Problem 1: Profitability analysis for two companies:
The following data shows four items from the financial statements of two companies for a recent year (amounts in millions of US$):
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Company A
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Company B
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For Year
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Revenue
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$3,750
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$6,143
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Net Income
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476
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934
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Average During Year
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Total Assets
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2,458
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5,594
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Shareholder's Equity
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2,256
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2,566
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a. Compute the rate of return on assets for each company. Disaggregate the rate of return on assets into profit margin and total assets turnover components.
b. Compute the rate of return on equity for each company. Disaggregate the rate of return on equity into profit margin, total assets turnover, and financial leverage ratio components.
c. The two companies are a manufacturer of brand-name motorcycle and an operator of specialty retail coffee shops, primarily in rented facilities. Which of the companies corresponds to A and B? What clues did you use in reaching your conclusions?
Problem 2: Analyzing accounts receivable for two companies:
The annual reports of Delta, Inc. and SunnyDay Company, two manufacturers of computers, reveal the information below for the current year (amounts in millions). Delta sells custom-order personal computer, primarily to individuals SunnyDay Sells higher-end computers and Internet software, primarily to business.
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Delta
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SunnyDay
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Sales
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$61,133
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$13,873
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Accounts Receivable, January 1
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6,152
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2,702
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Accounts Receivable, December 31
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7,693
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2,964
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a. Compute the accounts receivable turnover for each company.
b. Compute the average number of days that accounts receivable are outstanding for each company.
c. Why do the accounts receivable turnovers of these two companies differ?
Problem 3: Analyzing inventories over three years
The following information relates to the activities of Funtime, Inc., a manufacturer of toys (amounts in millions of euros):
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2013
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2012
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2011
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Sales
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5,970
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5,650
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5,179
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Cost of Goods Sold
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3,193
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3,038
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2,806
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Average Inventory
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406
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380
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415
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a. Compute the inventory turnover for each year.
b. Compute the average number of days that inventories are held each year.
c. Compute the cost of goods sold to sales percentage for each year.
d. How well has Funtime managed its inventories over the three years?