Problem 1. Al Corporation has an operating profit of $10,000,000 and $100,000, 000 in sales. What is Al's profit margin (PM)?
Problem 2. Ala Corporation has net operating assets of $100,000,000 at 12/31/2010, $110,000,000 at 12/31/2011, and $100,000, 000 in sales for 2011. What is Al's average operating asset turnover (ATO) for 2011?
Problem 3. Bet Corporation has average operating assets of $120,000,000 and $20,000, 000 in average accounts payable and $10,000,000 in average accrued expenses. What are Bet's average net operating assets (NOA)?
Problem 4. Car Corporation has sales of $120,000,000, $60,000, 000 in cost of goods sold, $20,000, 000 in selling and general and administrative costs, $6,000, 000 in interest expense, and is in the 30% tax bracket. What is Car's before tax operating profit and Cara's after tax operating profit (OP)?
Problem 5. Dat Corporation has current portion of long term debt of $2,000,000 at 12/31/2011, current portion of capitalized lease obligations of $6,000, 000 at 12/31/2011, long term debt of $20,000, 000 at 12/31/2011, $60,000, 000 in capitalized lease obligations at 12/31/2011, and $150,000,000 in stockholder's equity at 12/31/2011. What is Dat's financial leverage (FLEV) ratio at 12/31/2011?
Problem 6. Et Corporation has a profit margin (PM) of $20,000,000, and $100,000, 000 in average net operating assets. What is Et's return on net operating assets (RNOA)?
Problem 7. Fe Corporation averaged $10,000,000 in excess monies during 2011 and invested these monies in financial assets (a rainy day account). Fe also has averaged financial liabilities of $60,000,000 for 2011. What is Fe average net financial obligation for 2011?
Problem 8. Working with Fe in the prior question, assume that Fe earns $1,000,000 pre-tax on the financial assets, and pays $6,000,000 pre-tax interest expense. Further assume that Feta has a 30% effective tax rate. What is Fe's net after tax interest expense in dollars and as a percentage (NBC)?
Problem 9. Gam Corporation has a profit margin (PM) of 8%, an average operating asset turnover (ATO) of 1.5 times, an average financial leverage ratio (FLEV) of .5, an average return on net operating assets of 12%, and an average net borrowing cost (NBC) of 4%. What is Gam's return on average common equity (ROCE)?
Problem 10. Gam Corporation improves its profit margin (PM) to 10%, continues with an average operating asset turnover (ATO) of 1.5 times, continues with an average financial leverage ratio (FLEV) of .5, because of the higher profit margin improves it return on average net operating assets (RONA) to 15%, and a net borrowing cost (NBC) of 4%. What is Gam's new return on average common equity?
Problem 11. Gam Corporation has a profit margin (PM) of 8%, improves its average operating asset turnover (ATO) to 2.0 times, continues with an average financial leverage ratio (FLEV) of .5, because of the higher average asset turnover it improves it return on average net operating assets (RONA) to 16%, and a net borrowing cost (NBC) of 4%. What is Gam's new return on average common equity?
Problem 12. Gam Corporation has a profit margin (PM) of 8%, an operating average asset turnover (ATO) of 1.5 times, and borrows additional money and increases its financial leverage ratio (FLEV) to 1.0, a return on net average operating assets of 12%, and a net borrowing cost (NBC) of 4%. What is Gam's new return on average common equity?
Problem 13. Gam Corporation has a profit margin (PM) of 8%, an operating average asset turnover (ATO) of 1.5 times, and continues with an average financial leverage ratio (FLEV) of .5, a return on net average operating assets of 12%, and because of some maturation now has a lower net borrowing cost (NBC) of 2%. What is Gam's new return on average common equity?
Problem 14. For a growing firm to add value for the shareholder, the return on assets must exceed what?
Problem 15. Residual earnings and abnormal earnings growth both measure the value increasing potential of the firm. (true or false)?
Problem 16. A firm is presently earning more than the required return for shareholders, what would happen to growth in this firm if management increased the asset turnover (with higher asset turnover than presently). (increase or decrease)
Problem 17. How would an analyst determine if the something transitory is happening with restructuring charges?
Problem 18. How would an analyst determine if something transitory is happening in the year over year research and development expenses? (what type of ratio or percentage would she calculate?)
Problem 19. To determine if "games" were being played with the year over year advertising expenses, what ratio or percentage should an analyst look at?
Problem 20. Between service costs, interest cost, expected return on plan assets, amortization of prior service cost, amortization of transition asset or liability, actuarial gains and losses: which of these would probably be easiest for management to manipulate to show higher or lower earnings?
Problem 21. Know that auditors look at and question changes in estimates, in what accounts can management change estimates and consequently change earnings the easiest?
Problem 22. You are a manager for a large firm and you want to manage earnings. You had an extremely profitable or good year and would rather dampen expectations and show the market a lower earnings number. You have to assets on the books that you are considering selling. Unused land on the books at $10,000,000 can be sold for $30,000,000.
Unused building on the books at $40,000,000 could be sold for $20,000,000. To decrease income which would you sell and recognize the gain or loss?
Problem 23. Are currency gain and losses typically considered transitory or core earnings. (circle one)
Problem 24. Over time, do most firm maintain the spread of RNOA over NBC or is this competed away in the market place?
Problem 25. What is the difference between operating liability leverage and operating leverage?