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Exam 4: Profitability Analysis

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Question 1

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Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%. BALANCE SHEETS -Refer to the information for Net Devices Inc.What is the rate of return on assets for Net Devices for 2011?

A) 11.64%
B) 14.50%
C) 12.60%
D) 13.88%

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Question 2

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Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%. BALANCE SHEETS -Refer to the information for Net Devices Inc.What is the inventory turnover for Net Devices for 2011?

A) 10.32
B) 8.90
C) 2.51
D) 6.23

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Question 3

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Rattigan Industries reported net income (amounts in thousands)for Year 4 of $60,615 on sales of $1,560,235.It declared preferred dividends of $22,100.Preferred shareholders' equity totaled $265,750 at both the beginning and end of Year4.Common shareholders' equity totaled $298,150 at the beginning of Year 4 and $365,000 at the end of Year4.Rattigan had no minority interest in its equity.Total assets were $1,440,000 at the beginning of Year 4 and $1,550,000 at the end of Year 4.

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%. BALANCE SHEETS -Refer to the information for Net Devices Inc.What is Net Devices' capital structure leverage ratio for 2011?

Asset turnover represents

Explain the difference between a simple and complex capital structure as the terms are used in the calculation of EPS.

Sensitron and Douglas Tools manufacture and market power tools and accessories.Sensitron targets customers in the professional contractor market,while Douglas Tools focuses on home users and professionals.Selected financial data for the companies appears below. Required: 1. Calculate the accounts recervale turnaver ratid far each firm far year 2010, 2009, 2008. 2. Sugest reasons far the differences in the accounts receivable turnver ratios far these two firmen.

Discuss how the following three elements of risk help us understand return on assets differs across firms and changes over time:1.Operating leverage 2.Cyclicality of sales 3.Product life cycle

The profit margin for ROA indicates the ability of a firm to generate earnings for a particular level of

Carl Industries Carl Industries has condensed balance sheets as shown: -Refer to the information for Carl Industries.In a common size balance sheet for 2010,plant and equipment (net) is expressed as 

Net Devices Inc. The following balance sheets and income statements are for Net Devices Inc., a manufacturer of small electronic devices, including calculators, personal digital assistants and mp3 players. For purposes of these questions assume that the company has an effective tax rate of 35%. BALANCE SHEETS -Refer to the information for Net Devices Inc.What is the accounts receivable turnover ratio for Net Devices for 2011?

Return on common equity can be disaggregated into profit margin for ROCE,capital structure leverage and _________________________________________________.

In order to measure how profitable a firm is in generating a return for its common shareholders,a financial analyst would examine the return on _____________________________________________.

Accounts receivable turnover is calculated by dividing ________________________________________ by average net accounts receivable.

Ramos Company Ramos Company included the following information in its annual report: $\begin{array}{|l|r|r|r}\hline & \mathbf{2 0 1 1} & \mathbf{2 0 1 0} & {\mathbf{2 0 0 9}} \\\hline \text { Sales } & \$ 178,400 & \$ 162,500 & \$ 155,500 \\\hline \text { Cost of goods sold } & 115,000 & 102,500 & 100,000 \\\hline \text { Operating expenses } & 50,000 & 50,000 & 45,000 \\\hline \text { Net income } & 13,400 & 10,000 & 10,500 \\\hline\end{array}$ - Refer to the information for Ramos Company.In a common size income statement for 2011,the operating expenses are expressed as: 

Raleigh Manufacturing reported net income (amounts in millions)of $1,166 on sales of $5,520 during Year4.Interest expense totaled $75.The income tax rate was 30 percent.Average total assets were $7,135,and average common shareholders' equity was $3,405.The firm did not have preferred stock outstanding or minority interest in its equity. REQUIRED:a.Compute the rate of ROA.Disaggregate ROA into profit margin for ROA and assets turnover components. b.Compute the rate of ROCE.Disaggregate ROCE into profit margin for ROCE,assets turnover,and capital structure leverage ratio components. c.Calculate the amount of net income to common shareholders derived from the excess return on creditors' capital and the amount from the return on common shareholders' capital.

Examine the four following conditions involving inventory turnover.Discuss what economic factors might be leading to the condition and whether it suggests positive or negative future economic conditions. $\begin{array}{|l|l|}\begin{array}{l}\text { Condition A: Increasing cost of goods sold } \\\text { to sales percentage, coupled with an } \\\text { increasing inventory turnover. }\end{array} & \begin{array}{l}\text { Condition B: Decreasing cost of goods sold } \\\text { to sales percentage, coupled with a } \\\text { decreasing inventory turnover. }\end{array} \\\hline \begin{array}{l}\text { Condition C: Increasing cost of goods sold } \\\text { to salespercentage, coupled with a } \\\text { decreasinginventory turnover. }\end{array} & \begin{array}{l}\text { Condition D: Decreasing cost of goods sold } \\\text { to sales percentage, coupled with an } \\\text { increasing inventory turnover. }\end{array}\end{array}$

Common-size analysis requires the analyst to be aware that percentages can change because of all of the following except:

Sustainable earnings represent

Return on assets can be disaggregated into asset turnover and ____________________________________________________________.