Chapter 3: Working With Financial Statements Topics

Why Work With Financial Statements?

Problems with Financial Statement Analysis.
Calculating Ratios and Analyzing with Ratios.
Why do we use Ratios to Analyze Financial Statements
 Example 1: What is a Ratio?
CA = $ 200.00
CL = $ 100.00
CA/CL = Meaning:
CA/CL =

Example 2: Common Sized Financial Statements.

I/S I/S
Net Sales 100 Net Sales
COGS 25 COGS
Other Ex 15 Other Ex
EBIT 60 EBIT
Int 10 Int
Tax 17 Tax
NI 33 NI

Example 3: Ratios allow us to see relationships between numbers.

Net Sales = $ 5,000.00
Net Income = $ 200.00
NI/NS = Meaning:
NI/NS =

Example 4: We can see trends over time without the distortions of different number sizes.
Cash 2001 = $ 200.00
Total Assets 2001 = $ 2,000.00
Cash 2008 = $ 600.00
Total Assets 2008 = $ 5,000.00
2001 Cash/TA =

2008 Cash/TA = Meaning:

Example 5: We can compare small and big companies without the distortions of different number sizes.
MFST Cash = 23 B.
MFST TA = 63 B.
GOOG Cash = 11 B.
GOOG TA = 19 B.
MFST Cash/TA =

GOOG Cash/TA = Meaning:

Example 6: We can compare Financial Statements that are in different currencies.

Company 1 Equity = $ 1,018.74
Company 1 TA = $ 2,037.49
Company 2 Equity = £ 500.00
Company 2 TA = £ 1,000.00
Company 1 TA/E =
Company 2 TA/E = Meaning:
Company 1 TA/E =
Company 2 TA/E =
mber sizes.

ns of different number sizes.

 Example 1: What is a Ratio?
CA = $ 200.00
CL = $ 100.00
CA/CL = $2CA/$1CL Meaning: For every $1 of CL we have $2 of CA.
CA/CL = 2

Example 2: Common Sized Financial Statements.

I/S I/S
Net Sales 100 Net Sales 100% $1.00
COGS 25 COGS 25% $0.25
Other Ex 15 Other Ex 15% $0.15
EBIT 60 EBIT 60% $0.60
Int 10 Int 10% $0.10
Tax 17 Tax 17% $0.17
NI 33 NI 33% $0.33

Example 3: Ratios allow us to see relationships between numbers.

Net Sales = $ 5,000.00
Net Income = $ 200.00
NI/NS = $0.04 NI/ $1 Sales Meaning: For every $1 that comes in the door, $0.04 is the profit
NI/NS = 0.04

Example 4: We can see trends over time without the distortions of different number sizes.
Cash 2001 = $ 200.00
Total Assets 2001 = $ 2,000.00
Cash 2008 = $ 600.00
Total Assets 2008 = $ 5,000.00
2001 Cash/TA = 10.00%
Although cash is 3 times bigger in 2008, as a percent of total asset
2008 Cash/TA = 12.00% Meaning: was 10%, but in 2008 it was only 12%.

Example 5: We can compare small and big companies without the distortions of different number sizes.
MFST Cash = 23 B.
MFST TA = 63 B.
GOOG Cash = 11 B.
GOOG TA = 19 B.
MFST Cash/TA = 37%
Although MSFT has twice as much cash as GOOG, MSFT has only
GOOG Cash/TA = 58% Meaning: assets in cash, compared to GOOG's 58%

Example 6: We can compare Financial Statements that are in different currencies.

Company 1 Equity = $ 1,018.74
Company 1 TA = $ 2,037.49
Company 2 Equity = £ 500.00
Company 2 TA = £ 1,000.00
Company 1 TA/E = $2 Assets / $1 Equity
Company 2 TA/E = £2 Assets / £1 Equity Meaning: Both companies are equally leveraged = 2 asset for 1 equ
Company 1 TA/E = 200%
Company 2 TA/E = 200%
 of CL we have $2 of CA.

$1.00

es in the door, $0.04 is the profit

mber sizes.

n 2008, as a percent of total assets in 2001 it

in 2008 it was only 12%.

ns of different number sizes.

ch cash as GOOG, MSFT has only 37% of its

compared to GOOG's 58%
ally leveraged = 2 asset for 1 equity
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % Terms
Net Sales 5,607,376.00 4,701,289.00
COGS 3,647,734.00 3,052,184.00
Selling General and Administrative 1,484,410.00 1,285,613.00
Depreciation and Amortization 156,223.00 133,759.00
Income from Continuing Operations 319,009.00 229,733.00
Total Other Income/Expenses Net 20,736.00 9,623.00
Earnings Before Interest And Taxes 339,745.00 239,356.00
Interest Expense 32.00 2,223.00
Income Before Tax 339,713.00 237,133.00
Income Tax Expense 135,885.00 100,782.00
Net Income 203,828.00 136,351.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Common-Size Income Statement. Compute all line items as a percent of sales.

 Sep 26, 2004 % Terms
3,864,950.00
2,523,816.00
1,004,089.00
115,157.00          
221,888.00
6,456.00
228,344.00
7,249.00
221,095.00
88,438.00
132,657.00

ent of sales.
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005
Net Sales 5,607,376.00 100.00% 4,701,289.00
COGS 3,647,734.00 65.05% 3,052,184.00
Selling General and Administrative 1,484,410.00 26.47% 1,285,613.00
Depreciation and Amortization 156,223.00 2.79% 133,759.00
Income from Continuing Operations 319,009.00 5.69% 229,733.00
Total Other Income/Expenses Net 20,736.00 0.37% 9,623.00
Earnings Before Interest And Taxes 339,745.00 6.06% 239,356.00
Interest Expense 32.00 0.00% 2,223.00
Income Before Tax 339,713.00 6.06% 237,133.00
Income Tax Expense 135,885.00 2.42% 100,782.00
Net Income 203,828.00 3.63% 136,351.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Safeway
Income Statement ($000)
PERIOD ENDING Dec 31, 2006 % Terms Dec 31, 2005
Net Sales 40,185,000.00 100.00% 38,416,000.00
COGS 28,604,000.00 71.18% 27,303,100.00
Selling General and Administrative 8,989,800.00 22.37% 8,965,500.00
Depreciation and Amortization 991,400.00 2.47% 932,700.00
Income from Continuing Operations 1,599,800.00 3.98% 1,214,700.00
Total Other Income/Expenses Net 36,300.00 0.09% 36,900.00
Earnings Before Interest And Taxes 1,563,500.00 3.89% 1,177,800.00
Interest Expense 132,033.33 0.33% 134,200.00
Income Before Tax 1,431,466.67 3.56% 1,043,600.00
Income Tax Expense 486,699.00 1.21% 354,824.00
Net Income 944,767.67 2.35% 688,776.00

Dividends 96,000
Add To Retained Earnings 848,767.67
 t
000)
% Terms Sep 26, 2004 % Terms
100.00% 3,864,950.00 100.00%
64.92% 2,523,816.00 65.30%
27.35% 1,004,089.00 25.98%
2.85% 115,157.00 2.98%      
4.89% 221,888.00 5.74%
0.20% 6,456.00 0.17%
5.09% 228,344.00 5.91%
0.05% 7,249.00 0.19%
5.04% 221,095.00 5.72%
2.14% 88,438.00 2.29%
2.90% 132,657.00 3.43%

000)
% Terms Dec 31, 2004 % Terms
100.00% 35,822,900.00 100.00%
71.07% 25,227,600.00 70.42%
23.34% 8,527,900.00 23.81%
2.43% 894,600.00 2.50%       
3.16% 1,172,800.00 3.27%
0.10% 32,300.00 0.09%
3.07% 1,140,500.00 3.18%
0.35% 137,066.67 0.38%
2.72% 1,003,433.33 2.80%
0.92% 341,167.00 0.95%
1.79% 662,266.33 1.85%
   
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % Terms
Assets
Current Assets 623,981 30.54% 672,529 35.60%
Net Fixed Assets 1,419,015 69.46% 1,216,767 64.40%
Total Assets 2,042,996 100.00% 1,889,296 100.00%
Liabilities
Current Liabilities 509,770 24.95% 418,383 22.14%
Long Term Debt 129,083 6.32% 105,237 5.57%
Total Liabilities 638,853 31.27% 523,620 27.72%
Stockholders' Equity
Common stock and paid-in surplus 1,054,883 51.63% 879,377 46.55%
Retained Earnings 349,260 17.10% 486,299 25.74%
Total Stockholder Equity 1,404,143 68.73% 1,365,676 72.28%
Total Stockholder Equity and Total Liabilities 2,042,996 100.00% 1,889,296 100.00%
1 1

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.

Sep 26, 2004 % Terms

485,572 31.37%
1,062,144 68.63%
1,547,716 100.00%

334,950 21.64%
244,111 15.77%
579,061 37.41%

537,160 34.71%
431,495 27.88%
968,655 62.59%
1,547,716 100.00%
1
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sep 24, 2006 % Terms Sep 25, 2005 % Terms
Assets
Current Assets 623,981 30.54% 672,529 35.60%
Net Fixed Assets 1,419,015 69.46% 1,216,767 64.40%
Total Assets 2,042,996 100.00% 1,889,296 100.00%
Liabilities
Current Liabilities 509,770 24.95% 418,383 22.14%
Long Term Debt 129,083 6.32% 105,237 5.57%
Total Liabilities 638,853 31.27% 523,620 27.72%
Stockholders' Equity
Common stock and paid-in surplus 1,054,883 51.63% 879,377 46.55%
Retained Earnings 349,260 17.10% 486,299 25.74%
Total Stockholder Equity 1,404,143 68.73% 1,365,676 72.28%
Total Stockholder Equity and Total Liabilities 2,042,996 100.00% 1,889,296 100.00%
1 1

Common-Size Balance Sheet. Compute all accounts as a percent of total assets.

Sep 26, 2004 % Terms

485,572 31.37%
1,062,144 68.63%
1,547,716 100.00%

334,950 21.64%
244,111 15.77%
579,061 37.41%

537,160 34.71%
431,495 27.88%
968,655 62.59%
1,547,716 100.00%
1
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 9/24/2006 9/25/2005
Current Ratio CA/CL
Sunday, September 25, 2005 Quick Ratio (CA-INV)/CL
4,701,289.00 Cash Ratio Cash/CL
3,052,184.00
1,285,613.00
133,759.00  
229,733.00
9,623.00
239,356.00
2,223.00
237,133.00
100,782.00
136,351.00

54,683
81,668.00

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 9/24/2006 9/25/2005
Current Ratio CA/CL 1.2240 1.6074
Sunday, September 25, 2005 Quick Ratio (CA-INV)/CL 0.8244 1.1895
4,701,289.00 Cash Ratio Cash/CL 0.5025 0.8257
3,052,184.00
1,285,613.00
133,759.00  
229,733.00
9,623.00
239,356.00
2,223.00
237,133.00
100,782.00
136,351.00

54,683
81,668.00

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 Chapter 3 Homework - Current Ratio

No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
a purchase inv. up.
No change if paid with cash.
Before Buy Inventory After Buy Inventory Decrease Cash

CA (Pay cash $1, but it goes right back into

CA 4 Inventory ($1) which is also a current asset) 1
CL 2 CL
CA/CL= 2 CA/CL=

If paid on credit and CA/CL >1, it goes down.

Before Buy Inventory After Buy Inventory Increase
CA 4 CA (Inventory goes up by $1) 1
CL 2 CL (AP goes up by $1 dollar) 1
CA/CL= 2 CA/CL=

If paid on credit and CA/CL < 1, it goes up.

Before Buy Inventory After Buy Inventory Increase
CA 5 CA (Inventory goes up by $1) 1
CL 6 CL (AP goes up by $1 dollar) 1
CA/CL= 0.833333333333333 CA/CL=

b supplier paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier After pay supplier Cash go down and AP go down
CA 4 CA (Cash go down by $1) 1
CL 2 CL (AP go down by $1) 1
CA/CL= 2 CA/CL=

If supplier paid and CA/CL < 1, goes down.

Before pay supplier After pay supplier Cash go down and AP go down
CA 5 CA (Cash go down by $1) 1
CL 6 CL (AP go down by $1) 1

Page 23 of 97
 Chapter 3 Homework - Current Ratio

CA/CL= 0.833333333333333 CA/CL=

c short term bank loan is paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 4 CA (Cash go down by $1) 1
CL 2 CL (CL loan go down by $1) 1
CA/CL= 2 CA/CL=

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 5 CA (Cash go down by $1) 1
CL 6 CL (CL loan go down by $1) 1
CA/CL= 0.833333333333333 CA/CL=

d long-debt paid early If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid After LTD loan is paid Cash go down by $1
CA 4 CA (Cash go down by $1) 1
CL 2 CL (CL stay the same)
CA/CL= 2 CA/CL= `

e AR is Paid No change
AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change.
Before AR collected After AR collected Cash go up by $1
CA 4 CA (Cash go up by $1, AR go down by $1) 1
CL 2 CL (CL stay the same)
CA/CL= 2 CA/CL=

f Inv sold at cost No change

If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no
change.
Before Inv sold at cost After Inv sold at cost Cash go up by $1
CA 4 CA (Cash go up by $1, Inv by down by $1) 1

Page 24 of 97
 Chapter 3 Homework - Current Ratio

CL 2 CL (CL stay the same)

CA/CL= 2 CA/CL=

f Inv sold at profit Inv sold at profit, CA/CL will go up.

If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total
CA go up.
Before Inv sold at Profit After Inv sold at Profit Cash go up by $2
CA 4 CA (Cash go up by $2, Inv by down by $1) 2
CL 2 CL (CL stay the same)
CA/CL= 2 CA/CL=

Long Term Debt Issued To

g Pay Off Short Term Debt LTD traded for CL, CA/CL goes up.
Take out LTD for $1 to pay off CL of $1.
Before LTD issued After LTD issued CL down $1
CA 4 CA (No Change) 1
CL 2 CL (CL down $1)
CA/CL= 2 CA/CL=

Page 25 of 97
 Chapter 3 Homework - Current Ratio

id with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
up.

Increase Inventory

Page 26 of 97
Chapter 3 Homework - Current Ratio

AR go down by $1
1

Inv go down by $1
1

Page 27 of 97
Chapter 3 Homework - Current Ratio

Inv go down by $1
1

Page 28 of 97
 Chapter 3 Homework - Current Ratio (an)

No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
a purchase inv. up.
No change if paid with cash.
Before Buy Inventory After Buy Inventory Decrease Cash

CA (Pay cash $1, but it goes right back into

CA 4 Inventory ($1) which is also a current asset) 4 1
CL 2 CL 2
CA/CL= 2 CA/CL= 2

If paid on credit and CA/CL >1, it goes down.

Before Buy Inventory After Buy Inventory Increase
CA 4 CA (Inventory goes up by $1) 5 1
CL 2 CL (AP goes up by $1 dollar) 3 1
CA/CL= 2 CA/CL= 1.666667

If paid on credit and CA/CL < 1, it goes up.

Before Buy Inventory After Buy Inventory Increase
CA 5 CA (Inventory goes up by $1) 6 1
CL 6 CL (AP goes up by $1 dollar) 7 1
CA/CL= 0.833333333333333 CA/CL= 0.857143

b supplier paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier After pay supplier Cash go down and AP go down
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (AP go down by $1) 1 1
CA/CL= 2 CA/CL= 3

If supplier paid and CA/CL < 1, goes down.

Before pay supplier After pay supplier Cash go down and AP go down
CA 5 CA (Cash go down by $1) 4 1
CL 6 CL (AP go down by $1) 5 1

Page 29 of 97
 Chapter 3 Homework - Current Ratio (an)

CA/CL= 0.833333333333333 CA/CL= 0.8

c short term bank loan is paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (CL loan go down by $1) 1 1
CA/CL= 2 CA/CL= 3

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 5 CA (Cash go down by $1) 4 1
CL 6 CL (CL loan go down by $1) 5 1
CA/CL= 0.833333333333333 CA/CL= 0.8

d long-debt paid early If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid After LTD loan is paid Cash go down by $1
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 1.5 `

e AR is Paid No change
AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change.
Before AR collected After AR collected Cash go up by $1
CA 4 CA (Cash go up by $1, AR go down by $1) 4 1
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 2

f Inv sold at cost No change

If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no
change.
Before Inv sold at cost After Inv sold at cost Cash go up by $1
CA 4 CA (Cash go up by $1, Inv by down by $1) 4 1

Page 30 of 97
 Chapter 3 Homework - Current Ratio (an)

CL 2 CL (CL stay the same) 2

CA/CL= 2 CA/CL= 2

f Inv sold at profit Inv sold at profit, CA/CL will go up.

If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total
CA go up.
Before Inv sold at Profit After Inv sold at Profit Cash go up by $2
CA 4 CA (Cash go up by $2, Inv by down by $1) 5 2
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 2.5

Long Term Debt Issued To

g Pay Off Short Term Debt LTD traded for CL, CA/CL goes up.
Take out LTD for $1 to pay off CL of $1.
Before LTD issued After LTD issued CL down $1
CA 4 CA (No Change) 4 1
CL 2 CL (CL down $1) 1
CA/CL= 2 CA/CL= 4

Page 31 of 97
 Chapter 3 Homework - Current Ratio (an)

id with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
up.

Increase Inventory

Page 32 of 97
Chapter 3 Homework - Current Ratio (an)

AR go down by $1
1

Inv go down by $1
1

Page 33 of 97
Chapter 3 Homework - Current Ratio (an)

Inv go down by $1
1

Page 34 of 97
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 Sales
Sunday, September 25, 2005 A
4,701,289.00 COGS
3,052,184.00 Inv
1,285,613.00 AR
133,759.00   AP
229,733.00
9,623.00
239,356.00 Asset Turnover Sales/Assets
2,223.00
237,133.00 Inv Turnover COGS/INV
100,782.00 Days holding Inv 365/Inv Turnover
136,351.00 AR Turnover Sale/AR
Days until collect AR 365/AR Turnover
54,683 AP Turnover COGS/AP
81,668.00 Days until pay 365/AP Turnover
Operating Cycle in Days Days holding Inv+Days until collect AR
Cash Cycle in Days Operating Cycle in Days - Days until pay

Sunday, September 25, 2005 Note About Ratio Analysis For the B/S numbers:
If you are looking forward (into future, like finance does), it may be best to use End Num
345,446 If you are looking backward (into past, like accounting aoften does), it may be best to u
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 2006 2005
5,607,376.00 4,701,289.00
2,042,996 1,889,296
3,647,734.00 3,052,184.00
203,727 174,848
82,137 66,682
121,857 103,348

2006 2005

may be best to use End Numbers

does), it may be best to use (End + Beg)/2, an average amount.
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 Sales
Sunday, September 25, 2005 A
4,701,289.00 COGS
3,052,184.00 Inv
1,285,613.00 AR
133,759.00   AP
229,733.00
9,623.00
239,356.00 Asset Turnover Sales/Assets
2,223.00
237,133.00 Inv Turnover COGS/INV
100,782.00 Days holding Inv 365/Inv Turnover
136,351.00 AR Turnover Sale/AR
Days until collect AR 365/AR Turnover
54,683 AP Turnover COGS/AP
81,668.00 Days until pay 365/AP Turnover
Operating Cycle in Days Days holding Inv+Days until collect AR
Cash Cycle in Days Operating Cycle in Days - Days until pay

Sunday, September 25, 2005 Note About Ratio Analysis For the B/S numbers:
If you are looking forward (into future, like finance does), it may be best to use End Num
345,446 If you are looking backward (into past, like accounting aoften does), it may be best to u
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 2006 2005
5,607,376.00 4,701,289.00
2,042,996 1,889,296
3,647,734.00 3,052,184.00
203,727 174,848
82,137 66,682
121,857 103,348

2006 2005
2.74 2.49

17.9050 17.4562
20.3854 20.9095
68.2686 70.5031
5.3465 5.1771
29.9345 29.5331
12.1933 12.3590
25.7319 26.0865
13.5386 13.7275

may be best to use End Numbers

does), it may be best to use (End + Beg)/2, an average amount.
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 2006 2005
Total Liability = TL = D
Sunday, September 25, 2005 Total Assets = TA = A
4,701,289.00 Total Equity = TE = E
3,052,184.00 EBIT
1,285,613.00 Interest
133,759.00  
229,733.00 2006
9,623.00 Debt Ratio D/A
239,356.00 TL/E = D/E D/E
2,223.00 Equity Multiplier A/E = 1 + D/E
237,133.00 Times Interest Earned EBIT/Interest
100,782.00 Cash Coverage Ratio EBDIT/Interest
136,351.00
If you know this:
54,683 D/A = 0.2
81,668.00 Find these:
A=
D=
E=
Sunday, September 25, 2005 D/E =
A/E =
345,446 A/E = 1 + D/E =
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
2005
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00
Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 2006 2005
Total Liability = TL = D 638,853 523,620
Sunday, September 25, 2005 Total Assets = TA = A 2,042,996 1,889,296
4,701,289.00 Total Equity = TE = E 1,404,143 1,365,676
3,052,184.00 EBIT 339,745.00 239,356.00
1,285,613.00 Interest 32.00 2,223.00
133,759.00  
229,733.00 2006
9,623.00 Debt Ratio D/A 0.31
239,356.00 TL/E = D/E D/E 0.45
2,223.00 Equity Multiplier A/E = 1 + D/E 1.45
237,133.00 Times Interest Earned EBIT/Interest 10617.03
100,782.00 Cash Coverage Ratio EBDIT/Interest 15499.00
136,351.00 1.45
If you know this:
54,683 D/A = 0.2 0.2
81,668.00 Find these:
A= 10
D= 2
E= 8
Sunday, September 25, 2005 D/E = 0.25
A/E = 1.25
345,446 A/E = 1 + D/E =
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 2005
0.28
0.38
1.38
107.67
167.84
1.38
 9/24/2006 9/25/2005
Total Stockholder Equity 1,404,143.00 1,365,676.00
Total Liabilities 638,853.00 523,620.00
Total Assets 2,042,996.00 1,889,296.00
Net Sales 5,607,376.00 4,701,289.00
Net Income 203,828.00 136,351.00

Profit Margin = NI/Sales

Return On Asset = NI/A
Return On Equity = NI/E

Profit Margin Asset TurnOver Equity Multiplier

NI/Sales Sales/Asset Asset/Equity ROE Product ROE
9/25/2005
9/24/2006

ROA Product ROA ROE Product

9/25/2005
9/24/2006

ROA 1+D/E ROE Product

9/25/2005
9/24/2006
 9/24/2006 9/25/2005
Total Stockholder Equity 1,404,143.00 1,365,676.00
Total Liabilities 638,853.00 523,620.00
Total Assets 2,042,996.00 1,889,296.00
Net Sales 5,607,376.00 4,701,289.00
Net Income 203,828.00 136,351.00

Profit Margin = NI/Sales 0.036349979 0.029002896865

Return On Asset = NI/A 0.0997691625 0.072170268714
Return On Equity = NI/E 0.1451618532 0.099841397227

Profit Margin Asset TurnOver Equity Multiplier

NI/Sales Sales/Asset Asset/Equity ROE Product ROE
9/25/2005 0.0290028969 2.488381386506 1.3834145141307 0.099841397
9/24/2006 0.036349979 2.744682808973 1.4549771640068 0.145161853

ROA Product ROA ROE Product

9/25/2005 0.072170268714
9/24/2006 0.099769162544

ROA 1+D/E ROE Product

9/25/2005 0.0721702687138 1.383414514 0.099841397
9/24/2006 0.0997691625436 1.454977164 0.145161853
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00

Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 NI 2006
Div Paid in 2006
Sunday, September 25, 2005 Book Value Equity 2006
4,701,289.00
3,052,184.00
1,285,613.00 ROA
133,759.00   ROE
229,733.00 b 2005
9,623.00 Internal Growth Rate
239,356.00 Sustainable Growth Rate
2,223.00
237,133.00 Shares outstanding on Sep 24, 2006
100,782.00 MV 1 share on Sep 24, 2006

136,351.00 EPS =
Price-earnings ratio (Surrogate for Growth)
54,683 Dividends per share =
81,668.00 Market-to-Book Ratio

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 203,828.00
358,075
1,404,143

2006 2005
NI/Assets 0.072170
NI/Equity 0.0998414
(add to RE)/NI 59.90%
(ROA*b)/(1-ROA*b) Max company can grow with no external finan
(ROE*b)/(1-ROE*b) Max company can grow with no external finan

139,607
$59.290

NI/Shares outstanding on Sep 24, 2006 =

(MV per share)/EPS =
Div/Shares outstanding
(MV per share)/(Book value per share)
ow with no external financing
ow with no external financing except to keep constant D/E ratio
 Wholefoods Market
Income Statement ($000)
PERIOD ENDING Sunday, September 24, 2006
Net Sales 5,607,376.00
COGS 3,647,734.00
Selling General and Administrative 1,484,410.00
Depreciation and Amortization 156,223.00
Income from Continuing Operations 319,009.00
Total Other Income/Expenses Net 20,736.00
Earnings Before Interest And Taxes 339,745.00
Interest Expense 32.00
Income Before Tax 339,713.00
Income Tax Expense 135,885.00

Net Income 203,828.00

Dividends 358,075
Add To Retained Earnings (154,247.00)

Wholefoods Market
Balance Sheet ($000)
PERIOD ENDING Sunday, September 24, 2006
Assets
Cash 256,164
Account Receivable 82,137
Inventory 203,727
Other 81,953
Total Current Assets 623,981
Net Fixed Assets 1,419,015
Total Assets 2,042,996
Liabilities
Accounts Payable 121,857
Other 387,913
Total Current Liabilities 509,770
Long Term Debt 129,083
Total Liabilities 638,853
Stockholders' Equity
Common stock and paid-in surplus 1,054,883
Retained Earnings 349,260
Total Stockholder Equity 1,404,143
Total Stockholder Equity and Total Liabilities 2,042,996
1
 NI 2006
Div Paid in 2006
Sunday, September 25, 2005 Book Value Equity 2006
4,701,289.00
3,052,184.00
1,285,613.00 ROA
133,759.00   ROE
229,733.00 b 2005
9,623.00 Internal Growth Rate
239,356.00 Sustainable Growth Rate
2,223.00
237,133.00 Shares outstanding on Sep 24, 2006
100,782.00 MV 1 share on Sep 24, 2006

136,351.00 EPS =
Price-earnings ratio (Surrogate for Growth)
54,683 Dividends per share =
81,668.00 Market-to-Book Ratio

Sunday, September 25, 2005

345,446
66,682
174,848
85,553
672,529
1,216,767
1,889,296

103,348
315,035
418,383
105,237
523,620

879,377
486,299
1,365,676
1,889,296
1
 203,828.00
358,075
1,404,143

2006 2005
NI/Assets 0.072170
NI/Equity 0.0998414
(add to RE)/NI 59.90%
(ROA*b)/(1-ROA*b) 4.52% Max company can grow with no external finan
(ROE*b)/(1-ROE*b) 6.36% Max company can grow with no external finan

139,607
$59.290

NI/Shares outstanding on Sep 24, 2006 = 1.46

(MV per share)/EPS = 40.609234404
Div/Shares outstanding 2.5648785519
(MV per share)/(Book value per share) 5.894911722
ow with no external financing
ow with no external financing except to keep constant D/E ratio
 Grocery Store Industry Statistics 2006 WholeFoods mrq = most recent quarter
Price / Earnings: 17.5 40.609234403517
Price / Book: 6 5.8949117219543
Net Profit Margin (mrq): 1.80% 3.63%
Return on Equity: 13.10% 0.1451618531731
Total Debt / Equity: 1 0.4549771640068
 Long-Term
Description up Market Cap P/E ROE % Debt to Equity
Sector: Services 3471.1B 28.08 14.59 1.51
Industry: Grocery Stores (More Info) 72.0B 17.5 13.1 1.04
Companies
Arden Group Inc. (ARDNA) 449.5M 17.27 30.63 0.01
Blue Square Israel Ltd. (BSI) 601.2M 11.68 22.57 1.2
Casey's General Stores Inc. (CASY) 1.5B 19.67 13.43 0.39
Delhaize Group (DEG) 9.5B 19.37 11.06 0.8
Diedrich Coffee Inc. (DDRX) 19.9M NA -15.81 NA
Distribution y Servicio S.A. (DYS) 3.4B 36.76 9.04 0.87
Ingles Markets Inc. (IMKTA) 710.3M 12.69 17.63 1.63
Kroger Co. (KR) 19.6B 17.09 25.03 1.34
Pantry Inc. (PTRY) 616.8M 12.91 14.1 3.24
Pathmark Stores Inc. (PTMK) 672.9M NA -23.77 6.11
Publix Super Markets Inc. (PUSH.OB) NA NA 23.5 NA
Ruddick Corp. (RDK) 1.6B 21.09 11.29 0.4
Safeway Inc. (SWY) 14.5B 16.86 14.99 0.97
SUPERVALU Inc. (SVU) 7.7B 14.78 9.48 1.65
Susser Holdings Corporation (SUSS) 349.1M 942.73 0.19 0.72
The Great Atlantic & Pacific T (GAP) 1.3B NA 1.91 0.57
Village Super Market Inc. (VLGEA) 339.8M 17.36 12.48 0.17
Weis Markets Inc. (WMK) 1.1B 20.13 9.04 NA
Whole Foods Market Inc. (WFMI) 7.0B 38.03 13.11 0
Winn-Dixie Stores Inc. (WINN) 949.7M 5.14 108.9 0.03

Long-Term
P/E ROE % Debt to Equity
Lowest Quartile 15.3 9.15 0.395
Median 17.43 13.105 0.87
Highest Quartile 20.85 16.97 1.425
Wholefoods 40.609234404 0.1451618532 0.454977164
 Net Profit
Price to Book Margin %
Value (mrq)
-6.07 6.65
6.01 1.8

4.8 5.42
2.1 2.21
2.45 2.33
1.85 1.69
0.86 -18.81
3.29 2.72
2.1 2.67
3.98 1.65
1.67 0.7
6.56 -1.88
NA 5.42
2.25 2.3
2.33 2.22
1.36 1.11
2.1 0.91
2.32 -2.17
2.08 1.91
1.78 3.14
4.87 3.24
1.19 1.23

Net Profit
Price to Book Margin %
Value (mrq)
1.78 1.14
2.1 2.06
3.29 2.7075
5.894911722 0.036349979
 Homework chapter 3 ST 1, 2, 3 (T)

Question 1:
Question 2:

Wildhack Corp. Wildhack Corp. Current Ratio CA/CL

Income Statement ($ in millions) Balance Sheet ($ in millions) Quick Ratio (CA-INV)/CL
For The Year Ended 2010 As of December 31, 2009 and December 31, 2010 Cash Ratio Cash/CL
Sales $3,756 2009 2010 Inv Turnover COGS/INV
COGS 2453 Assets Days holding Inv 365/Inv Turnover
Depreciation $490 Current assets AR Turnover Sale/AR
EBIT $813 Cash $120 $88 Days until collect AR 365/AR Turnover
Interest Paid $613 Accounts receivable 224 192 AP Turnover COGS/AP
Taxable income $200 Inventory 424 368 Days until pay 365/AP Turnover
Taxes (34%) $68 Total current assets $768 $648 Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover
Net Income $132 Fixed assets Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover
Dividends $46 Net plant and equipment 5228 5354 Debt Ratio TL/TA
Addition to RE $86 Total assets $5,996 $6,002 D/E Ratio D/E
Dividends payout rate = PO = 34.85% Liabilities and Owners' Equity Equity Multiplier A/E = 1 + D/E
Addition to RE payout rate = b = 65.15% Current liabilities Times Interest Earned EBIT/Interest
Accounts payable 124 144 Cash Coverage Ratio EBDIT/Interest
Notes payable 1412 1039
Wildhack Corp. Total current liabilities $1,536 $1,183 Profit Margin NI/Sales
Income Statement ($ in millions) Long-term debt 1804 2077 Asset Turnover Sales/Assets
For The Year Ended 2010 Total liabilities $3,340 $3,260 ROA Product
Sales Owners' equity Equity Multiplier Assets/Equity
COGS Common stock and paid-in surplus 300 300 ROE Product
Depreciation Retained earnings 2356 2442
EBIT Total owners' equity $2,656 $2,742 ROA
Interest Paid Total liabilities and owners' equity $5,996 $6,002 ROE
Taxable income b
Taxes (34%) Internal Growth Rate
Net Income Wildhack Corp. Sustainable Growth Rate
Dividends Balance Sheet ($ in millions)
Addition to RE As of December 31, 2009 and December 31, 2010

Page 60 of 97
 Homework chapter 3 ST 1, 2, 3 (an)

Question 1: Standardized Net Income is the same as the Profit Margin Ra

Question 2: The percentage of each dollar earned that goes to COGS is 6

Wildhack Corp.
Income Statement ($ in millions)
For The Year Ended 2010
Sales $3,756
COGS 2453
Depreciation $490
EBIT $813
Interest Paid $613
Taxable income $200
Taxes (34%) $68
Net Income $132
Dividends $46
Addition to RE $86
Dividends payout rate = PO = 34.85%
Addition to RE payout rate = b = 65.15%

Wildhack Corp.
Income Statement ($ in millions)
For The Year Ended 2010
Sales 100.0%
COGS 65.3%
Depreciation 13.0%
EBIT 21.6%
Interest Paid 16.3%
Taxable income 5.3%
Taxes (34%) 1.8%
Net Income 3.5%
Dividends 1.2%
Addition to RE 2.3%

Page 61 of 97
 Homework chapter 3 ST 1, 2, 3 (an)

zed Net Income is the same as the Profit Margin Ratio, NI/Sales. It tells us how much profit we make for every one dollar of sales we make.
ntage of each dollar earned that goes to COGS is 65.3%.

Wildhack Corp. Current Ratio

Balance Sheet ($ in millions) Quick Ratio
As of December 31, 2009 and December 31, 2010 Cash Ratio
2009 2010 Inv Turnover
Assets Days holding Inv
Current assets AR Turnover
Cash $120 $88 Days until collect AR
Accounts receivable 224 192 AP Turnover
Inventory 424 368 Days until pay
Total current assets $768 $648 Operating Cycle in Days
Fixed assets Cash Cycle in Days
Net plant and equipment 5228 5354 Debt Ratio
Total assets $5,996 $6,002 D/E Ratio
Liabilities and Owners' Equity Equity Multiplier
Current liabilities Times Interest Earned
Accounts payable 124 144 Cash Coverage Ratio
Notes payable 1412 1039
Total current liabilities $1,536 $1,183 Profit Margin
Long-term debt 1804 2077 Asset Turnover
Total liabilities $3,340 $3,260 ROA
Owners' equity Equity Multiplier
Common stock and paid-in surplus 300 300 ROE
Retained earnings 2356 2442
Total owners' equity $2,656 $2,742 ROA
Total liabilities and owners' equity $5,996 $6,002 ROE
b
Internal Growth Rate
Wildhack Corp. Sustainable Growth Rate
Balance Sheet ($ in millions)
As of December 31, 2009 and December 31, 2010
2009 2010
Assets
Current assets
Cash 2.00% 1.47%
Accounts receivable 3.74% 3.20%
Inventory 7.07% 6.13%
Total current assets 12.81% 10.80%
Fixed assets
Net plant and equipment 87.19% 89.20%

Page 62 of 97
 Homework chapter 3 ST 1, 2, 3 (an)

Total assets 100.00% 100.00%

Liabilities and Owners' Equity
Current liabilities
Accounts payable 2.07% 2.40%
Notes payable 23.55% 17.31%
Total current liabilities 25.62% 19.71%
Long-term debt 30.09% 34.61%
Total liabilities 55.70% 54.32%
Owners' equity
Common stock and paid-in surplus 5.00% 5.00%
Retained earnings 39.29% 40.69%
Total owners' equity 44.30% 45.68%
Total liabilities and owners' equity 100.00% 100.00%

Page 63 of 97
 Homework chapter 3 ST 1, 2, 3 (an)

ery one dollar of sales we make.

CA/CL 0.5478
(CA-INV)/CL 0.2367
Cash/CL 0.0744
COGS/INV 6.6658
365/Inv Turnover 54.7574 days
Sale/AR 19.5625
365/AR Turnover 18.6581 days
COGS/AP 17.0347
365/AP Turnover 21.4268 days
365/Inv Turnover + 365/AR Turnover 73.4156
Operating Cycle in Days - 365/AP Turnover 56.3809 days
TL/TA 0.5432
D/E 1.1889
A/E = 1 + D/E 2.1889
EBIT/Interest 1.3263
EBDIT/Interest 2.1256

NI/Sales 0.03514377
Sales/Assets 0.6257914
Product 0.02199267
Assets/Equity 2.1889132
Product 0.04814004

0.02199267
0.04814004
65.15%
1.45%
3.24%

Page 64 of 97
 Homework chapter 3 ST 4 (T)

Assumptions
Name Corwin
Net Income = 231
Dividends Paid = 77
Total Assets = 1400
Total Equity = 1200

Addition To Retained Earnings

Corwin ROA
Corwin ROE
Corwin b
Corwin Internal Growth Rate (ROA*b)/(1-ROA*b)
Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b)

Page 65 of 97
 Homework chapter 3 ST 4 (an)

Assumptions
Name Corwin
Net Income = 231
Dividends Paid = 77
Total Assets = 1400
Total Equity = 1200

Addition To Retained Earnings 154

Corwin ROA 0.165

Corwin ROE 0.1925
Corwin b 0.6666666667
Corwin Internal Growth Rate (ROA*b)/(1-ROA*b) 12.36%
Corwin Sustainable Growth Rate (ROE*b)/(1-ROE*b) 14.72%

Page 66 of 97
 Chapter 3 Homework - Critical Thinking 3.1 (T)

Page 67 of 97
 Chapter 3 Homework - Critical Thinking 3.1 (an)

No change if paid with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
a purchase inv. up.
No change if paid with cash.
Before Buy Inventory After Buy Inventory Decrease Cash

CA (Pay cash $1, but it goes right back into

CA 4 Inventory ($1) which is also a current asset) 4 1
CL 2 CL 2
CA/CL= 2 CA/CL= 2

If paid on credit and CA/CL >1, it goes down.

Before Buy Inventory After Buy Inventory Increase
CA 4 CA (Inventory goes up by $1) 5 1
CL 2 CL (AP goes up by $1 dollar) 3 1
CA/CL= 2 CA/CL= 1.666667

If paid on credit and CA/CL < 1, it goes up.

Before Buy Inventory After Buy Inventory Increase
CA 5 CA (Inventory goes up by $1) 6 1
CL 6 CL (AP goes up by $1 dollar) 7 1
CA/CL= 0.833333333333333 CA/CL= 0.857143

b supplier paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If supplier paid and CA/CL >1, goes up.
Before pay supplier After pay supplier Cash go down and AP go down
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (AP go down by $1) 1 1
CA/CL= 2 CA/CL= 3

If supplier paid and CA/CL < 1, goes down.

Before pay supplier After pay supplier Cash go down and AP go down
CA 5 CA (Cash go down by $1) 4 1
CL 6 CL (AP go down by $1) 5 1

Page 68 of 97
 Chapter 3 Homework - Critical Thinking 3.1 (an)

CA/CL= 0.833333333333333 CA/CL= 0.8

c short term bank loan is paid If CA/CL >1, goes up. If CA/CL < 1, goes down.
If short term bank loan is paid and CA/CL >1, goes up.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (CL loan go down by $1) 1 1
CA/CL= 2 CA/CL= 3

If short term bank loan is paid and CA/CL <1, goes down.
Before CL loan is paid After CL loan is paid Cash go down and CL loan go down
CA 5 CA (Cash go down by $1) 4 1
CL 6 CL (CL loan go down by $1) 5 1
CA/CL= 0.833333333333333 CA/CL= 0.8

d long-debt paid early If long-debt has not been classified as current liability, it will go down
If long-debt paid early, then it will CA/CL will go down.
Before LTD loan is paid After LTD loan is paid Cash go down by $1
CA 4 CA (Cash go down by $1) 3 1
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 1.5 `

e AR is Paid No change
AR is paid: Cash go up by $1 and AR go down by $1, both are in CA so no change.
Before AR collected After AR collected Cash go up by $1
CA 4 CA (Cash go up by $1, AR go down by $1) 4 1
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 2

f Inv sold at cost No change

If Inventory is sold at cost, Inv will go down by $1, but cash will go up by $1: both are CA, so no
change.
Before Inv sold at cost After Inv sold at cost Cash go up by $1
CA 4 CA (Cash go up by $1, Inv by down by $1) 4 1

Page 69 of 97
 Chapter 3 Homework - Critical Thinking 3.1 (an)

CL 2 CL (CL stay the same) 2

CA/CL= 2 CA/CL= 2

f Inv sold at profit Inv sold at profit, CA/CL will go up.

If Inventory is sold at Profit, Inv will go down by $1, but cash will go up by $2: both are CA, so total
CA go up.
Before Inv sold at Profit After Inv sold at Profit Cash go up by $2
CA 4 CA (Cash go up by $2, Inv by down by $1) 5 2
CL 2 CL (CL stay the same) 2
CA/CL= 2 CA/CL= 2.5

Page 70 of 97
 Chapter 3 Homework - Critical Thinking 3.1 (an)

d with cash. If paid on credit and CA/CL >1, it goes down. If paid on credit and CA/CL < 1, it goes
up.

Increase Inventory

Page 71 of 97
Chapter 3 Homework - Critical Thinking 3.1 (an)

AR go down by $1
1

Inv go down by $1
1

Page 72 of 97
Chapter 3 Homework - Critical Thinking 3.1 (an)

Inv go down by $1
1

Page 73 of 97
 #9
COGS =
AP =
Days to pay of AP =
What does a large value imply?

#33
Net Loss
Sales
Progit Margin =
Does the currency type make a difference?

Net Income
Sales
Progit Margin =
#9
41682
8917
days

#33
-£14,537.00
£176,460.00

$317,628.00
-0.082381276209906
 #9
COGS = 41682
AP = 8917
Days to pay of AP = 78.0841850199127

It implies that they are having a hard time paying bills - probably
because they are having a cash shortage problem. It could also mean
that they have really large terms from their suppliers (unlikely,
What does a large value imply? though).

#33
Net Loss -£14,537.00
Sales £176,460.00
Progit Margin = -0.082381276209906
Does the currency type make a
difference? No, because when you do the division, the units cancel out.

Net Income -$26,166.60

Sales $317,628.00
Progit Margin = -0.082381276209906
days
 Chapter 3 Homework - PR 19, 32

19
Tom's Toupees
Profit Margin = NI/Sales 0.08
Sales 23,000,000
Debt 9,500,000
TA 24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets =

32
Fenton Company
ROE 0.17
Sales $1,950,000.00
D/TA 0.60
Debt $75,000.00

TA = Debt/(D/TA) = $75,000/0.6 =
Equity = A - L =

ROE = ROA*(1+D/E)
ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) =

ROE = NI/E
NI = ROE*E = 0.17*50000 =
ROA = NI/TA = 8500/125000 =

Page 78 of 97
 Chapter 3 Homework - PR 19, 32 (an)

19
Tom's Toupees
Profit Margin = NI/Sales 0.08
Sales 23,000,000
Debt 9,500,000
TA 24,000,000

ROA = NI/Assets = NI/Sales*Sales/Assets = 0.0767

32
Fenton Company
ROE 0.17
Sales $1,950,000.00
D/TA 0.60
Debt $75,000.00

TA = Debt/(D/TA) = $75,000/0.6 = $125,000.00

Equity = A - L = $50,000.00

ROE = ROA*(1+D/E)
ROA = ROE/(1+D/E) = 0.17/(1+75000/50000) = 0.0680

ROE = NI/E
NI = ROE*E = 0.17*50000 = $8,500.00
ROA = NI/TA = 8500/125000 = 0.0680

Page 79 of 97
 Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.

Income Statement ($ in millions)
For The Year Ended 2006
Sales $87,480
COGS 56820
Depreciation 3,217
EBIT $27,443
Interest Paid 2,064
Taxable income $25,379
Taxes (34%) 8,629
Net Income $16,750
Dividends $4,800
Addition to RE $11,950
Dividends payout rate = PO = 28.66%
Addition to RE payout rate = b = 71.34%

Smolira Golf Corp.

Income Statement ($ in millions)
For The Year Ended 2006
Sales 100.00%
COGS 64.95%
Depreciation 3.68%
EBIT 31.37%
Interest Paid 2.36%
Taxable income 29.01%
Taxes (34%) 9.86%
Net Income 19.15%
Dividends 5.49%
Addition to RE 13.66%
Dividends payout rate = PO = 28.66%
Addition to RE payout rate = b = 71.34%

Page 80 of 97
 Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.

Balance Sheet ($ in millions)
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash $2,612 $2,783
Accounts receivable 3,108 3,780
Inventory 9,840 10,970
Total current assets $15,560 $17,533
Fixed assets
Net plant and equipment 29,650 41,323
Total assets $45,210 $58,856
Liabilities and Owners' Equity
Current liabilities
Accounts payable 1,975 2,190
Notes payable 1,386 1,438
Other 80 179
Total current liabilities $3,441 $3,807
Long-term debt 12,510 13,840
Total liabilities $15,951 $17,647
Owners' equity
Common stock and paid-in surplus 25,000 25,000
Retained earnings 4,259 16,209
Total owners' equity $29,259 $41,209
Total liabilities and owners' equity $45,210 $58,856
$1 $1

Page 81 of 97
 Homework chapter 3 PR 34, 35, 36

Smolira Golf Corp.

Balance Sheet ($ in millions)
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash 5.78% 4.73%
Accounts receivable 6.87% 6.42%
Inventory 21.77% 18.64%
Total current assets 34.42% 29.79%
Fixed assets
Net plant and equipment 65.58% 70.21%
Total assets 100.00% 100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable 4.37% 3.72%
Other 0.18% 0.30%
Total current liabilities 7.61% 6.47%
Long-term debt 27.67% 23.52%
Total liabilities 35.28% 29.98%
Owners' equity
Common stock and paid-in surplus 55.30% 42.48%
Retained earnings 9.42% 27.54%
Total owners' equity 64.72% 70.02%
Total liabilities and owners' equity 100.00% 100.00%

Page 82 of 97
 Homework chapter 3 PR 34, 35, 36

2005 2006
Current Ratio CA/CL 4.52 4.61
Quick Ratio (CA-INV)/CL 1.66 1.72
Cash Ratio Cash/CL 0.76 0.73
Asset Turnover Sales/Assets 1.49
Inv Turnover COGS/INV 5.18
Days holding Inv 365/Inv Turnover 70.47
AR Turnover Sale/AR 23.14
Days until collect AR 365/AR Turnover 15.77
AP Turnover COGS/AP 25.95
Days until pay 365/AP Turnover 14.07
Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover 86.24
Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover 72.17
Debt Ratio TL/TA 0.35 0.30
D/E Ratio D/E 0.55 0.43
Equity Multiplier A/E = 1 + D/E 1.55 1.43
Times Interest Earned EBIT/Interest 13.30
Cash Coverage Ratio EBDIT/Interest 14.85
2005 2006
Profit Margin NI/Sales 19.15%
Asset Turnover Sales/Assets 1.49
ROA Product 28.46%
Equity Multiplier Assets/Equity 1.43
ROE Product 40.65%

ROA 28.46%
ROE 40.65%
b 71.34%
Internal Growth Rate 25.48%
Sustainable Growth Rate 40.84%
2005 2006
Shares outstanding 10,000
MV 1 share end 2006 $24
EPS = NI/Shares outstanding = $1.68
Price-earnings ratio (MV per share)/EPS = $14.33
Dividends per share = $0.48
(MV per share)/(Book value per share) 5.82

Page 83 of 97
 Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.

Income Statement ($ in millions)
For The Year Ended 2006
Sales $87,480
COGS 56820
Depreciation 3,217
EBIT $27,443
Interest Paid 2,064
Taxable income $25,379
Taxes (34%) 8,629
Net Income $16,750
Dividends $4,800
Addition to RE $11,950
Dividends payout rate = PO = 28.66%
Addition to RE payout rate = b = 71.34%

Smolira Golf Corp.

Income Statement ($ in millions)
For The Year Ended 2006
Sales 100.00%
COGS 64.95%
Depreciation 3.68%
EBIT 31.37%
Interest Paid 2.36%
Taxable income 29.01%
Taxes (34%) 9.86%
Net Income 19.15%
Dividends 5.49%
Addition to RE 13.66%
Dividends payout rate = PO = 28.66%
Addition to RE payout rate = b = 71.34%

Page 84 of 97
 Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.

Balance Sheet ($ in millions)
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash $2,612 $2,783
Accounts receivable 3,108 3,780
Inventory 9,840 10,970
Total current assets $15,560 $17,533
Fixed assets
Net plant and equipment 29,650 41,323
Total assets $45,210 $58,856
Liabilities and Owners' Equity
Current liabilities
Accounts payable 1,975 2,190
Notes payable 1,386 1,438
Other 80 179
Total current liabilities $3,441 $3,807
Long-term debt 12,510 13,840
Total liabilities $15,951 $17,647
Owners' equity
Common stock and paid-in surplus 25,000 25,000
Retained earnings 4,259 16,209
Total owners' equity $29,259 $41,209
Total liabilities and owners' equity $45,210 $58,856
$1 $1

Page 85 of 97
 Homework chapter 3 PR 34, 35, 36, 37 (an)

Smolira Golf Corp.

Balance Sheet ($ in millions)
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash 5.78% 4.73%
Accounts receivable 6.87% 6.42%
Inventory 21.77% 18.64%
Total current assets 34.42% 29.79%
Fixed assets
Net plant and equipment 65.58% 70.21%
Total assets 100.00% 100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable 4.37% 3.72%
Other 0.18% 0.30%
Total current liabilities 7.61% 6.47%
Long-term debt 27.67% 23.52%
Total liabilities 35.28% 29.98%
Owners' equity
Common stock and paid-in surplus 55.30% 42.48%
Retained earnings 9.42% 27.54%
Total owners' equity 64.72% 70.02%
Total liabilities and owners' equity 100.00% 100.00%

Page 86 of 97
 Homework chapter 3 PR 34, 35, 36, 37 (an)

2005 2006
Current Ratio CA/CL 4.52 4.61
Quick Ratio (CA-INV)/CL 1.66 1.72
Cash Ratio Cash/CL 0.76 0.73
Asset Turnover Sales/Assets 1.49
Inv Turnover COGS/INV 5.18
Days holding Inv 365/Inv Turnover 70.47
AR Turnover Sale/AR 23.14
Days until collect AR 365/AR Turnover 15.77
AP Turnover COGS/AP 25.95
Days until pay 365/AP Turnover 14.07
Operating Cycle in Days 365/Inv Turnover + 365/AR Turnover 86.24
Cash Cycle in Days Operating Cycle in Days - 365/AP Turnover 72.17
Debt Ratio TL/TA 0.35 0.30
D/E Ratio D/E 0.55 0.43
Equity Multiplier A/E = 1 + D/E 1.55 1.43
Times Interest Earned EBIT/Interest 13.30
Cash Coverage Ratio EBDIT/Interest 14.85
2005 2006
Profit Margin NI/Sales 19.15%
Asset Turnover Sales/Assets 1.49
ROA Product 28.46%
Equity Multiplier Assets/Equity 1.43
ROE Product 40.65%

ROA 28.46%
ROE 40.65%
b 71.34%
Internal Growth Rate 25.48%
Sustainable Growth Rate 40.84%
2005 2006
Shares outstanding 10,000
MV 1 share end 2006 $24
EPS = NI/Shares outstanding = $1.68
Price-earnings ratio (MV per share)/EPS = $14.33
Dividends per share = $0.48
(MV per share)/(Book value per share) 5.82

Page 87 of 97
 Homework chapter 3 PR 37

Dispersion of Industry numbers

Lowest Quartile Median Highest Quartile Smolira 2006 Ratios
Current Ratio 1.2 2.4 4.7
Asset Turnover 1.5 2.6 3.8
D/E 0.25 0.4 0.6
Profit Margin 8.4% 11.9% 16.3%

Smolira Golf performance

Page 88 of 97
 Homework chapter 3 PR 37

ra Golf performance

Page 89 of 97
 Homework chapter 3 PR 37 (an)

Dispersion of Industry numbers

Lowest Quartile Median Highest Quartile Smolira 2006 Ratios
Current Ratio 1.2 2.4 4.7 4.61
Asset Turnover 1.5 2.6 3.8 1.49
D/E 0.25 0.4 0.6 0.43
Profit Margin 8.4% 11.9% 16.3% 19.15%

Smolira Golf performance

Smolira Golf is well above average when it comes to the current ratio. Their current ration is
Perhaps Smolira Golf is 1) building up working capital to acquire some profitable assets, or pe
assets that could become obsolete or 3) they have extra cash that is potentially not earnin
profitable long term assets could. In addition, suppliers and bankers could view this as a sign
Their asset turn over is in the lowest quartile. Compared to their industry they are generating
each asset than others in the industry. In comparison, they are not using the assets efficient
bought new assets that have not been depreciated much and thus the ratio
Their debt to equity ratio has gone down a small bit over the year. In comparison to the ind
median when it comes to debt. Smolira is well leveraged in line with the in
Smolira's profit margin is in the highest quartile. The ratio of Expenses to sales is amazing. Pe
at managing expenses, or perhaps they have 2) a superior product that can capture a high pr
obfuscating accounting tricks! On the downside, it could be that they are charging too much
yield a high profit margin, it would almost certainly mean that Net Income is lower than it w
margin.

Page 90 of 97
 Homework chapter 3 PR 37 (an)

ra Golf performance

mes to the current ratio. Their current ration is near the highest quartile.
apital to acquire some profitable assets, or perhaps 2) they have current
y have extra cash that is potentially not earning a return as much as
uppliers and bankers could view this as a sign that they could pay bills.
ompared to their industry they are generating fewer dollars in sales from
parison, they are not using the assets efficiently. Or perhaps they have
not been depreciated much and thus the ratio is low.
mall bit over the year. In comparison to the industry they are near the
bt. Smolira is well leveraged in line with the industry.
The ratio of Expenses to sales is amazing. Perhaps they are 1) excellent
a superior product that can capture a high price, or perhaps it is 3) just
e, it could be that they are charging too much, and although this would
ainly mean that Net Income is lower than it would be at a lower profit
margin.

Page 91 of 97
 Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp. Bethesda Mining Corp.

Income Statement Balance Sheet
For The Year Ended 2006 As of December 31, 2005 and December 31, 2006
Sales $1,728,347 2005 2006
Net Income $148,320 Assets
Current assets
Cash $19,250 $21,386
Accounts receivable 46,381 49,327
Inventory 109,831 119,834
Total current assets $175,462 $190,547
Fixed assets
Net plant and equipment 612,832 702,683
Total assets $788,294 $893,230
Liabilities and Owners' Equity
Current liabilities
Accounts payable $157,832 $141,368
Notes payable 72,891 99,543
Total current liabilities $230,723 $240,911
Long-term debt 200,000 250,000
Total liabilities $430,723 $490,911
Owners' equity
Common stock and paid-in surplus 175,000 175,000
Retained earnings 182,571 227,319
Total owners' equity $357,571 $402,319
Total liabilities and owners' equity $788,294 $893,230
$1 $1

Page 92 of 97
 Homework chapter 3 PR 15, 16, 17 (T)

Bethesda Mining Corp.

Balance Sheet
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash
Accounts receivable
Inventory
Total current assets
Fixed assets
Net plant and equipment
Total assets
Liabilities and Owners' Equity
Current liabilities
Accounts payable
Notes payable
Total current liabilities
Long-term debt
Total liabilities
Owners' equity
Common stock and paid-in surplus
Retained earnings
Total owners' equity
Total liabilities and owners' equity

Page 93 of 97
 Homework chapter 3 PR 15, 16, 17 (T)

2005 2006
Current Ratio CA/CL
Quick Ratio (CA-INV)/CL
Cash Ratio Cash/CL
Debt Ratio TL/TA
D/E Ratio D/E
Equity Multiplier A/E = 1 + D/E

Profit Margin NI/Sales

Asset Turnover Sales/Assets
ROA Product
Equity Multiplier Assets/Equity
ROE Product

ROA
ROE

Page 94 of 97
 Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp. Bethesda Mining Corp.

Income Statement Balance Sheet
For The Year Ended 2006 As of December 31, 2005 and December 31, 2006
Sales $1,728,347 2005 2006
Net Income $148,320 Assets
Current assets
Cash $19,250 $21,386
Accounts receivable 46,381 49,327
Inventory 109,831 119,834
Total current assets $175,462 $190,547
Fixed assets
Net plant and equipment 612,832 702,683
Total assets $788,294 $893,230
Liabilities and Owners' Equity
Current liabilities
Accounts payable $157,832 $141,368
Notes payable 72,891 99,543
Total current liabilities $230,723 $240,911
Long-term debt 200,000 250,000
Total liabilities $430,723 $490,911
Owners' equity
Common stock and paid-in surplus 175,000 175,000
Retained earnings 182,571 227,319
Total owners' equity $357,571 $402,319
Total liabilities and owners' equity $788,294 $893,230
$1 $1

Page 95 of 97
 Homework chapter 3 PR 15, 16, 17 (an)

Bethesda Mining Corp.

Balance Sheet
As of December 31, 2005 and December 31, 2006
2005 2006
Assets
Current assets
Cash 2.44% 2.39%
Accounts receivable 5.88% 5.52%
Inventory 13.93% 13.42%
Total current assets 22.26% 21.33%
Fixed assets
Net plant and equipment 77.74% 78.67%
Total assets 100.00% 100.00%
Liabilities and Owners' Equity
Current liabilities
Accounts payable 20.02% 15.83%
Notes payable 9.25% 11.14%
Total current liabilities 29.27% 26.97%
Long-term debt 25.37% 27.99%
Total liabilities 54.64% 54.96%
Owners' equity
Common stock and paid-in surplus 22.20% 19.59%
Retained earnings 23.16% 25.45%
Total owners' equity 45.36% 45.04%
Total liabilities and owners' equity 100.00% 100.00%

Page 96 of 97
 Homework chapter 3 PR 15, 16, 17 (an)

2005 2006
Current Ratio CA/CL 0.7605 0.7909
Quick Ratio (CA-INV)/CL 0.2845 0.2935
Cash Ratio Cash/CL 0.0834 0.0888
Debt Ratio TL/TA 0.5464 0.5496
D/E Ratio D/E 1.2046 1.2202
Equity Multiplier A/E = 1 + D/E 2.2046 2.2202

Profit Margin NI/Sales 0.0858161006

Asset Turnover Sales/Assets 1.9349406088
ROA Product 0.1660490579
Equity Multiplier Assets/Equity 2.220203371
ROE Product 0.3686626781

ROA 0.1660490579
ROE 0.3686626781

Page 97 of 97