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FIN 2800 Chapter Notes - Chapter 3: Financial Ratio, Financial Accounting Standards Board, Accounts Payable

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blusheel860
28 Mar 2017
School
University of Denver
Department
Finance
Course
FIN 2800
Professor
Cox David

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Document Summary

Income statement: firms operating results during specified period. Fiscal years: dividend per share (dsp): dollar amount of cash distributed during the period on behalf of each outstanding share of common stock. Statement of stockholders" equity: shows all equity account transactions that occurred during a given year. Statement of retained earnings: reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of that year. This is an abbreviated form of the statement of stockholders" equity. Statement of cash flows: provides a summary of the firm"s operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period. Notes to the financial statements: explanatory notes keyed to relevant accounts in the statements; they provide detailed information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements.

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Related Questions

Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.

Use formulas to calculate the following financial indicators for each year of data: Three fiscal years for Netflix and GEO Holdings for:

o Price to earnings ratio

o Debt to equity ratio

o Free cash flow

o Earnings per share

o Return on equity

o Net profit margin

V. Performance Over Time

A. Analyze the performance of the Netflix over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

B. Analyze the performance of your GEO Holdings over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

C. Analyze how the data differ between these two companies. Why do you think this is? Consider addressing the free cash flows and ratios you calculated earlier.

VI. Investment

A. Are the companies considered growth or value companies? Why?

B. Which company’s stock is the better investment?

Netflix Inc. (NMS: NFLX)
Exchange rate used is that of the Year End reported date
As Reported Annual Balance Sheet
Report Date 12/31/2016 12/31/2015 12/31/2014
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands
Cash & cash equivalents 1467576 1809330 1113608
Short-term investments 266206 501385 494888
Current content library, net - - 2125702
Current content assets, net 3726307 2905998 -
Other current assets 260202 215127 206271
Total current assets 5720291 5431840 3940469
Non-current content library, net - - 2773326
Non-current content assets, net 7274501 4312817 -
Information technology assets 185345 194054 189274
Furniture & fixtures 32185 30914 25758
Building 40681 40681 40681
Leasehold improvements 107945 107793 57339
DVD operations equipment 70152 88471 89144
Capital work-in-progress 108296 8845 12495
Property & equipment, gross 544604 470758 414691
Less: accumulated depreciation 294209 297346 264816
Property & equipment, net 250395 173412 149875
Other non-current assets 341423 284802 192981
Total assets 13586610 10202871 7056651
Current content liabilities 3632711 2789023 2117241
Accounts payable 312842 253491 201581
Accrued expenses 197632 140389 69746
Deferred revenue 443472 346721 274586
Total current liabilities 4586657 3529624 2663154
Non-current content liabilities 2894654 2026360 1575832
Long-term debt 3364311 2371362 900000
Other non-current liabilities 61188 52099 59957
Total liabilities 10906810 7979445 5198943
Common stock 1599762 1324809 60
Additional paid-in capital - - 1042810
Foreign currency -47966 -42502 -4615
Change in unrealized gains on available for sale securities -599 -806 169
Accumulated other comprehensive income (loss) -48565 -43308 -4446
Retained earnings (accumulated deficit) 1128603 941925 819284
Total stockholders' equity (deficiency) 2679800 2223426

1857708
Geo Holdings Corp (TOK: 2681)
Due to changes with International Financial Reporting Standards (IFRS), recent financials statement presentations have been adjusted to meet this standard. Please note the original historical presentations have remained in the original format
Exchange rate used is that of the Year End reported date
As Reported Annual Balance Sheet
Report Date 03/31/2016 03/31/2015 03/31/2014
Currency JPY JPY JPY
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Millions Millions Thousands
Cash & deposits 37683 32052 19869000
Trade notes & accounts receivables 4100 4077 3992000
Merchandise 24894 23834 23495000
Deferred tax assets 2156 1806 1773000
Other current assets 5462 7181 5942000
Allowance for doubtful accounts -281 -292 343000
Total current assets 74015 68659 54729000
Asset for rent, gross 100974 104514 104647000
Accumulated depreciation - asset for rent -95154 -97475 96055000
Asset for rent, net 5820 7038 8591000
Buildings & structures, gross 40872 39984 39478000
Accumulated depreciation - buildings & structures -27470 -26362 25976000
Buildings & structures, net 13402 13622 13501000
Land, net 5844 6356 6651000
Leased assets, gross 2176 3519 4576000
Accumulated depreciation - leased assets -681 -1764 2588000
Leased assets, net 1495 1754 1988000
Other property, plant & equipment, gross 24838 20562 17708000
Accumulated depreciation - other property, plant & equipment -18391 -15292 13236000
Other property, plant & equipment, net 6447 5270 4471000
Total property, plant & equipment 33010 34043 35205000
Total intangible assets 1865 1277 2028000
Investment securities 926 1002 1266000
Long-term loans receivable 2250 6682 6628000
Lease & guarantee deposits 14905 14735 15034000
Deferred tax assets 3342 3774 2845000
Other investments & other assets 1222 1188 1760000
Allowance for doubtful accounts -1332 -3751 3917000
Total investments & other assets 21315 23632 23617000
Total non-current assets 56192 58952 60851000
Total assets 130207 127612 115581000
Trade accounts payable 12631 13540 13124000
Current portion of long-term borrowings 8333 7097 8754000
Current portion of bonds 149 149 249000
Income taxes payable 4815 265 1170000
Reserve for bonuses 1665 1420 1135000
Other current liabilities 10135 12595 10279000
Total current liabilities 37731 35068 34713000
Bonds 105 254 403000
Long-term borrowings 19509 21843 13910000
Lease liabilities 1612 1660 1590000
Deferred tax liabilities 23 22 26000
Asset retirement obligations 4406 3994 3898000
Other non-current liabilities 1857 1554 1839000
Total non-current liabilities 27514 29329 21668000
Total liabilities 65246 64398 56381000
Capital stock 8871 8615 8603000
Capital surplus 3283 6090 6078000
Retained earnings 52542 49998 44381000
Treasury shares - -1979 334000
Total shareholders' equity 64697 62724 58729000
Valuation difference on available-for-sale securities 166 282 297000
Loss (gain) on deferred hedge -15 - 297000
Total accumulated other comprehensive income 150 282 172000
Stock acquisition rights 113 206 59199000
Net assets 64961 63214 115581000
Total liabilities & net assets 130207 127612
Netflix Inc. (NMS: NFLX)
Exchange rate used is that of the Year End reported date
As Reported Annual Income Statement
Report Date 12/31/2016 12/31/2015 12/31/2014
Currency USD USD USD
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Thousands Thousands Thousands
Revenues 8830669 6779511 5504656
Cost of revenues 6029901 4591476 3752760
Marketing expenses 991078 824092 607186
Technology & development expenses 852098 650788 472321
General & administrative expenses 577799 407329 269741
Operating income (loss) 379793 305826 402648
Interest expense 150114 132716 50219
Interest & other income (expense) 30828 -31225 -3060
Income before income taxes - United States 188078 95644 325081
Income (loss) before income taxes - foreign 72429 46241 24288
Income (loss) before income taxes 260507 141885 349369
Current tax provision (benefit) - federal 54315 52557 86623
Current tax provision (benefit) - state 5790 -1576 9866
Current tax provision (benefit) - foreign 60571 26918 16144
Total current tax provision (benefit) 120676 77899 112633
Deferred tax provision (benefit) - federal -24383 -37669 -10994
Deferred tax provision (benefit) - state -14080 -17635 -17794
Deferred tax provision (benefit) - foreign -8384 -3351 -1275
Total deferred tax provision (benefit) -46847 -58655 -30063
Provision for (benefit from) income taxes 73829 19244 82570
Net income (loss) 186678 122641 266799
Weighted average shares outstanding - basic 428822 425889 420546
Weighted average shares outstanding - diluted 438652 436456 431893
Year end shares outstanding 430054.212 427940.44 422910.887
Net income (loss) per share - basic 0.44 0.29 0.634
Net income (loss) per share - diluted 0.43 0.28 0.617
Number of full time employees 4500 3500 2189
Number of part time & temporary employees 200 400 261
Total number of employees 4700 3700 2450
Number of common stockholders 290 237 203
Foreign currency translation adjustments -5464 -37887 -
Geo Holdings Corp (TOK: 2681)
Exchange rate used is that of the Year End reported date
As Reported Annual Income Statement
Report Date 03/31/2016 03/31/2015 03/31/2014
Currency JPY JPY JPY
Audit Status Not Qualified Not Qualified Not Qualified
Consolidated Yes Yes Yes
Scale Millions Millions Thousands
Total revenue 267910 270308 262324000
Cost of sales -151798 -157825 152301000
Gross profit 116112 112483 110022000
Selling, general & administrative expenses -99559 -102925 100823000
Operating income 16552 9558 9198000
Interest & dividend income 49 114 111000
Rental income 1268 1167 1193000
Other non-operating income 1043 1062 453000
Total non-operating income 2361 2343 1758000
Interest expense -230 -231 332000
Rental expenses -759 -609 595000
Transfer to reserve for doubtful account - -227 -
Other non-operating expenses -100 -803 -
Total non-operating expenses -1089 -1871 684000
Ordinary income 17824 10030 1612000
Imapirment loss -1319 -1543 9344000
Other extraordinary losses -13 - 203000
Total extraordinary losses -1333 -1543 203000
Income before income taxes 16491 8486 1218000
Income taxes - current -5779 -2074 514000
Income taxes - deferred -147 925 87000
Total income taxes -5927 -1149 1821000
Profit 10563 7337 7726000
Profit attributable to owners of parent 10563 7337 4027000
Average number of shares outstanding - basic 51.331 53.169 -39000
Average number of shares outstanding - diluted 51.623 53.29 3987000
Year end shares outstanding 48.244 52.295 3738000
Earnings per share - basic 205.78 137.99 -70000
Earnings per share - diluted 204.62 137.68 3808000
Number of full time employees 3825 3579 53996.5
Number of part time employees 10421 10114 54066.499
Number of common stockholders 57105 65030 53996.5

8. Your company issued bonds at a premium. Which of the following statements is NOT true?
A. The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense.
B. On the date of issuance, the stated interest rate was greater than the market interest rate.
C. As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond.
D. The account used to record the premium has a normal debit balance.

9. Which of the following would help a company improve its quick ratio without necessarily lowering the liability risk to a creditor?
A. Borrowing money on a long-term note just before the end of the accounting period.
B. Shifting resources from long-term assets to short-term assets such as supplies and inventory.
C. Shifting obligations from long-term liabilities to short-term liabilities.
D. Acquiring inventory by issuing a long-term note.

10. Which of the following is not used to calculate the times interest earned ratio?
A. Net income.
B. Income tax expense.
C. Interest earned on investments.
D. Interest expense.

11. Which of the following statements regarding treasury stock is true?
A. When a company reissues treasury stock for more than it originally paid for the stock, it does not report a gain.
B. When a company purchases treasury stock or pays a dividend, it increases total stockholders' equity.
C. Treasury stock is reported as an asset on the balance sheet.
D. Treasury stock is reported as issued and outstanding stock.

16. Typically, all other things equal, a profitable company that pays little or no dividends:
A. is a bad investment.
B. will reinvest profits which can lead to greater growth potential.
C. will experience relatively stable stock prices over time.
D. will appeal to investors who desire distributions of profit.

17. If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:
A. Dividends Payable.
B. Common Stock.
C. Share Capital.
D. Retained Earnings.

20. Limited Liability Companies (LLCs) are like general partnerships in that:
A. income tax is not paid by the company itself.
B. the business has a separate legal identity.
C. liability is limited.
D. amounts paid to the owners are recorded as salaries expense.

21. Which of the following statements regarding financing activities is NOT true?
A. Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities.
B. When a company issues stock for cash, it reports a cash inflow from financing activities.
C. When a company repurchases stock with cash, it reports a cash outflow for financing activities.
D. When a company repays a loan, it reports a cash outflow from investing activities.

22. Which of the following statements regarding quality of income ratio is NOT true?
A. A quality of income ratio will increase if a company's working capital management allows current assets such as inventory to increase out of control.
B. Variations in the ratio can be seasonal and are the result of sales fluctuations rather than reasons for alarm.
C. The quality of income ratio measures the portion of income that was generated in cash.
D. The quality of income ratio is useful when compared to industry competitors or to prior periods.

23. Which of the following types of information is not provided by the statement of cash flows?
A. Company management of current assets and liabilities.
B. Expenditures on long-term assets.
C. Current profitability as measured by specific revenues and expenses.
D. Reliance on external financing.

24. Cash and cash equivalents include:
A. assets that have stable long-term value.
B. assets that are short-term, highly liquid, and are purchased within three months of maturity.
C. assets that consistently grow in value over the long run.
D. assets that are expected to be used up within a year.

1. Which of the following would result in a decrease in cash flow and a use of cash? A. A decrease in notes payable B. An increase in long-term debt C. A decrease in inventory D. A decrease in common stock

2. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded an average rate of A. 15%. C. 39%. B. 35%. D. 34%.

3. A firm has assets of $60,000 and owners’ equity of $33,000. Which of the following is the correct balance of the firm’s liabilities? A. $33,000 C. $93,000 B. $27,000 D. $60,000

4. Which of the following would result in an increase in cash flow and a source of cash? A. A decrease in notes payable B. A decrease in long-term debt C. An increase in inventory D. An increase in common stock

5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the following is the correct net working capital for the firm? A. $10,000 C. $3,000 B. $7,000 D. $13,000

6. If a firm has an accounts receivable balance of $18,800 at the end of 2007 and $16,500 at the end of 2008, which of the following statements about accounts receivable is correct? A. Accounts receivable decreased by $2,300 and represented a use of cash. B. Accounts receivable increased by $2,300 and represented a source of cash. C. Accounts receivable decreased by $2,300 and represented a source of cash. D. Accounts receivable increased by $2,300 and represented a use of cash.

7. If a firm has revenues of $15,090 and expenses of $8,850, what is the firm’s taxable income? A. $15,090 C. $6,240 B. $8,850 D. $23,940

8. Which of the following statements about the issuance of an initial public offering (IPO) is correct? A. IPOs may be either underpriced or overpriced. B. IPOs are never overpriced. C. IPOs are never underpriced. D. IPOs are always correctly priced.

9. If a firm has revenues of $15,090, operating expenses of $8,850, and a tax expense of $2,120, what is the firm’s net income? A. $8,850 C. $6,240 B. $4,120 D. $8,360

10. When you’re preparing a common-sized balance sheet, which of the following measures is set to equal 100 percent? A. Total liabilities C. Total owners’ equity B. Total assets D. Cash Examination, Lesson 1 35

11. Suppose that a corporation has a taxable income of $200,000. What is the firm’s corporate income tax for the current tax year? (You can use the following table to calculate the firm’s U.S. federal corporate tax.) Taxable Income More Than Taxable Income Less Than Tax Rate $0 $50,000 15% $50,001 $75,000 25% $75,001 $100,000 34% $100,001 $335,000 39% $335,001 $10,000,000 34% $10,000,001 $15,000,000 35% $15,000,001 $183,333,334 38% $18,333,334 35% A. $78,000 C. $39,000 B. $6,250 D. $61,250

12. Using the same table and information provided in Question 11, what is the firm’s average tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

13. Using the same table and information provided in Question 11, what is the firm’s marginal tax rate? A. 39% C. 34% B. 30.625% D. 31.625%

14. Dilution refers to the loss of shareholder value, and may be represented by all of the following except dilution of A. ownership percentage. B. market value. C. the firm’s current ratio. D. book value per share.

15. If a firm has $6,940 in earnings before interest and taxes, $650 in depreciation expense, and $2,120 in taxes, what is the firm’s operating cash flow? A. $4,120 C. $6,240 B. $5,470 D. $9,710

16. The type of financial statement that summarizes the sources and uses of cash over a specified period of time is called the A. statement of cash flows. B. income statement. C. balance sheet. D. inventory ratio statement.

17. The current ratio falls within which of the following classifications of financial ratios? A. Long-term solvency measures B. Asset management or turnover measures C. Short-term solvency or liquidity measures D. Profitability measures

18. If a firm has an accounts payable balance of $34,400 at the end of 2007 and $31,200 at the end of 2008, which of the following statements about accounts payable is correct? A. Accounts payable decreased by $3,200 and represented a use of cash B. Accounts payable increased by $3,200 and represented a source of cash C. Accounts payable decreased by $3,200 and represented a source of cash D. Accounts payable increased by $3,200 and represented a use of cash

19. Which of the following is not one of the six costs of issuing securities? A. Rights offering C. Green Shoe option B. Abnormal returns D. Gross spread 20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.

20. In the United States, for the 2007 tax year, federal corporate income tax rates never exceeded a marginal rate of A. 15%. C. 39%. B. 35%. D. 34%.