Framework for Analysis and Valuation Complete Test Bank 5e - Financial Statement Analysis 5e Complete Test Bank by Easton. DOCX document preview.
Module 1
Framework for Analysis
and Valuation
Learning Objectives – Coverage by question | |||||
True/False | Multiple Choice | Exercises | Problems | Essays | |
LO1 – Explain and assess the four main business activities. | 1 | ||||
LO2 – Identify and discuss the users and suppliers of financial statement information. | 1-4 | 1, 2 | 2 | ||
LO3 – Describe and examine the four financial statements. | 5-10 | 3-19 | 1-8 | 1-5, 10 | 3, 4 |
LO4 – Assess business operations within the context of a competitive environment. | 14 | 26, 27 | 8 | ||
LO5 – Explain and apply the basics of profitability analysis. | 11-13 | 20-25 | 1, 9, 10 | 6, 7 | 5 |
Module 1: Framework for Analysis and Valuation
True/False
Topic: Users of Financial Statement Information
LO: 2
1. Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal.
Topic: Publicly Available Financial Reports
LO: 2
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
Topic: Users of Financial Statement Information
LO: 2
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax authorities (that is, the Internal Revenue Service).
Topic: SEC Filings
LO: 2
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).
Topic: Balance Sheet
LO: 3
5. If a company reports retained earnings of $175.3 million on its balance sheet, it must also report $175.3 million in cash.
Topic: Balance Sheet
LO: 3
6. A balance sheet shows a company’s position over a period of time, whereas an income statement, statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
Topic: Accounting Equation
LO: 3
7. Assets must always equal liabilities plus equity.
Topic: Income Statement
LO: 3
8. The income statement reports net income which is defined as the company’s profit after all expenses and dividends have been paid.
Topic: Statement of Cash Flows
LO: 3
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at a point in time.
Topic: Statement of Stockholders’ Equity
LO: 3
10. An increase in common stock would be reflected in the statement of stockholders’ equity.
Topic: Return on Assets
LO: 5
11. Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it uses.
Topic: Return on Assets
LO: 5
12. Return on Assets (ROA) = (Net Income / Sales) × Asset Turnover
Topic: Asset Turnover
LO: 5
13. Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over.
Topic: Financial Accounting and Business Analysis
LO: 4
14. Financial statements are influenced by five important forces that determine a company’s competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.
Topic: Users of Financial Statement Information
LO: 2
1. Which of the following groups would likely not be interested in the financial statements of a large public company such as Procter & Gamble?
- Shareholders
- Employees
- Competitors
- Taxing agencies
- None of the above
Topic: Users of Financial Statement Information
LO: 2
2. The SEC adopted Regulation FD, to curb public companies’ practice of:
- Routinely filing extensions for annual reports (Form 10-K)
- Selectively disclosing information
- Reporting pro forma (non-GAAP) numbers
- Hiring auditors for non-audit services such as consulting engagements
- None of the above
Topic: Components of the Balance Sheet
LO: 3
3. A list of assets, liabilities and equity can be found on which of the following?
- Balance Sheet
- Income Statement
- Statement of Assets and Liabilities
- Statement of Cash Flows
- Statement of Stockholders’ Equity
Topic: Balance Sheet
LO: 3
4. Which of the following items would not be found on a balance sheet? (Select all that apply)
A) Stockholders’ Equity
B) Property, plant and equipment
C) Nonowner financing
D) Cash
E) Dividends
Topic: Profit and Cash Flow
LO: 3
5. A company’s net cash flow will equal its net income …
A) Almost always
B) Rarely
C) Occasionally
D) Only when the company has no investing cash flow for the period
E) Only when the company has no investing or financing cash flow for the period
Topic: Financial Statement Information
LO: 3
6. Which of the following statements are correct (select all that apply)?
A) A balance sheet reports on investing and financing activities.
B) An income statement reports on financing activities.
C) The statement of equity reports on changes in the accounts that make up equity.
D) The statement of cash flows reports on cash flows from operating, investing, and financing activities over a period of time.
E) A balance sheet reports on a company’s assets and liabilities over a period of time.
Topic: Balance Sheet—Numerical calculations required
LO: 3
7. The Goodyear Tire & Rubber Company’s December 31, 2016 financial statements reported the following (in millions):
Total assets | $16,511 |
Total liabilities | 11,786 |
Total shareholders’ equity | 4,725 |
Dividends | 82 |
Net income (loss) | 1,264 |
Retained earnings, December 31, 2015 | 4,570 |
What did Goodyear report for retained earnings at December 31, 2016?
A) $5,907 million
B) $5,752 million
C) $5,916 million
D) $5,834 million
E) There is not enough information to determine the answer.
Topic: Balance Sheet—Numerical calculations required
LO: 3
8. United Airlines’ 2016 balance sheet reported the following (in millions)
Total Assets | $40,091 |
Total Liabilities | 31,485 |
Contributed Capital | 3,573 |
What was United Airlines’ total liabilities and stockholders’ equity at December 31, 2016?
A) $ 36,518 million
B) $ 40,091 million
C) $35,058 million
D) $8,606 million
E) $36,518 million
Topic: Balance Sheet—Numerical calculations required
LO: 3
9. On October 2, 2016 Starbucks Corporation reported, on its Form 10-K, the following (in millions):
Total assets | $14,329.5 |
Total stockholders’ equity | 5,890.7 |
Total current liabilities | 4,546.9 |
What did Starbucks report as total liabilities on October 2, 2016?
A) $ 12,516.7 million
B) $ 6,377.3 million
C) $ 995.0 million
D) $ 8,438.8 million
E) None of the above
Topic: Balance Sheet—Numerical calculations required
LO: 3
10. In its 2016 annual report, Snap-On Incorporated reported the following (in millions):
Current assets | $1,884.0 |
Total shareholders’ equity | $2,635.2 |
Total liabilities | $2,088.0 |
What did Snap-On report as total assets at year-end 2016?
A) $3,885.8 million
B) $2,796.2 million
C) $4,723.2 million
D) $3,526.6 million
E) None of the above
Topic: Balance Sheet—Numerical calculations required
LO: 3
11. In its 2016 annual report, Kohl’s Corporation reported the following (in millions):
Total assets | $13,574 |
Total shareholders’ equity | $ 5,177 |
Total liabilities | $ 8,397 |
What proportion of Kohl’s Corporation is financed by nonowners?
A) 61.9%
B) 44.2%
C) 53.5%
D) 77.0%
E) None of the above
Topic: Balance Sheet—Numerical calculations required (more challenging; requires calculation of total assets before ratio can be calculated.)
LO: 3
12. In its 2016 annual report, Mattel Inc. reported the following (in millions):
Total liabilities | $ 4,086.0 |
Total shareholders’ equity | $2,407.8 |
What proportion of Mattel is financed by nonowners?
A) 64.6%
B) 53.0%
C) 78.6%
D) 62.9%
E) None of the above
Topic: Income Statement—Numerical calculations required
LO: 3
13. The Goodyear Tire & Rubber Company’s December 31, 2016 financial statements reported the following (in millions)
Sales | $15,158 |
Cost of sales | $10,972 |
Other expenses (excluding cost of sales) | $ 2,902 |
What did Goodyear report for net income for the year ending December 31, 2016?
A) $ 29,032 million
B) $ 1,284 million
C) $ 4,186 million
D) $ 13,874 million
E) $ 8,070 million
Topic: Income Statement—Numerical calculations required
LO: 3
14. Intel Corporation reported the following on its 2016 income statement (in millions)
Sales revenue | $59,387 |
Gross profit | $36,191 |
Total expenses | $23,317 |
What did Intel report for cost of goods sold during 2016?
A) $ 23,196 million
B) $ 15,502 million
C) $ 36,478 million
D) $ 12,874 million
E) None of the above
Topic: Income statement—Numerical calculations required
LO: 3
15. On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
2016 | 2015 | |
Total expenses | $18,497.0 | $16,403.4 |
Operating income | $4,171.9 | $3,601.0 |
Net earnings | $2,818.9 | $2,759.3 |
What amount of revenues did Starbucks report for the year ending October 2, 2016?
A) $24,883.4
B) $25,208.8
C) $24,558.0
D) $21,315.9
E) None of the above
Topic: Income Statement—Numerical calculations required (more challenging; requires calculation of growth rate.)
LO: 3
16. On October 2, 2016, Starbucks Corporation reported, on its Form 10-K, the following (in millions):
2016 | 2015 | |
Operating income | $4,171.9 | $3,601.0 |
Net earnings | $2,818.9 | $2,759.3 |
Calculate year-over-year increase or (decrease) in net earnings, in percentage terms.
A) (33.8)%
B) 22.0%
C) 16.5%
D) 2.2%
E) None of the above
Topic: Income Statement—Numerical calculations required (more challenging; requires calculation of gross profit and ratios for two years.)
LO: 3
17. In its 2016 annual report, Caterpillar Inc. reported the following (in millions):
2016 | 2015 | |
Sales | $38,537 | $47,011 |
Cost of goods sold | $28,309 | $33,546 |
As a percentage of sales, did Caterpillar’s gross profit increase or decrease during 2016?
A) Gross profit increased from 26.8% to 28.6%
B) Gross profit decreased from 28.6% to 26.5%
C) Gross profit increased from 71.4% to 73.2%
D) Gross profit decreased from 73.2% to 71.4%
E) There is not enough information to answer the question.
Topic: Statement of Cash Flows—Numerical calculations required
LO: 3
18. The Goodyear Tire & Rubber Company’s December 31, 2016, financial statements reported the following (in millions).
Cash December 31, 2016 | $1,132 |
Cash from operating activities | $1,504 |
Cash from investing activities | $(973) |
Cash from financing activities | $(875) |
What did Goodyear report for cash on its December 31, 2015 balance sheet?
A) $1,476 million
B) $2,281 million
C) $3,711 million
D) $ 715 million
E) None of the above
Topic: Statement of Cash Flows—Numerical calculations required
LO: 3
19. Procter & Gamble’s June 30, 2016, financial statements reported the following (in millions):
Cash, beginning of year | $ 6,836 |
Cash, end of year | $ 7,102 |
Cash from operating activities | $15,435 |
Cash from investing activities | $ (5,575) |
What did Procter & Gamble report for cash from financing activities for the year ended June 30, 2016?
A) $ 9,514 million
B) $ 20,961 million
C) $ (20,961) million
D) $ (9,594) million
E) $ 7,067 million
Topic: Return on Assets
LO: 5
20. A company’s return on assets (ROA) can be disaggregated to reveal which of the following (select all that apply):
A) Financial leverage
B) Profit margin
C) Sales growth
D) Asset growth
E) Asset turnover
Topic: Return on Equity
LO: 5
21. The ratio of net income to equity is also known as:
A) Total net equity ratio
B) Profit margin
C) Return on equity
D) Net income ratio
E) None of the above
Topic: Return on Equity—Numerical calculations required
LO: 5
22. Sales for the year = $324,882, Net Income for the year = $36,610, Income from equity investments = $8,603, and average Equity during the year = $123,650. Return on equity (ROE) for the year is:
A) 29.6%
B) 11.3%
C) 22.7%
D) 127.6%
E) There is not enough information to answer the question.
Topic: Return on Assets—Numerical calculations required
LO: 5
23. Sales for the year = $246,687, Net Income for the year = $22,965, and average Assets during the year = $136,357. Return on Assets (ROA) for the year is:
A) 53.8%
B) 16.8%
C) 9.3%
D) There is not enough information to calculate ROA.
E) None of the above
Topic: Return on Assets—Numerical calculations required (more challenging because net income is not provided, must be calculated.)
LO: 5
24. Sales for the year = $831,066, Profit margin =18%, and average Assets during the year = $647,770. Return on Assets (ROA) for the year is:
A) 17.1%
B) 23.1%
C) 64.0%
D) There is not enough information to calculate ROA.
E) None of the above
Topic: Return on Assets—Numerical calculations required (more challenging because average assets are not provided; must be calculated.)
LO: 5
25. On December 31, 2016, Harley-Davidson, Inc., reported, on its Form 10-K, the following (in millions):
2016 | 2015 | |
Total assets | $9,890 | $9,973 |
Total sales | $5,996 | $5,995 |
Net income | $692 | $752 |
Calculate return on assets (ROA) for 2016.
A) 7.0%
B) 62.8%
C) 71.5%
D) 7.5%
E) None of the above
Topic: Five Forces of Competitive Industry
LO: 4
26. Which of the following are not one of the five forces that determine a company’s competitive intensity? (Select as many as apply)
A) Bargaining power of suppliers
B) Threat of substitution
C) Ability to obtain financing
D) Threat of entry
E) Threat of regulatory intervention
Topic: Business Environment
LO: 4
27. Which of the following are relevant in an analysis of a company’s business environment? (Select as many as apply)
A) Financing
B) Labor
C) Buyers
D) Governance
E) All of the above
Topic: Financial Accounting Vocabulary
LO: 3, 5
- Match the item on the left to a numbered item on the right to complete each sentence.
A) | Resources that a company owns or controls are called _________________. | 1. | liabilities | |
B) | The difference between a company’s assets and its equity is equal to _______________. | 2. | return on assets | |
C) | Net income divided by average assets is known as ____________. | 3. | assets | |
D) | Sales, cost of goods sold and all other expenses are necessary to calculate a company’s ______________. | 4. | income statement | |
5. | net income |
Topic: Financial Accounting Vocabulary
LO: 3
2. Match the item on the left to a numbered item on the right to complete each sentence.
A) | Companies report assets, liabilities, and equity on the _________________. | 1. | income statement | |
B) | Sales, cost of goods sold, and net income are found on the _______________. | 2. | balance sheet | |
C) | Changes in contributed capital during the period are explained on the ____________. | 3. | statement of cash flows | |
D) | The _______________ reports cash from financing activities. | 4. | statement of stockholders’ equity | |
5. | financial statements |
Topic: Income Statement Components
LO: 3
3. Fill in the blanks to complete Whole Foods’ Income Statement ($ millions).
WHOLE FOODS Income Statement For Year Ended September 25, 2016 | |
Sales | $15,724 |
Cost of goods sold and occupancy costs | ? |
Gross profit | $ 5,411 |
Operating expenses | ? |
Operating income | $ 857 |
WHOLE FOODS Income Statement For Year Ended September 25, 2016 | |
Sales | $15,724 |
Cost of goods sold and occupancy costs | 10,313 |
Gross profit | $ 5,411 |
Operating expenses | 4,554 |
Operating income | $ 857 |
Topic: Income Statement Components
LO: 3
4. Fill in the blanks to complete Procter & Gamble’s Income Statement ($ millions).
PROCTER & GAMBLE Income Statement For Year Ended June 30, 2016 | |
Sales | $ ? |
Expenses | 51,930 |
Earnings before income taxes | 13,369 |
Income taxes | ? |
Net earnings from continuing operations | $10,027 |
Net earnings from discontinued operations | 577 |
Net earnings | $10,604 |
PROCTER & GAMBLE Income Statement For Year Ended June 30, 2016 | |
Sales | $65,299 |
Expenses | 51,930 |
Earnings before income taxes | 13,369 |
Income taxes | 3,342 |
Net earnings from continuing operations | $10,027 |
Net earnings from discontinued operations | 577 |
Net earnings | $10,604 |
Topic: Statement of Cash Flow Components
LO: 3
5. Fill in the blanks to complete Whole Food’s Statement of Cash Flows ($ millions).
Whole Foods Statement of Cash Flows For Year Ended September 25, 2016 | |
Net cash from operating activities | $1,116 |
Net cash from investing activities | (895) |
Net cash from financing activities | (107) |
Net change in cash | ? |
Cash at beginning of year | ? |
Cash at end of year | $ 351 |
Whole Foods Statement of Cash Flows For Year Ended September 25, 2016 | |
Net cash from operating activities | $1,116 |
Net cash from investing activities | (895) |
Net cash from financing activities | (107) |
Net change in cash | 114 |
Cash at beginning of year | 237 |
Cash at end of year | $ 351 |
Topic: Balance Sheet Components
LO: 3
6. Fill in the blanks to complete Whole Foods’ Balance Sheet ($ millions).
Whole Foods Balance Sheet September 25, 2016 | ||||
Cash | $ 351 | Current liabilities | $ 1,341 | |
Non-cash assets | ? | Long-term liabilities | ? | |
_ ____ | Stockholders’ equity | 3,224 | ||
Total assets | $6,341 | Total liabilities and equity | $ ? | |
Whole Foods Balance Sheet September 25, 2016 | ||||
Cash | $ 351 | Current liabilities | $ 1,341 | |
Non-cash assets | 5,990 | Long-term liabilities | 1,776 | |
____ _ | Stockholders’ equity | 3,224 | ||
Total assets | $6,341 | Total liabilities and equity | $ 6,341 | |
Topic: Balance Sheet Components
LO: 3
7. Fill in the blanks to complete the Procter & Gamble Balance Sheet ($ millions).
procter & gamble Balance Sheet June 30, 2016 | ||||
Cash | $ 7,102 | Current liabilities | $ ? | |
Non-cash assets | ? | Long-term liabilities | 38,383 | |
_ ____ | Stockholders’ equity | 57,983 | ||
Total assets | $ ? | Total liabilities and equity | $127,136 | |
procter & gamble Balance Sheet June 30, 2016 | ||||
Cash | $ 7,102 | Current liabilities | $ 30,770 | |
Non-cash assets | 120,034 | Long-term liabilities | 38,383 | |
_______ | Stockholders’ equity | 57,983 | ||
Total assets | $127,136 | Total liabilities and equity | $127,136 | |
Topic: Retained Earnings Reconciliation
LO: 3
8. Whole Foods reports the following balances in its stockholders’ equity accounts. Fill in the blanks.
($ millions) | 2016 | 2015 | 2014 |
Retained earnings beginning of year | ? | ? | $1,265 |
Net income | ? | 536 | 579 |
Dividends | (174) | (186) | ? |
Other | (1) | (1) | 0 |
Retained earnings end of year | $2,349 | $2,017 | ? |
($ millions) | 2016 | 2015 | 2014 |
Retained earnings beginning of year | $2,017 | $1,668 | $1,265 |
Net income | 507 | 536 | 579 |
Dividends | (174) | (186) | (176) |
Other | (1) | (1) | 0 |
Retained earnings end of year | $2,349 | $2,017 | $1,668 |
Topic: Return on Assets
LO: 5
9. Procter & Gamble reports the following items in their financial statements. Fill in the blanks.
($ millions) | 2016 | 2015 |
Average assets | $128,316 | $136,881 |
Net earnings | 10,604 | ? |
Return on assets | ? | 5.219% |
($ millions) | 2016 | 2015 |
Average assets | $128,316 | $136,881 |
Net earnings | 10,604 | 7,144 |
Return on assets | 8.264% | 5.219% |
Topic: Return on Assets
LO: 5
10. Whole Foods reports the following items in their financial statements. Fill in the blanks.
($ millions) | 2016 |
Average assets | $6,041 |
Sales | 15,724 |
Net income | 507 |
Return on assets | ? |
Profit margin | ? |
Asset turnover | ? |
($ millions) | 2016 |
Average assets | $6,041 |
Sales | 15,724 |
Net income | 507 |
Return on assets | 8.39% |
Profit margin | 3.22% |
Asset turnover | 2.60 |
Topic: Other Financial Information
LO: 3
1. In addition to the four financial statements, list three sources of financial information available to external stakeholders?
Topic: Constructing Financial Statements
LO: 3
2. In its October 2, 2016 annual report, Starbucks Corporation reports the following items.
($ millions) | 2016 |
Cash flows from operations | $4,575.1 |
Total revenues | 21,315.9 |
Shareholders’ equity | 5,890.7 |
Cash flows from financing | (1,753.5) |
Total liabilities | 8,438.8 |
Cash, ending year | 2,128.8 |
Expenses | 18,497.0 |
Noncash assets | 12,200.7 |
Cash flows from investing | (2,222.9) |
Net earnings | 2,818.9 |
Cash, beginning year | 1,530.1 |
a. Prepare the balance sheet for Starbucks for October 2, 2016.
b. Prepare the income statement for Starbucks for the year ended October 2, 2016.
c. Prepare the statement of cash flows for Starbucks for the year ended October 2, 2016.
Starbucks Corporation Balance Sheet October 2, 2016 ($ millions) | |||
Cash | $2,128.8 | Total liabilities | $8,438.8 |
Non-cash assets | 12,200.7 | Shareholders’ equity | 5,890.7 |
Total assets | $14,329.5 | Total liabilities and equity | $14,329.5 |
Starbucks Corporation Income Statement For Year Ended October 2, 2016 ($ millions) | |
Total revenues | $21,315.9 |
Expenses | 18,497.0 |
Net earnings | $2,818.9 |
Starbucks Corporation Statement of Cash Flows For Year Ended October 2, 2016 ($ millions) | |
Cash flows from operations | $4,575.1 |
Cash flows from investing | (2,222.9) |
Cash flows from financing | (1,753.5) |
Net change in cash | 598.7 |
Cash, beginning year | 1,530.1 |
Cash at end of year | $2,128.8 |
Topic: Constructing Financial Statements
LO: 3
3. In its December 31, 2016 annual report, Mattel, Inc. reports the following items.
($ thousands) | 2016 |
Net cash flows from operating activities | $594,509 |
Net sales | 5,456,650 |
Stockholders’ equity | 2,407,782 |
Net cash flows from financing activities | (305,882) |
Total assets | 6,493,794 |
Cash, ending year | 869,531 |
Expenses | 5,138,628 |
Noncash assets | 5,624,263 |
Net cash flows from investing activities | (311,910) |
Net income | 318,022 |
Cash, beginning year | $892,814 |
a. Prepare the balance sheet for Mattel, Inc. for December 31, 2016.
b. Prepare the income statement for Mattel, Inc. for the year ended December 31, 2016.
c. Prepare the statement of cash flows for Mattel, Inc. for the year ended December 31, 2016.
Mattel, Inc. Balance Sheet December 31, 2016 ($ thousands) | |||
Cash | $869,531 | Total liabilities | $4,086,012 |
Noncash assets | 5,624,263 | Stockholders’ equity | 2,407,782 |
Total assets | $6,493,794 | Total liabilities and equity | $6,493,794 |
Mattel, Inc. Income Statement For Year Ended December 31, 2016 ($ thousands) | |
Net sales | $5,456,650 |
Expenses | 5,138,628 |
Net income | $318,022 |
MATTEL, INC. Statement of Cash Flows For Year Ended December 31, 2016 ($ thousands) | |
Net cash flows from operating activities | $594,509 |
Net cash flows from investing activities | (311,910) |
Net cash flows from financing activities | (305,882) |
Net change in cash | (23,283) |
Cash, beginning year | 892,814 |
Cash at end of year | $869,531 |
Topic: Statement of stockholders’ equity from raw data
LO: 3
4. In its December 31, 2016, annual report, Mattel, Inc. reports the following items:
($ thousands) | 2016 |
Retained earnings, December 31, 2015 | $3,745,815 |
Treasury stock, December 31, 2015 | (2,494,901) |
Treasury stock, December 31, 2016 | (2,246,749) |
Net income for 2016 | 318,022 |
Contributed capital, December 31, 2015 | 2,231,239 |
Dividends during 2016 | 518,478 |
Stock issued during 2016 | 962 |
Prepare the statement of stockholders’ equity for Mattel, Inc. for the year ended December 31, 2016.
Mattel, Inc. Statement of Stockholders’ Equity For Year Ended December 31, 2016 | ||||
Contributed Capital | Retained Earnings | Other Equity | Total | |
December 31, 2015 | $2,231,239 | $3,745,815 | $(2,494,901) | $3,482,153 |
Net income | 318,022 | 318,022 | ||
Stock issuance | 962 | 962 | ||
Dividends | (518,478) | (518,478) | ||
Other (Treasury stock) | __________ | __________ | 68,152 | 68,152 |
December 31, 2016 | $2,232,201 | $3,545,359 | $(2,426,749) | $3,350,811 |
Topic: Balance Sheet Relations
LO: 3
5. Nike, Inc. has a fiscal year-end of May 31. On May 31, 2015, Nike, Inc. reported $21,597 million in assets and $12,707 million in equity. During fiscal 2016, Nike’s assets decreased by $201 million while its equity decreased by $449 million.
What were Nike’s total liabilities at May 31, 2015 and May 31, 2016?
Topic: Calculating ROA
LO: 5
6. Use Southwest Airlines’ 2016 financial statement information, below to answer the following:
a. Calculate Southwest Airlines’ return on assets (ROA) for the year ending December 31, 2016.
b. Disaggregate Southwest Airlines’ ROA into profit margin (PM) and asset turnover (AT). Explain what each ratio measures.
($ millions) | |
Total operating revenues | $20,425 |
Net income | 2,244 |
Total assets, beginning of year | 21,312 |
Total assets, end of year | 23,286 |
Equity, end of year | 8,441 |
Topic: Calculating ROA and ROE
LO: 5
7. Below are several financial statement items for fiscal year 2016 for two grocery chains, Whole Foods Market, an upscale organic grocer, and The Kroger Co. a mainstream grocer. ($ millions)
($ millions) | Whole Foods Market | The Kroger Co. |
Net income | $ 507 | $ 1,957 |
Sales | 15,724 | 115,337 |
Average assets | 6,041 | 35,201 |
Average stockholders’ equity | 3,497 | 6,754 |
a. Calculate each company’s return on assets (ROA) and return on equity (ROE). Comment on any differences you observe.
b. Disaggregate the ROA for each company into profit margin (PM) and asset turnover (AT). Explain why Whole Foods has a higher ROA, is it because of PM or AT or both?
Topic: Competitive Analysis
LO: 4
8. List three of the five competitive forces that confront the company and determine its competitive intensity. Briefly explain each force that you list.
Topic: The Effect of the Sarbanes-Oxley Act
LO: 5
10. Accounting debacles, such as in the case of Enron, brought to light the necessity of accuracy in financial reporting and accountability of management. Describe how the introduction of the Sarbanes-Oxley Act has changed the requirements of financial reporting.
Topic: Costs and Benefits of Disclosure
LO: 1
1. Explain the benefits and costs associated with a company's disclosure of information.
Topic: Demand for Financial Accounting Information
LO: 2
2. List three users of financial accounting information and explain how each might use financial information.
Topic: Balance Sheet Components
LO: 3
3. What are the three broad groups that make up a balance sheet? List and define each.
Topic: Owner vs. Nonowner Financing
LO: 3
4. Businesses rely on financing activities to fund their operating and investments. Explain the difference between owner and nonowner financing, and explain the benefits and risks involved in relying more heavily on each type of financing.
Topic: Usefulness of ROA for Managers
LO: 5
5. Investors and lenders place significant importance on management’s effectiveness in generating a high return on assets (ROA). Explain how ROA is also important for managers’ analysis of its own performance, particularly when ROA is disaggregated.