FIN 300 Study Guide - Midterm Guide: Financial Statement, Income Statement, Balance Sheet
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2. Balance sheet
The balance sheet provides a snapshot of the financial conditionof a company. Investors and analysts use the information given onthe balance sheet and other financial statements to make severalinterpretations regarding the company’s financial condition andperformance.
Blue Hamster Manufacturing Inc. is a hypothetical company.Suppose it has the following balance sheet items reported at theend of its first year of operation. For the second year, some partsare still incomplete. Use the information given to complete thebalance sheets for Blue Hamster Manufacturing Inc. for the yearsending December 31, Year 2 and 1, respectively.
Blue Hamster Manufacturing Inc. | |||||
|---|---|---|---|---|---|
Balance Sheet | |||||
For the Year ended December 31 | |||||
| Year 2 | Year 1 | Year 2 | Year 1 | ||
| Assets | Liabilities and equity | ||||
| Current assets: | Current liabilities: | ||||
| Cash and equivalents | $55,350 | Accounts payable | $0 | $0 | |
| Accounts receivable | $25,312 | $20,250 | Accruals | $3,516 | $0 |
| Inventories | $74,250 | $59,400 | Notes payable | $19,921 | $18,750 |
| Total current assets | $168,750 | $135,000 | Total current liabilities | $18,750 | |
| Net fixed assets: | Long-term debt | $70,312 | $56,250 | ||
| Net plant and equipment | $165,000 | Total debt | $93,750 | $75,000 | |
| Common equity: | |||||
| Common stock | $182,812 | $146,250 | |||
| Retained earnings | $78,750 | ||||
| Total common equity | $281,250 | $225,000 | |||
| Total assets | $375,000 | $300,000 | Total liabilities and equity | $375,000 | $300,000 |
Given the information in the preceding balance sheet—andassuming that Blue Hamster Manufacturing Inc. has 50 million sharesof common stock outstanding—read each of the following statements,then identify the selection that best interprets the informationconveyed by the balance sheet.
Statement #1: Blue Hamster’s pool of relatively liquid assets,which are available to support the company’s current and futuresales, decreased from Year 1 to Year 2.
This statement is , because:
Blue Hamster’s total current liabilities balance decreased by$33,750 between Year 1 and Year 2.
Blue Hamster’s total current liabilities balance increased from$20,250 to $25,312 between Year 1 and Year 2.
Blue Hamster’s total current asset balance actually increasedfrom $135,000 to $168,750 between Year 1 and Year 2.
Blue Hamster’s total current asset balance decreased from$168,750 to $135,000 between Year 1 and Year 2.
Statement #2: In Year 2, Blue Hamster Manufacturing Inc. wasprofitable.
This statement is , because:
Blue Hamster’s retained earnings account increased between theend of Years 1 and 2.
The cash and equivalents account increased between Years 1 and2.
Blue Hamster’s total assets increased between Years 1 and 2.
Statement #3: The book value per share of Blue Hamster’s stockin Year 2 was $5,625.
This statement is , because:
The per-share book value is calculated by dividing the company’stotal assets by the number of outstanding shares of commonstock.
The per-share book value is calculated by dividing the company’stotal debt by the number of outstanding shares of common stock.
The per-share book value is calculated by dividing the company’stotal common equity by the number of outstanding shares of commonstock.
Based on your understanding of the different items reported onthe balance sheet and the information they provide, if everythingelse remains the same, then the cash and equivalents item on thecurrent balance sheet is likely to if the firm issues$3 million of new common stock.
Based on your understanding of the different items reported inthe balance sheet and the information they provide, which statementregarding Blue Hamster Manufacturing Inc.’s balance sheet isconsistent with U.S. Generally Accepted Accounting Principles(GAAP)?
The company’s assets should be listed in alphabetical order.
The company’s assets should be listed in the order in which theyare to be converted into cash.
The company’s assets should be listed from those carrying thelargest balance to those with the smallest balance.
Total Current Asset Current Ratio Effect on Net Income
| a | Cash is acquired through issuance of additional common stock | ____ | ____ | ____ | |||||
| b | Merchandise is sold for cash | ____ | ____ | ____ | |||||
| c | Federal income tax due for the previous year is paid | ____ | ____ | ____ | |||||
| d | A fixed asset is sold for less than book value | ____ | ____ | ____ | |||||
| e | A fixed asset is sold for more than book value | ____ | ____ | ____ | |||||
| f | Merchandise is sold on credit | ____ | ____ | ____ | |||||
| g | Payment is made to trade creditors for previous purchases | ____ | ____ | ____ | |||||
| h | A cash dividend is declared and paid | ____ | ____ | ____ | |||||
| I | Cash is obtained through short- term bank loans | ____ | ____ | ____ | |||||
| J | Short- term notes receivable are sold at a discount | ____ | ____ | ____ | |||||
| k | Marketable securities are sold below cost | ____ | ____ | ____ | |||||
| L | Advances are made to employees | ____ | ____ | ____ | |||||
| m | Current operating expenses are paid | ____ | ____ | ____ | |||||
| n | Short- term promissory notes are issued to trade creditors in exchange for past due accounts payable | ____ | ____ | ____ | |||||
| o | 10- year notes are issued to pay off accounts payable | ____ | ____ | ____ | |||||
| p | A fully depreciated asset is retired | ____ | ____ | ____ | |||||
4 DEBT RATIO- Bartley Barstools has an equity multiplier of 2.4, and its assets are financed with some combination of long-term debt and common equity. What is its equity ratio? What is its debt ratio?
6 MARKET/BOOK RATIO- Jaster Jets has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt and $6 billion in common equity. It has 800 million shares of common stock outstanding, and its stock price is $32 per share. What is Jaster
What are the Market Value Leverage Ratios (Value of Debt to Value of Equity, Value of Debt to Value of Assets)) for the following 2015 and 2016 financial data? (PLEASE SHOW WORK SO I CAN UNDERSTAND HOW THIS WAS DONE. Thank you)
| AMAZON.COM INC (AMZN) CashFlowFlag INCOME STATEMENT | ||
| Fiscal year ends in December. USD in millions except per share data. | 2015-12 | 2016-12 |
| Revenue | 107006 | 135987 |
| Cost of revenue | 71651 | 88265 |
| Gross profit | 35355 | 47722 |
| Operating expenses | ||
| Sales, General and administrative | 20411 | 27284 |
| Other operating expenses | 12711 | 16252 |
| Total operating expenses | 33122 | 43536 |
| Operating income | 2233 | 4186 |
| Interest Expense | 459 | 484 |
| Other income (expense) | -206 | 190 |
| Income before income taxes | 1568 | 3892 |
| Provision for income taxes | 950 | 1425 |
| Other income | -22 | -96 |
| Net income from continuing operations | 596 | 2371 |
| Net income | 596 | 2371 |
| Net income available to common shareholders | 596 | 2371 |
| Earnings per share | ||
| Basic | 1.28 | 5.01 |
| Diluted | 1.25 | 4.9 |
| Weighted average shares outstanding | ||
| Basic | 467 | 474 |
| Diluted | 477 | 484 |
| EBITDA | 8308 | 12492 |
| AMAZON.COM INC (AMZN) 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 | 15890 | 19334 |
| Short-term investments | 3918 | 6647 |
| Total cash | 19808 | 25981 |
| Receivables | 6423 | 8339 |
| Inventories | 10243 | 11461 |
| Deferred income taxes | ||
| Total current assets | 36474 | 45781 |
| Non-current assets | ||
| Property, plant and equipment | ||
| Land | 9770 | 13998 |
| Fixtures and equipment | 18417 | 25989 |
| Other properties | 1866 | 2454 |
| Property and equipment, at cost | 30053 | 42441 |
| Accumulated Depreciation | -8215 | -13327 |
| Property, plant and equipment, net | 21838 | 29114 |
| Goodwill | 3759 | 3784 |
| Intangible assets | ||
| Deferred income taxes | 1084 | |
| Other long-term assets | 2289 | 4723 |
| Total non-current assets | 28970 | 37621 |
| Total assets | 65444 | 83402 |
| Liabilities and stockholders' equity | ||
| Liabilities | ||
| Current liabilities | ||
| Accounts payable | 20397 | 25309 |
| Accrued liabilities | 10384 | 13739 |
| Deferred revenues | 3118 | 4768 |
| Total current liabilities | 33899 | 43816 |
| Non-current liabilities | ||
| Long-term debt | 8235 | 7694 |
| Capital leases | 5948 | 7519 |
| Deferred taxes liabilities | 392 | |
| Other long-term liabilities | 3978 | 4696 |
| Total non-current liabilities | 18161 | 20301 |
| Total liabilities | 52060 | 64117 |
| Stockholders' equity | ||
| Common stock | 5 | 5 |
| Additional paid-in capital | 13394 | 17186 |
| Retained earnings | 2545 | 4916 |
| Treasury stock | -1837 | -1837 |
| Accumulated other comprehensive income | -723 | -985 |
| Total stockholders' equity | 13384 | 19285 |
| Total liabilities and stockholders' equity | 65444 | 83402 |
| AMAZON.COM INC (AMZN) 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 | 596 | 2371 |
| Depreciation & amortization | 6281 | 8116 |
| Investments losses (gains) | 5 | |
| Deferred income taxes | 81 | -246 |
| Stock based compensation | 2119 | 2975 |
| Accounts receivable | -1755 | -3367 |
| Inventory | -2187 | -1426 |
| Accounts payable | 4294 | 5030 |
| Accrued liabilities | 913 | 1724 |
| Other working capital | 1292 | 1955 |
| Other non-cash items | 281 | -689 |
| Net cash provided by operating activities | 11920 | 16443 |
| Cash Flows From Investing Activities | ||
| Investments in property, plant, and equipment | -4589 | -6737 |
| Acquisitions, net | -795 | -116 |
| Purchases of investments | -4091 | -7756 |
| Sales/Maturities of investments | 3025 | 4733 |
| Net cash used for investing activities | -6450 | -9876 |
| Cash Flows From Financing Activities | ||
| Long-term debt issued | 353 | 621 |
| Long-term debt repayment | -4235 | -4361 |
| Excess tax benefit from stock based compensation | 119 | 829 |
| Repurchases of treasury stock | ||
| Net cash provided by (used for) financing activities | -3763 | -2911 |
| Effect of exchange rate changes | -374 | -212 |
| Net change in cash | 1333 | 3444 |
| Cash at beginning of period | 14557 | 15890 |
| Cash at end of period | 15890 | 19334 |
| Free Cash Flow | ||
| Operating cash flow | 11920 | 16443 |
| Capital expenditure | -4589 | -6737 |
| Free cash flow | 7331 | 9706 |
| Supplemental schedule of cash flow data | ||
| Cash paid for income taxes | 273 | 412 |
| Cash paid for interest | 478 | 496 |
