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Section 1

Question 1:

Walmart and Target have determined the following information for their recent fiscal year. (Comparison / 5 points)

Walmart

Target

Days inventory outstanding

42.7 days

30

Days payable outstanding

56.8 days

110

Days sales outstanding

91.3 days

60

a) Compute the cash conversion cycle for both companies

  • As a financial analyst, give your opinion on which company has better cash conversion cycle, and why.

Answer:

Walmart

Target

Cash conversion cycle

Analysis

Question 2

Use the following selected balance sheet and income statement data for Mattel Inc. (in $ thousands) to compute

a) Return on equity,

b) Profit margin (PM),

c) Asset turnover (AT),

d) Financial leverage (FL) for fiscal 2016.

e) Show that ROE = PM × AT × FL.

f) Evaluate the performance of the company

(in thousands)

2016

2015

Net sales

$5,456,650

$5,702,613

Operating income

519,233

540,922

Interest expense

95,118

85,270

Net income

318,022

369,416

Total assets

6,493,794

6,535,143

Total liabilities

4,086,012

3,901,889

Answer: ( 0.5 points each)

  • Return on equity, ROE

b) Profit margin (PM),

c) Asset turnover (AT),

d) Financial leverage (FL)

e) ROE = PM × AT × FL.

f) Evaluation

Question 3:

In its fiscal 2016 annual report, Dunkin donuts, Inc. reported cash of $4,238 million at year end. The statement of cash flows reports the following (in millions): ( 3 points)

Net cash from operating activities

$3,700

Net cash from investing activities

(1,134)

Net cash from financing activities

(2,376)

What was the balance in Dunkin donuts’ cash account at the start of fiscal 2016?

Section 2:

Question 4:

Selected financial data for NIKE Corporation is presented below.

NIKE Corporation

Balance Sheet

As of December 31, 2017

Dec. 31, 2017

Dec. 31, 2016

Current Assets

Cash and cash equivalents

$576,843

$305,088

Marketable securities

166,106

187,064

Accounts receivable (net)

258,387

289,100

Inventories

424,493

391,135

Prepaid expenses

55,369

25,509

Other current assets

83,053

85,029

Total Current Assets

1,564,251

1,282,925

Property, plant and equipment

1,384,217

625,421

Long-term investment

568,003

425,000

Total Assets

$3,516,471

$2,333,346

Current Liabilities

Short-term borrowings

$306,376

$170,419

Current portion of long-term debt

155,000

168,000

Accounts payable

254,111

286,257

Accrued liabilities

273,658

166,983

Income taxes payable

97,735

178,911

Total Current Liabilities

1,086,880

970,570

Long-term debt

500,000

300,000

Deferred income taxes

215,017

262,404

Total Liabilities

1,801,897

$1,532,974

Common stock

$425,250

$125,000

Additional paid-in capital

356,450

344,335

Retained earnings

932,874

331,037

Total Stockholders’ Equity

1,714,574

800,372

Total Liabilities and Stockholders’ Equity

$3,516,471

$2,333,346

Continued next page

Selected Income Statement Data for the year ending December 31, 2017:

Net sales

$4,885,340

Cost of goods sold

(2,942,353)

Selling expenses

(884,685)

Operating income

1,058,302

Interest expense

(55,240)

Earnings before income taxes

1,003,062

Income tax expense

(401,225)

Net income

$601,837

Selected Statement of Cash Flow Data for the year ending December 31, 2017:

Cash flows from operations

$1,456,084

Capital expenditures

$745,862

Use the information given in the financial statements above to compute the following ratios for the two years with your analysis, ( 9 points )

a) Current ratio

b) Quick ratio

c) Total liabilities to equity ratio

d) Total debt to equity ratio

e) Times interest ratio

f) cash flow from operations to total debt ratio

g) free operating cash flow to total debt ratio

Answer:

2016

(0.5 point )

2017

(0.5 point)

Analysis/comment

( 0.5 point)

Current ratio

Quick ratio

Total liabilities to equity ratio

Total debt to equity ratio

Times interest ratio

14.5

Cash flow from operations to total debt ratio

1.21

free operating cash flow to total debt ratio

0.56

 

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