Business Finance
FIN 534 - Homework

Question Description

Homework Set #1: Chapters 1, 2, & 3

Due Week 2 and worth 100 points

Directions: Answer the following questions on a separate document. Explain how you reached the answer, or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above.

A. In your own words, please identify two different stock exchanges in the United States. Describe the similarities and differences between the two stock exchanges. Identify one stock from each of the two stock exchanges.

B. Using the two stocks you identified, determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow?

C. Using the most recent financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see? Please be articulate.

Click here to view the grading rubric.

Points: 100

Homework Set 1: Chapters 1, 2, and 3

Criteria

Unacceptable Below 70% F

Fair

70-79% C

Proficient

80-89% B

Exemplary

90-100%A

1. In your own words, please identify two different stock exchanges in the United States. Describe the similarities and differences between the two stock exchanges. Identify one stock from each of the two stock exchanges.

Weight: 30%

Did not submit or incompletely identified two stock exchanges in the United States. Did not submit or incompletely described the similarities and differences between the two stock exchanges. Did not submit or incompletely identified one stock from each of the two stock exchanges.

Partially identified two stock exchanges in the United States. Partially described the similarities and differences between the two stock exchanges. Partially identified one stock from each of the two stock exchanges.

Satisfactorily identified two stock exchanges in the United States. Satisfactorily described the similarities and differences between the two stock exchanges. Satisfactorily identified one stock from each of the two stock exchanges.

Thoroughly identified two stock exchanges in the United States. Thoroughly described the similarities and differences between the two stock exchanges. Thoroughly identified one stock from each of the two stock exchanges.

2. Using the two stocks you identified, determine the free cash flow from 2013 and 2014. What inference can you draw from the companies’ free cash flow?

Weight: 30%

Did not submit or incompletely determined the free cash flow from 2013 and 2014. Did not submit or incompletely explained the inferences drawn from the companies' free cash flow.

Partially determined the free cash flow from 2013 and 2014. Partially explained the inferences drawn from the companies' free cash flow

Satisfactorily determined the free cash flow from 2013 and 2014. Satisfactorily explained the inferences drawn from the companies' free cash flow

Thoroughly determined the free cash flow from 2013 and 2014. Thoroughly explained the inferences drawn from the companies' free cash flow.

3. Using the information and formulas from your textbook, please prepare two financial ratios for each stock, using the 2013 and 2014 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see? Please be articulate.

Weight: 30%

Did not submit or incompletely prepared two financial ratios for each stock, using the 2013 and 2014 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. Did not submit or incompletely explained the challenges, strengths, or weaknesses.

Partially prepared two financial ratios for each stock, using the 2013 and 2014 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. Partially explained the challenges, strengths, or weaknesses.

Satisfactorily prepared two financial ratios for each stock, using the 2013 and 2014 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. Satisfactorily explained the challenges, strengths, or weaknesses.

Satisfactorily prepared two financial ratios for each stock, using the 2013 and 2014 financial statements, to include: liquidity ratios, asset management ratios, and profitability ratios. Satisfactorily explained the challenges, strengths, or weaknesses.

4. Clarity, writing mechanics, and formatting requirements.

Weight: 10%

More than 6 errors present

5-6 errors present

3-4 errors present

0-2 errors present


Unformatted Attachment Preview

A 1 2 B Tool Kit C D E F Chapter 3 Analysis of Financial Statements 3 4 5 Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios 6 of other firms and by examining the trends in ratios over time. We can also combine ratios to make the 7 analysis more revealing, one below are exceptionally useful for this type of analysis. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 3-1 Financial Analysis Input Data: 2013 $27.00 50 40% 11.0% $28 $20 Year-end common stock price Year-end shares outstanding (in millions) Tax rate After-tax cost of capital Lease payments Required sinking fund payments 2012 $40.00 50 40% 10.5% $28 $20 Figure 3-1 MicroDrive Inc. Balance Sheets and Income Statements for Years Ending December 31 (Millions of Dollars, Except for Per Share Data) Balance Sheets Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 32 33 34 35 36 37 38 39 40 41 42 43 44 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock (400,000 shares) Common stock (50,000,000 shares) Retained earnings Total common equity Total liabilities and equity 45 46 47 48 49 50 51 52 Net sales Costs of goods sold except depreciation Depreciation Other operating expenses Earnings before interest and taxes (EBIT) Less interest Income Statements 2013 2012 $ 50 500 1,000 1,550 2,000 3,550 $ 200 280 300 780 1,200 1,980 100 500 970 1,470 3,550 $ $ $ $ $ $ $ $ 2013 $ 5,000 3,800 200 500 $ 500 120 $ $ $ $ $ $ 60 40 380 820 1,300 1,700 3,000 190 130 280 600 1,000 1,600 100 500 800 1,300 3,000 2012 $ 4,760 3,560 170 480 $ 550 100 A B 53 Pre-tax earnings 54 Taxes (40%) 55 Net Income before preferred dividends 56 Preferred dividends 57 58 59 60 61 62 63 64 Net Income available to common stockholders C D $ $ $ E 380 152 228 8 $ 220 $ $ F 450 180 270 8 262 Other Data Common dividends Addition to retained earnings Lease payments Bonds' required sinking fund payments Common stock price per share $50 $170 $28 $20 $27 $48 $214 $28 $20 $40 A 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 B C D E F Calculated Data: Operating Performance and Cash Flows 2013 $1,050 $3,050 $300 9.8% ($260) 420 2012 $790 $2,490 $330 13.3% N/A $432 $700 $1,350 $720 $2,000 2013 $4.40 $1.00 $29.40 $8.40 $14.00 ($5.20) 2012 $5.24 $0.96 $26.00 $8.64 $14.40 N/A 2013 2012 Industry Average 2.0 0.7 2.2 0.8 2.2 0.8 2013 2012 Industry Average 1.4 2.5 36.5 4.0 1.6 2.8 29.1 4.5 1.8 3 30 5 2013 2012 Industry Average 41.7% 1.01 52.3% 55.8% 4.2 37.7% 0.87 36.1% 53.3% 5.5 25.0% 0.46 20.0% 45.0% 10.0 4.3 5.1 12.0 2013 2012 Industry Average Net operating working capital (NOWC) Total operating capital Net operating profit after taxes (NOPAT) Return on capital (ROIC) Free cash flow (FCF) Net cash flow (Net income + Depreciation) $ Earnings before interest, taxes, depreciation & amortization (EBITDA) = EBIT + Depreciation & amortization Market capitalization (# shares x price per share) Calculated Data: Per-share Information Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) EDITDA per share Free cash flow per share (FCFPS) 3-2 Liquidity Ratios Liquidity ratios Current Ratio = CA/CL Quick Ratio = (CA - Inventories)/CL 3-3 Asset Management Ratios Asset Management ratios Total Asset Turnover = Sales/TA Fixed Asset Turnover = Sales/Fixed assets Days Sales Outstanding = Accounts receivable/Daily sales Inventory Turnover = COGS/Inventories 3-4 Debt Management Ratios Debt Management ratios Debt Ratio = Debt-to-Assets Ratio = Total debt/TA Debt-to-Equity Ratio = Total debt/Total common equity Market Debt Ratio = Total debt/(Total debt + Market Cap) Liabilities-to-Assets Ratio = TL/TA Times Interest Earned = EBIT/Interest expense EBITDA Coverage Ratio = (EBIT + Depreciation + Lease pmt) 108 (Interest + Principal pmt + Lease pmt) 109 110 3-5 Profitability Ratios 111 112 Profitability ratios 113 114 115 116 117 118 119 120 121 A B C Profit Margin = Net income/Sales Basic Earning Power = EBIT/TA Return on Assets = Net income/TA Return on Equity = Net income/Total common equity D E F 4.4% 14.1% 6.2% 15.0% 5.5% 18.3% 8.7% 20.2% 6.2% 20.2% 11.0% 19.0% 2013 2012 Industry Average 6.1 7.6 10.5 3.2 4.6 6.3 2.8 1.5 4.0 1.8 3-6 Market Value Ratios Market Value ratios Price-to Earnings Ratio = Price/(Net income/# shares) Price-to-Cash Flow Ratio = Price 122 (Net income + Depreciation)/# shares Price-to-EBITDA Ratio = Price 123 (EBIT + Depreciation)/# shares 1.9 124 Market-to-Book Ratio = Price/(Total common equity/#shares) 0.9 125 126 3-7 Trend Analysis, Common Size Analysis, and Percentage Change Analysis 127 128 TREND ANALYSIS Trend analysis allows you to see how a firm's results are changing over time. For instance, a firm's ROE may be slightly below the 129 benchmark, but if it has been steadily rising over the past four years, that should be seen as a good sign. 130 A trend analysis and graph have been constructed on this data regarding MicroDrive's ROE over the past 5 years. (MicroDrive and indusry average data for earlier years has been provided.) 131 132 133 ROE Industry 134 MicroDrive 135 2009 15.0% 14.0% 136 2010 18.0% 15.0% 137 2011 21.0% 18.0% 138 2012 20.2% 17.0% 139 2013 15.0% 19.0% 140 141 Figure 3-2 142 MicroDrive, Inc.: Return on Common Equity 143 144 ROE 145 (%) 146 147 22.0% 148 149 20.0% 150 Industry 18.0% 151 152 16.0% 153 MicroDrive 14.0% 154 155 12.0% A 156 157 158 159 160 161 162 163 164 165 166 167 168 169 B 12.0% C D E 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2009 2010 2011 2012 2013 F A B C D E F 170 COMMON SIZE ANALYSIS 171 In common size income statements, all items for a year are divided by the sales for that year. 172 173 Figure 3-3 MicroDrive Inc.: Common Size Income Statements 174 Industry 175 Composite MicroDrive 176 2013 2013 2012 177 Net sales 100.0% 100.0% 100.0% 178 Costs of goods sold except depreciation 75.5% 76.0% 74.8% 179 Depreciation 3.0% 4.0% 3.6% 180 Other operating expenses 10.0% 10.0% 10.1% 181 Earnings before interest and taxes (EBIT) 11.5% 10.0% 11.6% 182 Less interest 1.2% 2.4% 2.1% 183 Pre-tax earnings 10.4% 7.6% 9.5% 184 Taxes (40%) 4.1% 3.0% 3.8% 185 Net Income before preferred dividends 6.2% 4.6% 5.7% 186 Preferred dividends 0.0% 0.2% 0.2% 187 Net Income available to common stockholders 6.2% 4.4% 5.5% 188 189 190 191 In common sheets, all items for a year are divided by the total assets for that year. 192 193 Figure 3-4 194 MicroDrive Inc.: Common Size Balance Sheets 195 196 197 198 199 200 201 202 203 204 Industry Composite 2013 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 1.8% 0.0% 14.0% 26.3% 42.1% 57.9% 100.0% 1.4% 0.0% 14.1% 28.2% 43.7% 56.3% 100.0% 2.0% 1.3% 12.7% 27.3% 43.3% 56.7% 100.0% 205 206 207 208 209 210 211 212 213 214 215 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock Total common equity Total liabilities and equity 7.0% 0.0% 12.3% 19.3% 25.4% 44.7% 0.0% 55.3% 100.0% 5.6% 7.9% 8.5% 22.0% 33.8% 55.8% 2.8% 41.4% 100.0% 6.3% 4.3% 9.3% 20.0% 33.3% 53.3% 3.3% 43.3% 100.0% 216 217 218 219 PERCENT CHANGE ANALYSIS 220 2013 MicroDrive 2012 A B C D E F 221 In percent change analysis, all items are divided by the that item's value in the beginning, or base, year. 222 223 Figure 3-5 224 MicroDrive Inc.: Income Statement Percent Change Analysis Percent 225 Base year = 2012 Change in 226 2013 227 Net sales 5.0% 228 Costs of goods sold except depreciation 6.7% 229 Depreciation 17.6% 230 Other operating expenses 4.2% 231 Earnings before interest and taxes (EBIT) (9.1%) 232 Less interest 20.0% 233 Pre-tax earnings (15.6%) 234 Taxes (40%) (15.6%) 235 Net Income before preferred dividends (15.6%) 236 Preferred dividends 0.0% 237 Net income available to common stockholders (16.0%) 238 239 240 241 242 MicroDrive, Inc.: Balance Sheet Percent Change Analysis (not in textbook) Percent 243 Base year = 2012 Change in 244 2013 245 Assets 246 Cash and equivalents (16.7%) 247 Short-term investments (100.0%) 248 Accounts receivable 31.6% 249 Inventories 22.0% 250 Total current assets 19.2% 251 Net plant and equipment 17.6% 252 Total assets 18.3% 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 Liabilities and Equity Accounts payable Notes payable Accruals Total current liabilities Long-term bonds Total liabilities Preferred stock (400,000 shares) Common stock (50,000,000 shares) Retained earnings Total common equity Total liabilities and equity 5.3% 115.4% 7.1% 30.0% 20.0% 23.8% 0.0% 0.0% 21.3% 13.1% 18.3% DUPONT ANALYSIS (Section 3-8) MicroDrive 2013 ROE = 15.0% Profit margin x TA turnover x 4.40% 1.41 Equity multiplier 2.415 A B C 271 MicroDrive 2012 20.2% 272 Industry Average 20.3% 273 274 Suppose MicroDrive can improve its total asset turnover ratio. 275 276 Improved TA turover ratio = 1.8 277 278 279 ROE = 19.1% D 5.50% 6.20% E 1.59 1.80 Profit margin x TA turnover x 4.40% 1.80 F 2.308 1.818 Equity multiplier 2.415 G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 H G 53 54 55 56 57 58 59 60 61 62 63 64 H G 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 H G H 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 ance, a firm's ROE may be slightly below the en as a good sign. 129 130 ROE over the past 5 years. (MicroDrive and 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 Tool Kit Chapter 3 Analysis of Financial Statements Financial statements are analyzed by calculating certain key ratios and then comparing them with the ratios of other firms and by examining the trends in ratios over time. We can also combine ratios to make the analysis more revealing, one below are 3-1 Financial Analysis Input Data: 2013 Year-end common stock price $27.00 Year-end shares outstanding (in millions)50 Tax rate 40% After-tax cost of capital 11.0% Lease payments $28 Required sinking fund payments $20 2012 $40.00 50 40% 10.5% $28 $20 Figure 3-1 MicroDrive Inc. Balance Sheets and Income Statements for Years Ending December 31 (Millions of Dollars, Except for Per Share Data) Balance Sheets Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets 2013 2012 $ $ 50 500 1,000 $ 1,550 2,000 $ 3,550 60 40 380 820 $ 1,300 1,700 $ 3,000 Liabilities and Equity Accounts payable $ 200 Notes payable 280 Accruals 300 Total current liabilities $ 780 Long-term bonds 1,200 Total liabilities $ 1,980 Preferred stock (400,000 shares) 100 Common stock (50,000,000 shares) 500 Retained earnings 970 Total common equity $ 1,470 Total liabilities and equity $ 3,550 $ 190 130 280 $ 600 1,000 $ 1,600 100 500 800 $ 1,300 $ 3,000 Income Statements 2013 Net sales $ 5,000 Costs of goods sold except depreciation 3,800 Depreciation 200 Other operating expenses 500 Earnings before interest and taxes $ (EBIT) 500 Less interest 120 Pre-tax earnings $ 380 Taxes (40%) 152 Net Income before preferred dividends $ 228 Preferred dividends 8 2012 $ 4,760 3,560 170 480 $ 550 100 $ 450 180 $ 270 8 Net Income available to common stockholders $ 220 $ 262 Other Data Common dividends $50 Addition to retained earnings $170 Lease payments $28 Bonds' required sinking fund payments $20 Common stock price per share $27 $48 $214 $28 $20 $40 Calculated Data: Operating Performance and Cash Flows 2013 2012 Net operating working capital (NOWC) $1,050 $790 Total operating capital $3,050 $2,490 Net operating profit after taxes (NOPAT) $300 $330 Return on capital (ROIC) 9.8% 13.3% Free cash flow (FCF) ($260) N/A Net cash flow (Net income + Depreciation) $ 420 $432 Earnings before interest, taxes, depreciation & amortization (EBITDA) = EBIT + Depreciation $700 $720 Market capitalization (# shares x price per share) $1,350 $2,000 Calculated Data: Per-share Information 2013 $4.40 $1.00 $29.40 $8.40 $14.00 ($5.20) 2012 $5.24 $0.96 $26.00 $8.64 $14.40 N/A 2013 2012 Industry Average 2.0 0.7 2.2 0.8 2.2 0.8 2013 2012 Industry Average Earnings per share (EPS) Dividends per share (DPS) Book value per share (BVPS) Cash flow per share (CFPS) EDITDA per share Free cash flow per share (FCFPS) 3-2 Liquidity Ratios Liquidity ratios Current Ratio = CA/CL Quick Ratio = (CA 3-3 Asset Management Ratios Asset Management ratios Total Asset Turnover = Sales/TA 1.4 1.6 Fixed Asset Turnover = Sales/Fixed assets 2.5 2.8 Days Sales Outstanding = Accounts receivable/Daily 36.5 29.1 sales Inventory Turnover = COGS/Inventories 4.0 4.5 3-4 Debt Management Ratios 2013 2012 1.8 3 30 5 Industry Average Debt Management ratios Debt Ratio = Debt-to-Assets Ratio = Total 41.7% debt/TA 37.7% 25.0% Debt-to-Equity Ratio = Total debt/Total 1.01 common equity 0.87 0.46 Market Debt Ratio = Total debt/(Total52.3% debt + Market 36.1% Cap) 20.0% Liabilities-to-Assets Ratio = TL/TA 55.8% 53.3% 45.0% Times Interest Earned = EBIT/Interest expense 4.2 5.5 10.0 EBITDA Coverage Ratio = (EBIT + Depreciation + Lease pmt) 4.3 5.1 12.0 2013 2012 Industry Average Profitability ratios Profit Margin = Net income/Sales 4.4% 5.5% Basic Earning Power = EBIT/TA 14.1% 18.3% Return on Assets = Net income/TA 6.2% 8.7% Return on Equity = Net income/Total common 15.0% equity 20.2% 6.2% 20.2% 11.0% 19.0% 3-5 Profitability Ratios 3-6 Market Value Ratios 2012 Industry Average Market Value ratios Price-to Earnings Ratio = Price/(Net income/# 6.1 shares) 7.6 10.5 2013 Price-to-Cash Flow Ratio = Price (Net income + Depreciation)/# 3.2 4.6 6.3 Price-to-EBITDA Ratio = Price (EBIT + Depreciation)/# 1.9 2.8 4.0 Market-to-Book Ratio = Price/(Total common 0.9 equity/#shares) 1.5 1.8 3-7 Trend Analysis, Common Size Analysis, and Percentage Change Analysis TREND ANALYSIS Trend analysis allows you to see how a firm's results are changing over time. For instance, a firm's ROE may be slightly below the benchmark, but if it has been steadily rising over the past four years, that should be seen as a good sign. A trend analysis and graph have been constructed on this data regarding MicroDrive's ROE over the past 5 years. (MicroDrive and indusry average data for earlier years has been provided.) 2009 2010 2011 2012 2013 ROE MicroDrive Industry 15.0% 14.0% 18.0% 15.0% 21.0% 18.0% 20.2% 17.0% 15.0% 19.0% Figure 3-2 MicroDrive, Inc.: Return on Common Equity ROE (%) 22.0% 20.0% Indust ry 18.0% 16.0% Micro Drive 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2009 2010 2011 2012 2013 COMMON SIZE ANALYSIS In common size income statements, all items for a year are divided by the sales for that year. Figure 3-3 MicroDrive Inc.: Common Size Income Statements Industry Composit e MicroDrive 2013 2013 2012 Net sales 100.0% 100.0% 100.0% Costs of goods sold except depreciation 75.5% 76.0% 74.8% Depreciation 3.0% 4.0% 3.6% Other operating expenses 10.0% 10.0% 10.1% Earnings before interest and taxes 11.5% (EBIT) 10.0% 11.6% Less interest 1.2% 2.4% 2.1% Pre-tax earnings 10.4% 7.6% 9.5% Taxes (40%) 4.1% 3.0% 3.8% Net Income before preferred dividends 6.2% 4.6% 5.7% Preferred dividends 0.0% 0.2% 0.2% Net Income available to common stockholders 6.2% 4.4% 5.5% In common sheets, all items for a year are divided by the total assets for that year. Figure 3-4 MicroDrive Inc.: Common Size Balance Sheets Industry Composit e MicroDrive 2013 2013 2012 Assets Cash and equivalents 1.8% 1.4% 2.0% Short-term investments 0.0% 0.0% 1.3% Accounts receivable 14.0% 14.1% 12.7% Inventories 26.3% 28.2% 27.3% Total current assets 42.1% 43.7% 43.3% Net plant and equipment57.9% 56.3% 56.7% Total assets 100.0% 100.0% 100.0% Liabilities and Equity Accounts payable 7.0% Notes payable 0.0% Accruals 12.3% Total current liabilities 19.3% Long-term bonds 25.4% Total liabilities 44.7% Preferred stock 0.0% Total common equity 55.3% Total liabilities and equity 100.0% 5.6% 7.9% 8.5% 22.0% 33.8% 55.8% 2.8% 41.4% 100.0% 6.3% 4.3% 9.3% 20.0% 33.3% 53.3% 3.3% 43.3% 100.0% PERCENT CHANGE ANALYSIS In percent change analysis, all items are divided by the that item's value in the beginning, or base, year. Figure 3-5 MicroDrive Inc.: Income Statement Percent Change Analysis Percent Change in 2013 Net sales 5.0% Costs of goods sold except depreciation 6.7% Depreciation 17.6% Other operating expenses 4.2% Earnings before interest and taxes (9.1%) (EBIT) Less interest 20.0% Pre-tax earnings (15.6%) Base year = 2012 Taxes (40%) (15.6%) Net Income before preferred dividends (15.6%) Preferred dividends 0.0% Net income available to common stockholders (16.0%) MicroDrive, Inc.: Balance Sheet Percent Change Analysis (not in textbook) Percent Change in 2013 Base year = 2012 Assets Cash and equivalents Short-term investments Accounts receivable Inventories Total current assets Net plant and equipment Total assets (16.7%) ####### 31.6% 22.0% 19.2% 17.6% 18.3% Liabilities and Equity Accounts payable 5.3% Notes payable 115.4% Accruals 7.1% Total current liabilities 30.0% Long-term bonds 20.0% Total liabilities 23.8% Preferred stock (400,000 shares) 0.0% Common stock (50,000,000 shares) 0.0% Retained earnings 21.3% Total common equity 13.1% Total liabilities and equity 18.3% DUPONT ANALYSIS (Section 3-8) MicroDrive MicroDrive Industry Average 2013 2012 Profit ROE = margin x 15.0% 4.40% 20.2% 5.50% 20.3% 6.20% TA turnover Equity x multiplier 1.41 2.415 1.59 2.308 1.80 1.818 Suppose MicroDrive can improve its total asset turnover ratio. Improved TA turover ratio = 1.8 Profit ROE = margin x 19.1% 4.40% TA turnover Equity x multiplier 1.80 2.415 ...
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