,035,600	$6,034,000	$ 3,432,000
Cost of goods sold	5,875,992	5,528,000	2,864,000
Other expenses	550,000	519,988	358,672
Total operating exp. excl. depreciation and amortization	$6,425,992	$6,047,988	$ 3,222,672
EBITDA	$ 609,608	$(13,988)	$ 209,328
Depreciation and amortization	116,960	116,960	18,900
Earnings before interest and taxes (EBIT)	$492,648	$(130,948)	$190,428
Interest expense	70,008	136,012	43,828
Earnings before taxes (EBT)	$ 422,640	$ (266,960)	$ 146,600
Taxes (40%)	169,056	(106,784)	58,640
Net Income	$ 253,584	$ (160,176)	$ 87,960
Earnings per share (EPS)	$ 1.014	$ (1.602)	$ 0.880
Dividends per share (DPS)	$ 0.220	$ 0.110	$ 0.220
Book value per share (BVPS)	$ 7.809	$ 4.926	$ 6.638
Stock price	$ 12.17	$ 2.25	$ 8.50
Shares outstanding	250,000	100,000	100,000
Tax rate	40.00%	40.00%	40.00%
Lease payments	$ 40,000	$ 40,000	$ 40,000
Sinking fund payments	0	0	0

Analysis of Financial Statements

Ratio Analysis

	2013E	2012	2011	Industry Average
Current ratio	*	1.2	2.3	2.7
Quick ratio	*	0.4	0.8	1.0
Inventory turnover	*	4.7	4.8	6.1
Days sales outstanding (DSO)	*	38.2	37.4	32.0
Fixed assets turnover	*	6.4	10.0	7.0
Total assets turnover	*	2.1	2.3	2.6
Debt-to- assets ratio	*	82.8%	54.8%	50.0%
Times interest earned (TIE)	*	-1.0	4.3	6.2
Operating margin	*	-2.2%	5.6%	7.3%
Profit margin	*	-2.7%	2.6%	3.5%
Basic earning power (BEP)	*	-4.6%	13.0%	19.1%
Return on assets(ROA)	*	-5.6%	6.0%	9.1%
Return on equity (ROE)	*	-32.5%	13.3%	18.2%
Price/earnings (P/E)	*	-1.4	9.7	14.2
Market/book (M/B)	*	0.5	1.3	2.4
Book value per share (BVPS)	*	$4.93	$6.64	n.a.

Requiremnts:

Note: Question 1 through 5 has been answered completley, thank you very much. Please I am waiting for the question 6 and 7.

6. Use the extended DuPont equation to provide a summary and overview of XYZâs financial condition as projected for 2013.

7. Use the following simplified 2013 balance sheet to show, in general terms, how an improvement in the DSO would tend to affect the stock price. For example, if the company could improve its collection procedures and thereby lower its DSO from 45.6 days to the 32-day industry average without affecting sales, how would that change âripple throughâ the financial statements (shown in thousands below) and influence the stock price?

Accounts receivable $878 Debt $1,545

Other current assets 1,802

Net fixed assets 817 Equity 1,952

Total assets $3,497 Liabilities plus equity $3,497

First, we need to calculate XYZâs daily sales.

Daily sales = Sales / 365

Daily sales = $7,035,600 / 365

Daily sales = $19,275.62

Target A/R = Daily sales Ã Target DSO

Target A/R = $19,276 Ã 32

Target A/R = $616,820

Freed-up cash = old A/R â new A/R

Freed-up cash = $878,000 â $616,820

Freed-up cash = $261,180

Please analyze the future of IBM with a company that does not have solid financials, such as Tesla. Qualitative measures will be required. What are tthe likelihoods of success and how could that be determined (for Tesla) if current numbers do not provide promise. Tesla is breaking into an emerging market of hybrid vehicle technology, and though the technology has not fully evovled, will it? How do Telsa's finaincial compare to IBM as they compare to success or failre?

Thank you

TESLA INC (TSLA) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	4046	7000
Cost of revenue	3123	5401
Gross profit	924	1599
Operating expenses
Research and development	718	834
Sales, General and administrative	922	1432
Total operating expenses	1640	2267
Operating income	-717	-667
Interest Expense	119	199
Other income (expense)	-40	120
Income before taxes	-876	-746
Provision for income taxes	13	27
Net income from continuing operations	-889	-773
Other		98
Net income	-889	-675
Net income available to common shareholders	-889	-675
Earnings per share
Basic	-6.93	-4.68
Diluted	-6.93	-4.68
Weighted average shares outstanding
Basic	128	144
Diluted	128	144
EBITDA	-334	400

TESLA INC (TSLA) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Cash Flows From Operating Activities
Net income	-889	-773
Depreciation & amortization	423	947
Amortization of debt discount/premium and issuance costs	72	87
Stock based compensation	198	334
Accounts receivable	46	-217
Inventory	-1574	-2466
Prepaid expenses	-30	57
Accounts payable
Accrued liabilities
Other working capital	1064	1932
Other non-cash items	165	-26
Net cash provided by operating activities	-524	-124
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-1635	-1440
Acquisitions, net	-12	214
Purchases of investments
Sales/Maturities of investments		17
Other investing activities	-26	-206
Net cash used for investing activities	-1674	-1416
Cash Flows From Financing Activities
Debt issued	319	2853
Debt repayment	-204	-1904
Warrant issued
Common stock issued	750	1702
Other financing activities	658	1094
Net cash provided by (used for) financing activities	1524	3744
Effect of exchange rate changes	-34	-7
Net change in cash	-709	2196
Cash at beginning of period	1906	1197
Cash at end of period	1197	3393
Free Cash Flow
Operating cash flow	-524	-124
Capital expenditure	-1635	-1440
Free cash flow	-2159	-1564

TESLA INC (TSLA) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Assets
Current assets
Cash
Cash and cash equivalents	1197	3393
Total cash	1197	3393
Receivables	169	499
Inventories	1278	2067
Prepaid expenses	125	194
Other current assets	23	106
Total current assets	2792	6260
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	5766	12920
Accumulated Depreciation	-571	-1018
Net property, plant and equipment	5195	15037
Intangible assets		376
Other long-term assets	106	991
Total non-current assets	5301	16404
Total assets	8092	22664
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt		1150
Capital leases	633
Accounts payable	916	1860
Taxes payable	101	153
Accrued liabilities	322	1005
Deferred revenues	707	1427
Other current liabilities	137	232
Total current liabilities	2816	5827
Non-current liabilities
Long-term debt	2082	118
Capital leases
Deferred taxes liabilities
Accrued liabilities		150
Deferred revenues	446	852
Minority interest		785
Other long-term liabilities	1659	10179
Total non-current liabilities	4187	12084
Total liabilities	7004	17911
Stockholders' equity
Common stock	0	0
Additional paid-in capital	3415	7774
Retained earnings	-2322	-2997
Accumulated other comprehensive income	-4	-24
Total stockholders' equity	1089	4753
Total liabilities and stockholders' equity	8092	22664


INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	81741	79919
Cost of revenue	41057	41625
Gross profit	40684	38294
Operating expenses
Research and development	4565	4120
Sales, General and administrative	19894	20479
Other operating expenses	535	590
Total operating expenses	24994	25189
Operating income	15690	13105
Interest Expense	468	630
Other income (expense)	723	-145
Income before taxes	15945	12330
Provision for income taxes	2581	449
Net income from continuing operations	13364	11881
Net income from discontinuing ops	-174	-9
Net income	13190	11872
Net income available to common shareholders	13190	11872
Earnings per share
Basic	13.48	12.43
Diluted	13.42	12.38
Weighted average shares outstanding
Basic	979	955
Diluted	983	959
EBITDA	20268	17341

INTERNATIONAL BUSINESS MACHINES CORP (IBM) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Cash Flows From Operating Activities
Net income	13190	11872
Depreciation & amortization	3855	4381
Deferred income taxes	1387	-1132
Stock based compensation	468	544
Inventory	133	-14
Accounts payable	81	197
Accrued liabilities
Other working capital	-2658	1048
Other non-cash items	552	62
Net cash provided by operating activities	17008	16958
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-3579	-3567
Property, plant, and equipment reductions	370	424
Acquisitions, net	-3750	-6133
Purchases of investments	-3073	-5917
Sales/Maturities of investments	2842	5692
Purchases of intangibles	-572	-583
Other investing activities	-397	-892
Net cash used for investing activities	-8159	-10976
Cash Flows From Financing Activities
Debt issued	5540	9132
Debt repayment	-5622	-6395
Common stock issued	322	204
Common stock repurchased	-4609	-3502
Dividend paid	-4897	-5256
Other financing activities	100	26
Net cash provided by (used for) financing activities	-9166	-5791
Effect of exchange rate changes
Net change in cash	-317	191
Cash at beginning of period	8476	7686
Cash at end of period	8159	7877
Free Cash Flow
Operating cash flow	17008	16958
Capital expenditure	-4151	-4150
Free cash flow	12857	12808

INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Assets
Current assets
Cash
Cash and cash equivalents	7686	7826
Short-term investments	508	701
Total cash	8194	8527
Receivables	1201	1057
Inventories	1551	1553
Deferred income taxes
Prepaid expenses	4205	4564
Other current assets	27353	28187
Total current assets	42504	43888
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	29341	60267
Accumulated Depreciation	-18616	-38606
Net property, plant and equipment	10725	21661
Equity and other investments	5187	4585
Goodwill	32021	36199
Intangible assets	3486	4689
Deferred income taxes	4822	5224
Prepaid pension benefit
Other long-term assets	11747	12055
Total non-current assets	67988	84413
Total assets	110492	128301
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	6461	7513
Accounts payable	6028	6209
Taxes payable	2847	3235
Accrued liabilities	7913	8282
Deferred revenues	11021	11035
Other current liabilities	-1	1
Total current liabilities	34269	36275
Non-current liabilities
Long-term debt	33428	34655
Deferred taxes liabilities
Accrued liabilities
Deferred revenues	3771	3600
Pensions and other benefits	16504	17070
Minority interest	162	146
Other long-term liabilities	8099	7478
Total non-current liabilities	61964	62949
Total liabilities	96233	99224
Stockholders' equity
Common stock	53262	53935
Retained earnings	146124	152759
Treasury stock	-155518	-159050
Accumulated other comprehensive income	-29606	-29398
Total stockholders' equity	14262	18246
Total liabilities and stockholders' equity	110495	117470

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FIN 300 Lecture Notes - Call Option, Tax Shield, Accounts Payable

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