Annual Report Workbook-Getting Under the hood os an Annual Report of SYSCO Corporation

SYSCO Corporation

Annual Report Workbook

Getting under the hood of an Annual Report

http://www.trunity.com/default/assets/Image/book_cover-bittar_under_hood.jpg

and knowing what’s inside

by Donald Bittar

Introduction

You can use this workbook for analyzing many companies and saving your analysis for each one, like many professionals. Just like them, over time, you can compare a company’s actual performance to your analysis and predictions. Saving your analysis sheets can help sharpen you analytical skills.

The questions in the workbook are numbered the same way as they are in the book, ‘Getting Under the Hood of an Annual Report’. As there are no questions in the first chapter of the book, the workbook starts with Chapter 2. It will make it easier for you to relate the questions in the workbook to those in the book.

Your input to the workbook will appear in a dark green font while the questions appear in blue. The different font colors can make it easier for you to see your work.

You’ll need to do some number crunching to complete your annual report analysis. The Big Calculating Tool, located on your CD, can save you a great deal of time and make the number crunching nearly painless. Every ratio and calculation for the book is included in the Big Calculating Tool. You’ll have more time for analysis if you use the Big Calculating Tool.

Table of Contents

Questions for Chapter 2 4

Question 2.0 – What do you want to learn about company and why? 4

Question 2.1 – Fundamental Information Set For Your Company 4

Question 2.2 – The Marketplace Context 5

Question 2.3 – Challenges and Success for Your Company 6

Questions for Chapter 3 8

Question 3.1 – What is Management saying about your company? 8

Question 3.2 – What did the Chairman say? 9

Question 3.3 – Internal Controls and Auditors 10

Questions for Chapter 4 11

Question 4.0 – What is your company’s fiscal year 11

Question 4.1 – Current Assets 11

Question 4.2 – Property, Plant and Equipment 11

Question 4.3 – How good is the Goodwill 12

Question 4.4 – Current Liabilities 13

Question 4.5 – How much stock is there and who owns it? 13

Question 4.6 – Who owns the stock? 13

Question 4.7 – First look at the company’s strength 14

Question 4.8 – Significant changes in the balance sheet 15

Question 4.9 – Significant changes in the cash account 15

Question 4.10 – Debt to equity and the competition 15

Question 4.11 – ‘Income statement’. What’s in a name? 16

Question 4.12 – How does your company report the core business? 16

Question 4.13 – How does your company describe its business income? 17

Question 4.14 – Irregular items. Good or Bad? 17

Question 4.15 – The big questions. Are they makin’ money? Are they lookin’ good? 18

Question 4.16 – Which trend is important and why? 19

Question 4.17 – How strong is your company’s cash position? 19

Question 4.18 – How well can your company pay its bills? 20

Question 4.19 – How leveraged is your company? 21

Question 4.20 – How well does your company invest in its future? 22

Question 4.21 – Capital and Treasury Stock 22

Question 4.21 –Basic information about your company not found on the financial statement? 23

Question 4.22 –Other significant information about your company not found on the financial statement? 23

Questions for Chapter 5 25

Question 5.1 – Working Capital Balance 25

Question 5.2 – Acid Test or Quick Ratio 25

Question 5.3 – Current Ratio 26

Question 5.4 – Cash Ratio 27

Question 5.5 – Return on Sales Ratio 28

Question 5.6 – Return on Equity Ratio 28

Question 5.7 – Return on Assets Ratio 29

Question 5.8 – Asset Turn Ratio 30

Question 5.9 – Gross Profit Margin Ratio 30

Question 5.10 – Inventory Turnover Ratio 31

Question 5.11 – Days in Inventory Ratio 32

Question 5.12 – Accounts Receivable Turnover Ratio 33

Question 5.13 – Average Collection Period 33

Question 5.14 – Accounts Payable Turnover Ratio 34

Question 5.15 – Net Working Capital Turnover Ratio 35

Question 5.16 – Debt to Equity Ratio 36

Question 5.17 – Debt to Asset Ratio 37

Question 5.18 – Gearing Ratio or Long Term Debt to Shareholders’ Equity Ratio 37

Question 5.19 – Interest Coverage Ratio or Debt Service Ratio 38

Question 5.20 –Earnings per Share 39

Question 5.21 – Price/Earnings Ratio 40

Question 5.22 –Dividend per Share 40

Question 5.23 – Dividend Payout Ratio 41

Questions for Chapter 6 43

Question 6.0 – Calculate the Altman Z-Score 43

Question 6.1 – What did you learn about your company 43

Question 6.2 – Would you buy, sell, hold or stay away 43

Questions for Chapter 2

Question 2.0 – What do you want to learn about company and why?

2.0 – What You Want To Learn About the Company and Why?
Priority What do you want to learn? Why do you want to learn it?
A Company performance: Is this company profitable compare with competitors? Based on analyzing the financial statements for SYSCO corporation with this competitors, I could understand how SYSCO makes maximum profits and operates effectively.
B Company’s financial strategy. To understand the company’s the key components of its financial strategies in the current financial situation and in the past years.
C Company’s sales trends. To know how its sales department make the better decisions by analyzing its ability to find growth opportunities and sales trends before their competitors do.
D Company’s strength for balance sheet.

Question 2.1 – Fundamental Information Set For Your Company

The answer to the following questions may be found in either the Annual Report to Stockholders or on the SEC Form 10-K. It may also be necessary for you to use other sources. To fully answer the questions, you must identify the source for your information and also include the answer. If the question is not applicable to your company, place “NA” as the answer. To identify the source use “AR” for Annual Report to Stockholders and “10K” for the SEC Form 10-K. If something else, use “Other” and include the identification at the end of your answer.

2.1 – Fundamental Information Set For Your Company
Question Source Answer
A What is the official company name? 10k SYSCO CORPORATION
B What is Company headquarters address? 10k 1390 Enclave Parkway Houston, Texas
C What is the Executive Office telephone number? 10k (281) 584-1390
D What is the Investor Relations telephone number? Other (281) 584-2615

http://investors.sysco.com/shareholder-services/investor-contacts

E What is the official company website? Other http://www.sysco.com
F What is the fiscal year ending date? 10k July 1.2017
G State of incorporation 10k Texas
H What government agency, other than the SEC, has a significant impact on your Company? Other Food and Agriculture Organization of the United Nations.

http://www.fao.org/home/en/

I What is the trading symbol for your Company’s common stock? Other SYY

http://investors.sysco.com/stock-information

J Which stock exchange lists the common stock for your Company? 10k New York Stock Exchange
K What is the name of the stock transfer agent for your Company? Other American Stock Transfer & Trust Company, LLC

http://investors.sysco.com/shareholder-services/investor-contacts

L What is the Par Value for the common shares of your Company? 10k Common Stock, $1.00 Par Value
M What is the number of common shares outstanding? 10k 765,174,900
N In the past 3 years what is the highest trading price for the common stock for your company. Other $56.36 Dec 12,16

https://finance.yahoo.com/quote/SYY?ltr=1

O In the past 3 years what is the lowest trading price for the common stock for your company? Other $36.10 Jun 1, 15

https://finance.yahoo.com/quote/SYY?ltr=1

P How many members are on the Board of Directors? Other 15

http://investors.sysco.com/corporate-governance/board-of-directors-and-committee-composition

Q How many Board Members are present or past employees of the Company? Other 2

http://investors.sysco.com/corporate-governance/board-of-directors-and-committee-composition

R How many are Board Members are from outside your Company? Other 13

http://investors.sysco.com/corporate-governance/board-of-directors-and-committee-composition

S Which companies or institutions do the outside Board Members represent? Other Audit Committee, Corporate Governance and Nominating Committee, Executive Committee

http://investors.sysco.com/corporate-governance/board-of-directors-and-committee-composition

T How many subsidiaries are directly or indirectly controlled by your Company? Other 79 (eg. The SYGMA Network, Inc.)

http://government-contractors.insidegov.com/d/g/Sysco-Corporation

U How many subsidiaries have jurisdictions outside the United States?

Question 2.2 – The Marketplace Context

If analyzing a company’s performance were only about the numbers, predicting the performance of a company would be easy. Performance, success and failure are outcomes that are affected by the marketplace. Your company does not exist inside a vacuum. It lives alongside other companies actively struggling to protect existing customer relationships and working to create new customers. Often companies will compete for the same customers. For some companies the competitors are easily identifiable. Your company’s SIC code can help you identify its competitors. They will have the same SIC code. Other companies compete indirectly with alternative products or technologies making it difficult to identify competitors. Consider FedEx with both direct and indirect competitors.

The answer to the following questions may be found in either the Annual Report to Stockholders or on the SEC Form 10-K. It may also be necessary for you to use other sources. To fully answer the questions, you must identify the source for your information and also include the answer. If the question is not applicable to your company, place “NA” as the answer. To identify the source use “AR” for Annual Report to Stockholders and “10K” for the SEC Form 10-K. If something else, use “Other” and include the identification at the end of your answer.

2.2 – The Marketplace Context
Question Source Answer
A What is the Standard Industrial Classification and the SIC Code for your company? List all that may apply? Other 5142 – Packaged Frozen Foods.

https://siccode.com/en/business/sysco-corporation

B What is the company’s primary product, product group or business segment? Other Selling, marketing and distributing food products to restaurants, health care and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes equipment and supplies for the food service and hospitality industries.

http://www.sysco.com/about-sysco.html

C Is there a single customer that accounts for more than 10% of total net sales? N/A NO
D What is the major customer profile for your company? Food service industry
E Is there a competitor larger than your Company?
F Which company is the most significant competitor for your Company? Other US Foods Holding Corp.

http://www.hoovers.com/company-information/cs/competition.sysco_corporation.

G What is the country of origin for this competitor? Other US Foods Holding Corp.Rosemont, Illinois, United States

Meadowbrook Meat Company, Inc.

H During the past 2 years, has your Company launched a significant new product or service? If yes, what is the product or service? Other Yes. SYSCO will introduce seven products this month, that include cheesecakes, juice concentrates, organic chicken and shrimp amongst others.

https://www.msn.com

I During the past 2 years, has your company entered a new market? If yes, what is the market and where is located? Other On July 5, 2016, acquired the biggest food distribution company Brakes Group in the United Kingdom to provide a good “geographic platform” to grow internationally.

http://www.houstonchronicle.com

J During the past 2 years, has your Company launched a new technology? If yes, what is it? No.
K What are the technological issues for your Company? How are they described? No.

Question 2.3 – Challenges and Success for Your Company

Review the Annual Report for Stockholders and the Form 10-K for your company. Using the above list of Marketplace Issues, identify the marketplace issues affecting your company. Your company is large enough to be newsworthy. Most likely, the issue you identified in the Annual Report for Stockholders or the Form 10-K might be reported elsewhere. With research apart from the Annual Report for Stockholders and the Form 10-K you may be able to find additional information about the issue. There are several print media research sources available in the library:

1. Wall Street Journal

2. New York Times

3. Barron’s

4. Moody’s Complete Corporate Index

5. Standard and Poor’s Industry Guide

The Internet makes a vast universe of material available to you. It is fast and convenient. The chances are remote that you will not be able to discover sufficient information to satisfy your needs. Use your favorite search tool and start digging.

Your company is a good place to start. Their website may have relevant press releases about the issue. Some of the officers may have made speeches or written articles about it.

Describe the significant marketplace issues identified in the Annual Report for Stockholders and the Form 10-K for your company. For each issue:

1. Include the marketplace category.

2. The description of the issue as it appeared in the Annual Report for Stockholders and the Form 10-K for your company.

3. Your interpretation of its significance to the company, what the importance is to the company and if management is capable of creating a positive outcome.

2.3 – Challenges and Success for Your Company
Marketplace Issue Description of the Issue Significance
A Corner the market A federal judge has halted a proposed merger between Sysco and US Foods. The merger between the country’s two largest food distribution companies might lead to higher prices.
B Economic conditions North America and Europe have each experienced an uneven economic environment over the past several years. Impact their customers and sales.
C Market risks Consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk Income statement trends may be impacted by the translation of the income statements of their foreign subsidiaries into U.S. dollars.

Increased fuel costs may have a negative impact on their results of operations.

Qualified pension plans (U.S. Retirement Plan and U.K. Retirement Plan) hold various investments,

D The modest level of growth in the foodservice market.  Has created additional competitive pricing pressures, Impact their profitability.

Questions for Chapter 3

Question 3.1 – What is Management saying about your company?

When reading the Management’s Discussion and Analysis of Operations and Financial Condition (MD&A) asking each of the following questions will help to identify a significant fact that will help you understand your annual report. Pick an item reported in the MD&A which you believe to be significant and ask yourself:

· What is it?

· When did it occur?

· Where did the action take place?

· Who was involved?

· Why did this happen?

· How did it happen

Answer as much of the five Ws and one H as you can from the annual report. Next, use the internet and other printed media sources to get additional information about the item. From the combined sources you should be able gather a reasonably complete assessment of the item.

Identify the source of your outside material.

Use the following template to complete your answers.

3.1.1 – What is Management saying about your company?
Copy the item from the MD&A and paste it below.
A. Business Transformation: In fiscal 2015, we completed the three-year financial objectives of our Business Transformation. These financial objectives were largely designed to lower our product cost and lower our operating cost structure.

B. Acquisition-related items:  Fiscal 2015 Acquisitions: Mayca Distribuidores, Pacific Star Foodservice, Tannis Foodservice.

C. US Foods Merger Termination: termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods) and (iii) financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merge.

D. Multiemployer pension (MEPP) withdrawal charges.

3.1.2 Five Ws and One H Form 10-K MD&A Outside Source Material
Acquired operations Paste information from the 10K in this column. Paste information from outside sources in this column. Include the source link.
A In your own words describe the item? Acquiring item is mainly focused on optimizing core broadline business in the U.S., Bahamas, Canada, Costa Rica, Ireland and Mexico, which would be able to explore appropriate opportunities, to profitably grow SYSCO’s market share, and create shareholder value by expanding beyond core business. According to a new report, this month Sysco has acquired a 50 percent stake in Mexico-based distributor Pacific Star Foodservice to pursue even further growth overseas.

Source: http://www.fdfworld.com/production/sysco-acquires-50-percent-stake-mexican-distributor-pacific-star-foodservice

Foodservice distributor Sysco Corp. (NYSE:SYY), Houston, TX,  has reached an agreement to purchase 50 percent of the Costa Rican food distributor Mayca Distribuidores S.A and Mayca’s three other affiliates for an undisclosed price.

Top food distributor Sysco acquires half of Costa Rican group Mayca

Sysco Canada Announces Purchase of Ontario-Based Distributor.

https://globenewswire.com/news-release/2015/04/27/728838/10130884/en/Sysco-Canada-Announces-Purchase-of-Ontario-Based-Distributor.html

B When did it occur? In the first quarter of fiscal 2015, acquired Mayca Distribuidores

In the fourth quarter of fiscal 2015, acquired Pacific Star Foodservice

In the fourth quarter of fiscal 2015, acquired Tannis Foodservice

Same sources as A.
C Where did the action take place? Costa Rica. Mexico City.Ottawa, Canada. Same sources as A.
D Who was involved?
E Why did this happen? To explore appropriate opportunities, to profitably grow SYSCO’s market share, and to create shareholder value by expanding beyond core business.
F How did it happen?
G In your opinion, what do you believe is the importance of this item to your company? How will it impact the company? Acquiring large food distribution outside the U.S significantly strengthens Sysco’s position as the global leader in selling,marketing and distributing food products and offers attractive opportunities for organic growth and future expansion in overseas markets.

Question 3.2 – What did the Chairman say?

Read the Chairman’s Message in the Annual Report to Stockholders for your company. You might also find the Chairman’s message in the company’s annual proxy statement. Identify the issues and events outlined in the Message. Highlighting the text of the issues and events can help assess their significance and prioritize them.

3.2.1 – What did the Chairman say?
A In your opinion, what is the most significant issue in the Message?
B Quote the Chairman’s description of the issue?
C What is the significance of the issue for the company?
D Did the Message include a solution for the issue? If yes, what was it?
E Did the solution instill confidence in you?
F If yes, why? If no, why?

The Chairman’s Message is read by a wide and diverse constituency. Select a group of constituents excluding stockholders, investors and financial analyst. Write your opinion of how you believe they will react to the Chairman’s message. Select one from the following constituents.

Creditors Regulatory agencies Competitors
Employees Local and state governments Suppliers
Salespeople Foreign governments Vendors
Franchisees Environmental activists Distributors
Unions Consumer advocates Customers
Human rights advocates Press and media
Regulatory agencies

3.2.2 – What did the Chairman say?
A Constituent’s name
B With respect to the company, is the constituency supportive, neutral or adversarial?
C What issue in the Chairman’s message will cause the greatest reaction?
D How do you believe the constituency will react to the issue?
E Why do you believe they will react that way?
F Will their reaction create a positive or negative impact on the Company? What will be the impact and why?

Question 3.3 – Internal Controls and Auditors

Information about the company’s compliance with SOX can be found in SEC Form 10-K. The section called Controls and Procedures includes information about how the company is complying with the SOX reporting requirements. Generally preceding the section on Controls and Procedures is the Report of Independent Registered Public Accounting Firm. It will also contain information about internal controls and auditors. Review these sections of your company’s SEC Form 10-K and answer the following questions.

3.3 – Internal Controls and Auditors
A Who in your company is responsible for the internal disclosure controls and procedures? The Committee of Sponsoring Organizations of the Treadway Commission
B Who are members of the Audit Committee? Daniel J. Brutto, John M. Cassaday, Judith B. Craven, Joshua D. Frank, Larry C. Glasscock, Bradley M. Halverson, Hans-Joachim Koerber Ph.D., Nancy S. Newcomb, Nelson Peltz, Edward D. Shirley, Richard G. Tilghman, Jackie M. Ward, William J. DeLaney, Jonathan Golden
C What is the name of the independent auditor for your company? Ernst & Young
D What was the auditor’s opinion of the consolidated financial statement?
E What was the auditor’s opinion of the internal disclosure controls and procedures?

Questions for Chapter 4

Question 4.0 – What is your company’s fiscal year

4.0 – What is your company’s fiscal year?
A When does your company’s fiscal year end? June 27, 2015
B In your opinion, why did your company select this date to end its fiscal year?

C Do competitors use the same fiscal year as your company?

Question 4.1 – Current Assets

Some companies have current assets other than Cash, Short Term Investments, Accounts Receivables and Inventories. Locate the Current Asset section of the Balance Sheet for your company and review the current asset categories.

What categories of current assets, other than Cash, Short Term Investments, Accounts Receivables and Inventories are reported by your company? What is their significance to the company? Mark your answer “NA” if your company does not report current asset categories other than Cash, Short Term Investments, Accounts Receivables and Inventories.

4.1 – Current Assets
Current Asset Category Significance
A
B
C
D

Question 4.2 – Property, Plant and Equipment

Some companies have categories for Property, Plant and Equipment other than land, buildings, factories, furniture and equipment. What categories of Property Plant and Equipment other than land, buildings, factories, furniture and equipment are reported by your company? What is it their significance to the company? Mark your answer “NA” if your company does not report categories of Property Plant and Equipment other than land, buildings, factories, furniture and equipment.

4.2 – Property, Plant and Equipment?
Property Plant and Equipment Category Significance
A
B
C
D

Question 4.3 – How good is the Goodwill

Goodwill is a balance sheet item reported by many companies. The details of the Goodwill are generally described in the Notes to the Financial Statement. Goodwill should reflect the strategic future value of an acquisition. Mark your answer “NA” if your company does not report Goodwill.

4.3 – How good is the Goodwill?
A Does your company report Goodwill?
B What is the value of the Goodwill?
C What is the ratio of Goodwill to Total Assets (Goodwill Total Assets)?
D In your opinion why is the ratio of Goodwill to Total Assets significant or insignificant?
E What was the source of the Goodwill?
F In your opinion why was the acquisition justified or not justified?

Question 4.4 – Current Liabilities

Some companies have current liabilities other than Accounts Payable, Accrued Salaries and Wages and Accrued Income Tax. Locate the Current Liabilities section of the Balance Sheet for your company and review the current liability categories.

What categories of current liabilities other than Accounts Payable, Accrued Salaries and Wages and Accrued Income Tax are reported by your company? What is it their significance to the company? Mark your answer “NA” if your company does not report current liability categories other than Accounts Payable, Accrued Salaries and Wages and Accrued Income Tax.

4.4 – Current Liabilities
Current Liability Category Significance
A
B
C
D

Question 4.5 – How much stock is there and who owns it?

The equity structure is a significant aspect of a public company. It can have a dramatic impact on stock price movement and appreciation. Review the SEC Form 10-K and Annual Report to Stockholders and answer the following questions.

4.5 – How much stock is there and who owns it?
A What is the par value of the common stock?
B What is the number of shares outstanding?
C What is the current listed market price for the common stock?
D What is the number of common shares authorized?
E What is the number of treasury shares?

Question 4.6 – Who owns the stock?

Knowing who owns large blocks of stock can be useful information when assessing the investment value of a company. The percent ownership of a company will determine the amount of control a shareholder has over the company. In a democratic election, each citizen has only one vote. In a corporate election, each shareholder gets one vote for each share of stock the shareholder owns. A shareholder with 1million share gets 1million votes while a shareholder with 10 shares gets only 10 votes. In a company with 3million shares outstanding, the shareholder with 1million shares has much more influence and power than the shareholder with 10 shares.

Proxy Statement

The company’s annual proxy statement will disclose the number of shares owned by the each member of the Board of Directors. It will also identify all shareholders who own 5% or more of the common stock and voting stock of the company. The annual proxy statement must be filed with the Securities Exchange Commission using Form DEF 14a, the definitive annual proxy statement.

4.6 – Who owns the stock?
A How many shares are held by Officers and Directors? What does this tell you?
B Who is the largest stockholder? What does this tell you about the company?
C What other classes of stock are outstanding?

Question 4.7 – First look at the company’s strength

The balance sheet is a snapshot of the company financial strength. Endurance and strength are important when attempting to assess an athlete’s ability and it is the same for a public company. The first place to look for a company’s endurance and strength are the current and previous year balance sheets.

Calculate the percent increase or decrease in each of the following balance sheet accounts. Place the percentage in parenthesis if it is negative.

4.7 – First look at the company’s strength
Current Year Previous Year Percent Change
A Cash and cash equivalents
B Accounts Receivable
C Inventory
D Property, plant & equipment
E Accounts Payable
F Accrued Salaries
G Accrued Income Tax
H Long term debt
I Common Stock
J Treasury Stock
K Retained Earnings

Question 4.8 – Significant changes in the balance sheet

In your opinion, what were the two most significant changes in the company’s balance sheet between the current year and the previous year? What were the two balance sheet accounts? Why do you believe they are significant?

4.8 – Significant changes in the balance sheet
Balance Sheet Account Why the change was significant?
A
B

Question 4.9 – Significant changes in the cash account

Cash is an important part of a business. Some people say, “Cash is king.” Describe the change in the Cash and Cash Equivalent account between the current year and the previous year. In your opinion why was it or was it not significant?

4.9 – Significant changes in the cash account
Change in the account Why the change was significant?

Question 4.10 – Debt to equity and the competition

The debt load for a company may or may not be a burden. It can become a competitive detriment when the debt service it too large or when the company’s ability to borrow is too retrained. It could also create vulnerability if the company’s chief competitor has the borrowing strength to “buy market share.” What is the current ratio of total debt to total stockholder’s equity for your company’s most significant competitor? What is the current ratio of total debt to total stockholder’s equity for your company? Has the ratio changed between the current year and the previous year for your company? Why or why not was the change in the ratio significant?

4.10 – Debt to equity and the competition

A What is the current ratio of total debt to total stockholder’s equity for your company’s most significant competitor?
B What is the current ratio of total debt to total stockholder’s equity for your company?
C Has the ratio changed between the current year and the previous year for your company?
D Why or why not was the change in the ratio significant?

Question 4.11 – ‘Income statement’. What’s in a name?

The income statement is a report of the company’s revenue and expenses. Companies have been using the report for almost a hundred years. Over the years, accountants have adopted different names for the income statement. What name does your company use for the income statement? In your opinion why do they use it instead of ‘income statement’?

4.11 – ‘Income statement’. What’s in a name?
A What name does your company use for the ‘income statement’?
B In your opinion, why do they use it?

Question 4.12 – How does your company report the core business?

Often, a company will use terms closely related to their core business when describing the line items in the operational section of the income statement. Some standard descriptions for the line items in the operational section of the income statement are:

· net sales

· cost of goods sold

· gross profit

· general administrative expense

· operating income

How does your company describe the items in its operating section of the income statement? Does the company use descriptions other than net sales, cost of goods sold, gross profit, general administrative expense and operating income? Why do you believe they use them? What does it tell you about the core business for the company? Mark your answer “NA” if your company did not unique operating section descriptions.

4.12 – How does your company report the core business?
Item descriptions In your opinion, why is it used?
A
B
C
D
E
F What does it tell you about the core business for the company?

Question 4.13 – How does your company describe its business income?

The way a company reports its income can help to better understand how the company prioritizes its revenue streams and how it perceives its core business. Does your company report revenues by business segment? What segments are individually identified? In your opinion, does the most significant business appear first? What is the most significant business segment and why? Mark your answer “NA” if your company did not report revenue by business segment.

4.13 – How does your company describe its business income?
Revenue segment descriptions Identify the most significant segment and explain why it is the most significant.
A
B
C
D
E

Question 4.14 – Irregular items. Good or Bad?

While the term “irregular” is not intended as a value judgment, these items can have a positive or negative impact on the company. Review the income statement. Select the one irregular item on the income statement or in the notes section you believe is the most significant. Mark your answer “NA” if your company did not report an irregular item.

4.14 – Irregular items. Good or Bad?
A How many irregular items were reported individually on the income statement?
B Describe the irregular item you believe is most significant? Use the description as it appears on the income statement or in the notes.
C What was the dollar value of the item?
D Was the item reported individually as a separate line item on the income statement or in the notes section? In your opinion, why was it reported in the notes or as a line item?
E Did the item have a positive, negative or neutral impact on the company?
F In your opinion, why does the item have a positive, negative or neutral impact on the company?
G In your opinion, will the impact be short term, ongoing or long term. Why?

Question 4.15 – The big questions. Are they makin’ money? Are they lookin’ good?

The answer to Benny’s question “Are they makin’ money?” cannot always be answered with a “yes” or a “no”. Whether your company is “lookin’ good” may be difficult to answered with a “yes” or a “no”. Understanding the income and expense trends will generally reveal enough information to answer “the big questions”. Review the three year period reported in your company’s income statement. Describe the trend for each of the major accounts on your company’s income statement. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant? Your company may have different account descriptions and additional significant accounts. Modify the accounts to fit your company’s income statement. Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year.

Question 4.15 – The big questions. Are they makin’ money? Are they lookin’ good?
Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net Sales
B Cost of Goods Sold
C Gross Profit
D Operating Expense
E Operating Income (loss)
F Non-operating income (loss)
G Income Tax
H Net Income
I
J
K
L
M

Question 4.16 – Which trend is important and why?

The account with largest declining or increasing trend is not always the most significant trend on a company’s income statement. Of the trends you identified in the previous question, which account, in your opinion, has the most significant trend for your company? Why do you believe it to be the most significant? Trends generally do not remain constant forever. What might reverse the significant trend and how might the reversal affect your company?

4.16 – Which trend is important and why?
A What account has the most significant trend for your company?
B Why do you believe it is the most significant trend?
C What might reverse this trend and how would the reversal impact the company?

Question 4.17 – How strong is your company’s cash position?

Enter the amounts for each cash flow account from your company’s Statement of Cash Flow.

Review the three year period reported in your company’s Statement of Cash Flow. Describe the trend for each of the major accounts. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant? Your company may have different account descriptions and additional significant accounts. Modify the accounts to fit your company’s Statement of Cash Flow. Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year.

Question 4.17 – How strong is your company’s cash position?
Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net cash from operating activity
B Net cash from investing activity
C Net cash from financing activity
D Net increase (decrease) in cash and cash equivalents
E Cash and cash equivalents at beginning of year
F Cash and cash equivalents at end of year

Question 4.18 – How well can your company pay its bills?

Enter the amounts, for all three periods, for the Net Cash from Operating Activity account from your company’s Statement of Cash Flow. Enter the amounts, for all three periods, for the Current Liabilities from your company’s Balance Sheet. For each period, calculate the Operating Cash Flow Ratio using the following formula.

Net Cash from Operating Activity ÷ Current Liabilities

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend for each of the major accounts. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Question 4.18 – How well can your company pay its bills

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net cash from operating activity
B Current Liabilities
C Operating Cash Flow Ratio

The operating cash flow ratio can gauge a company’s liquidity in the short term. Using cash flow as opposed to income is sometimes a better indication of liquidity simply because, as we know, cash is how bills are normally paid off. If the operating cash flow ratio is less than one, it means that the company has generated less cash over the year than it needs to pay off short term liabilities as at the year end. This may signal a need to raise money to meet liabilities.

Question 4.19 – How leveraged is your company?

Enter the amounts, for all three periods, for the Net Cash from Operating Activity account from your company’s Statement of Cash Flow. Enter the amounts, for all three periods, for the Interest Expense from your company’s Income Statement. For each period, calculate the Cash Interest Coverage Ratio using the following formula.

Net Cash from Operating Activity ÷ Income Expense

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend for each of the major accounts. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Question 4.19 – How leveraged is your company?

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net cash from operating activity
B Interest Expense
C Cash Interest Coverage Ratio

The Cash Interest Coverage Ratio is an indicator of how well your company will be able to make the interest payments on its entire debt load. A highly leveraged company will have a low ratio, and a company with a strong financial position will have a high ratio. Any company with a cash interest ratio less than 1.0 is in risk of potential default. The company must raise cash outside its core business to make its current interest payments. A ratio of 1.5 is generally considered the bare minimum level of comfort for any company in any industry.

Interest coverage is the equivalent of a person taking the combined interest expense from their mortgage, credit cards, automobile loans and education loans and calculating the number of times they can pay it with their annual pre-tax income. For bondholders, the Cash Interest Coverage Ratio might act as a safety gauge. It might give the bondholder a sense of how far a company’s earnings can fall before the company will start defaulting on its bond payments. For stockholders, the Cash Interest Coverage Ratio is important because it gives a clear picture of the short-term financial health of a business.

Question 4.20 – How well does your company invest in its future?

Enter the amounts, for all three periods, for the Retained Earnings per share and the Stockholders’ Equity per share from your company’s Statement of Stockholders’ Equity. For each period, calculate the Retained Earnings Ratio using the following formula.

Retained Earnings Per Share ÷ Stockholders’ Equity per share

Enter the amounts in dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend for each of the major accounts. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Dividends paid to stockholders from earnings cannot be used to help the company grow. One way for the company to grow is to invest the earnings in the core business for the company. Generally, companies will retain their earnings to invest in growth opportunities, such as buying new equipment, investing in research and development or acquisitions.

Last, explain why your company is or is not investing adequately in its future.

Question 4.20 – How well does your company invest in its future?

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Retained Earnings per share
B Stockholders’ Equity per share
C Retained Earnings Ratio
D Is your company investing adequately in its future and why?

Question 4.21 – Capital and Treasury Stock

Enter the amounts, for all three periods, for number of shares outstanding for common stock and preferred stock outstanding and treasury stock. List the addition ‘classes’ of capital stock which you company may have. Enter the amounts in millions of shares from the SEC Form 10K, for the current year, the previous year and the next previous year. Enter “NA” if your company has no preferred stock or treasury stock. Describe the trend for each of the major accounts. Describe the trend direction. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Question 4.21 – Capital and Treasury Stock

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Common stock
B Preferred stock
C Treasury stock
D
E
F

Question 4.21 –Basic information about your company not found on the financial statement?

How is information about the following items disclosed by your company in the Notes to the Financial Statement? Generally, this information can be found in Note 1. The titles may not be identical to the title in the question. Enter “NA” if your company has no notes for a question.

Question 4.21 –Basic information about your company not found on the financial statement?
A Description of Business
B Consolidation
C Foreign Currency
D Cash and Cash Equivalents
E Inventories

Question 4.22 –Other significant information about your company not found on the financial statement?

How is information about the following items disclosed by your company in the Notes to the Financial Statement? The titles may not be identical to the title in the question. Enter the information disclosed about each of the items in the Notes for your company. Additionally, enter the note number in which the information was disclosed. Last, explain why you believe this disclosure is or is not significant. Enter “NA” if your company has no notes for a question.

Question 4.22 –Other information about your company not found on the financial statement?
Accounts Note # Disclosure Importance
A Discontinued Operations
B Related Parties
C Contingencies

Questions for Chapter 5

Question 5.1 – Working Capital Balance

The working capital balance compares current assets to current liabilities. It can also demonstrate the amount of liquid reserve the company has available to handle contingencies. A high working capital balance is necessary if your company might have difficulty borrowing on short notice. A low working capital balance might mean your company may have difficulty meeting its short-term obligations.

Enter the amounts, for all three periods, for the Current Assets and the Current Liabilities from your company’s Balance Sheet. For each period, calculate the Working Capital Balance using the following formula.

Current Assets – Current Liabilities

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Working Capital Balance. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Working Capital Balance for your company is or is not adequate for its future.

Question 5.1 – Working Capital Balance

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Current Assets
B Current Liabilities
C Working Capital Balance
D Why is or is not the Working Capital Balance adequate for your company?

Question 5.2 – Acid Test or Quick Ratio

This ratio will help you measure the degree of liquidity for your company. The quick ratio compares the company’s cash, cash equivalents and accounts receivable to the current liabilities. The primary difference between the current ratio and the quick ratio is the quick ratio does not include inventory and prepaid expenses in the calculation. The company’s quick ratio should be lower than its current ratio. It is a severe test of liquidity.

Enter the amounts, for all three periods, for the Cash, Accounts Receivable, Short-term investments and the Current Liabilities from your company’s Balance Sheet. For each period, calculate the Acid Test Ratio using the following formula.

(Cash + Accounts Receivable + Short-term Investments) ÷ Current Liabilities

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Acid Test Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Acid Test Ratio for your company is or is not adequate for its future.

Question 5.2 – Acid Test or Quick Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Cash
B Accounts Receivable
Short term investments
Current Liabilities
C Acid Test Ratio
D Why is or is not the Acid Test Ratio adequate for your company?
E Acid Test trend Description

Question 5.3 – Current Ratio

This is another ratio to help you measure the degree of liquidity for your company. The Current Ratio compares the company’s current assets to its current liabilities.

Enter the amounts, for all three periods, for the Current Assets and the Current Liabilities from your company’s Balance Sheet. For each period, calculate the Current Ratio using the following formula.

Current Assets ÷ Current Liabilities

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Current Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Current Ratio for your company is or is not adequate for its future.

Question 5.3 – Current Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Current Assets
B Current Liabilities
C Current Ratio
D Why is or is not the Current Ratio adequate for your company?
E Current Ratio trend description

Question 5.4 – Cash Ratio

This is ratio to help you measure the degree of short term liquidity for your company. The Cash Ratio compares the company’s cash to its current liabilities. The ratio is particularly useful if the company’s receivables and its inventory are pledged or if there may be liquidity problems with inventory and receivables.

Enter the amounts, for all three periods, for the Cash and the Current Liabilities from your company’s Balance Sheet. For each period, calculate the Cash Ratio using the following formula.

Cash ÷ Current Liabilities

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Cash Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Cash Ratio for your company is or is not adequate for its future.

Question 5.4 – Cash Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Cash
B Current Liabilities
C Cash Ratio
D Why is or is not the Cash Ratio adequate for your company?
E Cash Ratio trend description

Question 5.5 – Return on Sales Ratio

This ratio will help you measure the net income generated by each dollar of sales. It is an effective gauge for determining the rate of profit returned on sales. The Return on Sales Ratio can be useful for estimating how well the company can handle price wars, sales declines and rising costs.

Enter the amounts, for all three periods, for the Net Income and the Net Sales from your company’s Income Statement. For each period, calculate the Return on Sales Ratio using the following formula.

Net Income ÷ Net Sales

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Return on Sales Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Return on Sales Ratio for your company is or is not adequate for its future.

Question 5.5 – Return on Sales Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net Income
B Net Sales
C Return on Sales Ratio
D Why is or is not the Return on Sales Ratio adequate for your company?

Question 5.6 – Return on Equity Ratio

This ratio is widely used by many investors. It is an effective measure for the income earned on the shareholder’s investment in the business. The Return on Equity Ratio can be useful for making a value judgment on how well management is create profits with the investment shareholders have in the company. The higher the Return on Equity Ratio, the better it is.

Enter the amounts, for all three periods, for the Net Income from your company’s Income Statement and Stockholders’ Equity from the balance sheet. For each period, calculate the Return on Equity Ratio using the following formula.

Net Income ÷ Stockholders’ Equity

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Return on Equity Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Return on Equity Ratio for your company is or is not adequate for its future.

Question 5.6 – Return on Equity Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net Income
B Stockholders’ Equity
C Return on Equity Ratio
D Why is or is not the Return on Equity Ratio adequate for your company?

Question 5.7 – Return on Assets Ratio

This ratio is used to measure how well a company is turning its assets into profit. It may sound like the total assets turnover ratio but it is different. The total assets turnover ratio measures how effectively a company’s assets generate revenue. It is a useful tool to measure how well management is turns the company’s assets into profit. The higher the value for the Return on Assets Ratio, the better the company is performing.

Enter the amounts, for all three periods, for the Net Income from your company’s Income Statement and Total Assets from the balance sheet. For each period, calculate the Return on Assets Ratio using the following formula.

Net Income ÷ Total Assets

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Return on Assets Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Return on Assets Ratio for your company is or is not adequate for its future.

Question 5.7 – Return on Assets Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Net Income
B Total Assets
C Return on Assets Ratio
D Why is or is not the Return on Assets Ratio adequate for your company?
E Return on Asset Ratio trend description

Question 5.8 – Asset Turn Ratio

This ratio is used to measure how well a company is using its assets to create revenues. The higher the value for the Asset Turn Ratio, the better the company is performing.

Enter the amounts, for all three periods, for the Net Sales from your company’s Income Statement and Total Assets from the balance sheet. For each period, calculate the Asset Turn Ratio using the following formula.

Net Sales ÷ Total Assets

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Asset Turn Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Asset Turn Ratio for your company is or is not adequate for its future.

Question 5.8 – Asset Turnover Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Net Sales
B Total Assets
C Asset Turn Ratio
D Why is or is not the Assets Turn Ratio adequate for your company?
E Asset Turnover Ratio trend description

Question 5.9 – Gross Profit Margin Ratio

This ratio is used to measure the relationship between net sales revenue and the cost of goods sold. It shows the amount of each dollar of sales your company turns into profit. The higher the value for the Gross Profit Margin Ratio, the better your company is performing. It is also important to note different industries may have very different gross margins.

Enter the amounts, for all three periods, for the Gross Profit and Net Sales from your company’s Income Statement. For each period, calculate the Gross Profit Margin Ratio using the following formula.

Gross Profit ÷ Net Sales

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Gross Profit Margin Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Gross Profit Margin Ratio for your company is or is not adequate for its future.

Question 5.9 – Gross Profit Margin Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Gross Profit
B Net Sales
C Gross Profit Margin Ratio
D Why is or is not the Gross Profit Margin Ratio adequate for your company?
E Gross Profit Margin Ratio trend description

Question 5.10 – Inventory Turnover Ratio

This ratio is used to measure how effectively your company converts its inventory into cash. It shows how well your company manages its inventory levels. If inventory turnover is too low, it may indicate the company is overstocking inventory. It may also indicate the company is having issues selling products. The higher the value for the Inventory Turnover Ratio, the better your company is performing. It is also important to note different industries may have very different inventory turn ratios. For some industries, the Inventory Turnover Ratio is not a significant as it is for other industries.

Enter the amounts, for all three periods, for the Cost of Goods Sold from your company’s Income Statement and Inventory from the balance sheet. For each period, calculate the Inventory Turn Ratio using the following formula.

Cost of Goods Sold ÷ Inventory

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Inventory Turn Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Inventory Turnover Ratio for your company is or is not adequate for its future.

Question 5.10 – Inventory Turnover Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Cost of Goods Sold
B Inventory
C Inventory Turn Ratio
D Why is or is not the Inventory Turn Ratio adequate for your company?
E Inventory Turnover Ratio trend description

Question 5.11 – Days in Inventory Ratio

This ratio is used to measure how effectively your company holds its inventory before it is sold. Generally, the longer inventory is remains unsold, the greater the chance it may not be sold or sold at less than its value. The Days in Inventory Ratio more important for companies with inventory that is perishable or subject to obsolescence. Companies with short product life cycles like high technology, automobile, toys and fashion might find this ratio important.

Enter the value, for all three periods, for the Inventory Turnover Ratio. For each period, calculate the Days In Inventory Ratio using the following formula.

365 ÷ Inventory Turnover Ratio

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Days In Inventory Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Days In Inventory Ratio for your company is or is not adequate for its future.

Question 5.11 – Days In Inventory Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A 365 365 365 365
B Inventory Turn Ratio
C Days In Inventory Ratio
D Why is or is not the Days In Inventory Ratio adequate for your company?

Question 5.12 – Accounts Receivable Turnover Ratio

This ratio is used to measure how effectively your company is able to collect from its customers.

A high turnover value is better. It shows your company is collecting revenues effectively and customers pay bills on time. A high figure also suggests that a firm’s credit and collection policies are sound. Accounts receivable turnover may differ between different industries. For some industries, the Accounts Receivable Turnover Ratio is not a significant as it is for other industries.

Enter the amounts, for all three periods, for the Net Sales from your company’s Income Statement and Accounts Receivable from the balance sheet. For each period, calculate the Accounts Receivable Turnover Ratio using the following formula.

Net Sales ÷ Accounts Receivable

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Accounts Receivable Turnover Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Accounts Receivable Turnover Ratio for your company is or is not adequate for its future.

Question 5.12 – Accounts Receivable Turnover Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Net Sales
B Accounts Receivable
C Accounts Receivable Turnover Ratio
D Why is or is not the Accounts Receivable Turnover Ratio adequate for your company?
E Accounts Receivable Turnover Ratio trend description

Question 5.13 – Average Collection Period

This ratio is used to measure how effectively your company collects money from customers. The Average Collection Period shows the average number of days the company must wait for its Accounts Receivable to be paid. Comparing the days in the average collection period to the payment terms generally available to customers can help describe how quickly the company is collecting its money. Often, the longer receivables remain unpaid the more difficult they are to collect.

Enter the value, for all three periods, for the Accounts Receivable Turnover Ratio. For each period, calculate the Average Collection Period using the following formula.

365 ÷ Accounts Receivable Turnover Ratio

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Average Collection Period. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Average Collection Period for your company is or is not adequate for its future.

Question 5.13 – Average Collection Period

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A 365 365 365 365
B Accounts Receivable Turnover Ratio
C Average Collection Period
D Why is or is not the Average Collection Period adequate for your company?

Question 5.14 – Accounts Payable Turnover Ratio

This ratio is used to measure the length of time needed for your company to repay its vendors.

A high turnover value is better than a low turnover value. Generally, it shows your company is paying bills on time. The ratio might be a good barometer of your company’s financial stability. A high Account Payable Turnover ratio indicates your company produces cash quickly. A low ratio might infer your company may have cash flow issues.

Enter the amounts, for all three periods, for the Cost of Goods Sold from your company’s Income Statement and Accounts Payable from the balance sheet. For each period, calculate the Accounts Payable Turnover Ratio using the following formula.

Cost of Goods Sold ÷ Accounts Payable

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Accounts Payable Turnover Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Accounts Payable Turnover Ratio for your company is or is not adequate for its future.

Question 5.14 – Accounts Payable Turnover Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Cost of Goods Sold
B Accounts Payable
C Accounts Payable Turnover Ratio
D Why is or is not the Accounts Payable Turnover Ratio adequate for your company?

Question 5.15 – Net Working Capital Turnover Ratio

The company’s operations and inventory generate sales. This ratio is used to measure how well the money your company uses to support its operations generates sales. Generally, a higher ratio means the company is generating more sales for each dollar spent on operations. A high turnover value is better than a low turnover value.

Working capital is the difference between current assets and current liabilities. To calculate working capital for your company use the following formula:

Current Assets – Current Liabilities

Working Capital Calculation
Accounts Current Yr Previous Yr Next Previous Yr
Current Assets
Current Liabilities
Working Capital

Enter the amounts, for all three periods, for the Net Sales from your company’s Income Statement and the Working Capital. For each period, calculate the Net Working Capital Turnover Ratio using the following formula.

Net Sales ÷ Working Capital

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Net Working Capital Turnover Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Net Working Capital Turnover Ratio for your company is or is not adequate for its future.

Question 5.15 – Net Working Capital Turnover Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Net Sales
B Working Capital
C Net Working Capital Turnover Ratio
D Why is or is not the Net Working Capital Turnover Ratio adequate for your company?

Question 5.16 – Debt to Equity Ratio

This ratio is used to compare the amount of capital provided by lenders compared to the amount of capital provided by shareholders. The Debt to Income Ratio helps to signal the possibility of debt problems. A company overleveraged with debt makes itself vulnerable to market downturns and unforeseen contingencies. A reasonable balance between debt and equity is generally a healthy position for a company. Depending on the industry and company, a Debt to Equity Ratio between 0.5 and 1.5 is generally acceptable.

Enter the amounts, for all three periods, for the Total Liabilities and Stockholders’ Equity from your company’s balance sheet. For each period, calculate the Debt to Equity Ratio using the following formula.

Total Liabilities ÷ Stockholders’ Equity

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Debt to Equity Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Debt to Equity Ratio for your company is or is not acceptable for its future.

Question 5.16 – Debt to Equity Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Total Liabilities
B Stockholders’ Equity
C Debt to Equity Ratio
D Why is or is not the Debt to Equity Ratio acceptable for your company?
E Debt to Equity Ratio trend description

Question 5.17 – Debt to Asset Ratio

This ratio is used to compare the amount of debt to the company’s assets. The Debt to Asset Ratio shows how much of your company’s assets were acquired through debt. A ratio greater than one generally means most of the company’s assets are financed through debt. These companies are generally described as “highly leveraged” and could vulnerable from creditor demands for repayment. Depending on the company and the industry, a Debt to Asset Ratio in excess of 65% may indicate debt issues for a company.

Enter the amounts, for all three periods, for the Total Liabilities and Total Assets from your company’s balance sheet. For each period, calculate the Debt to Equity Ratio using the following formula.

Total Liabilities ÷ Total Assets

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Debt to Asset Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Debt to Asset Ratio for your company is or is not acceptable for its future.

Question 5.17 – Debt to Asset Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Total Liabilities
B Total Assets
C Debt to Asset Ratio
D Why is or is not the Debt to Asset Ratio acceptable for your company?

Question 5.18 – Gearing Ratio or Long Term Debt to Shareholders’ Equity Ratio

This ratio is used to compare the amount of long term debt to the stockholders’ equity. The Gearing Ratio shows how well your company’s will be able to service, satisfy existing long term debt or acquire additional long term debt. A company with a high Gearing Ratio is more vulnerable to competitor assaults, price reductions and business downturns. Generally, no matter what the difficulty facing the company, it must continue to service its debt. Companies with a low Gearing Ratio usually have sufficient equity to manage through difficult periods.

Enter the amounts, for all three periods, for the Long Term Liabilities and Stockholders’ Equity from your company’s balance sheet. For each period, calculate the Gearing Ratio using the following formula.

Long Term Liabilities ÷ Stockholders’ Equity

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Gearing Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Gearing Ratio for your company is or is not acceptable for its future.

Question 5.18 – Gearing Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Long Term Liabilities
B Stockholders’ Equity
C Gearing Ratio
D Why is or is not the Gearing Ratio acceptable for your company?
E Gearing Ratio trend description

Question 5.19 – Interest Coverage Ratio or Debt Service Ratio

This ratio is used to discover how easily your company can pay the interest on its outstanding debt. A low Interest Coverage Ratio can mean your company may find it difficult to pay its debt expense. An Interest Coverage Ratio below 1 might imply a company is not producing sufficient income to pay the interest expenses. Generally, this would indicate caution for an investor.

Enter the amounts, for all three periods, for the Profit Before Taxes and Interest Expense from your company’s Income Statement. For each period, calculate the Interest Coverage Ratio using the following formula.

(Profit Before Taxes+ Interest Expense) ÷ Interest Expense

Enter the amounts in millions of dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Interest Coverage Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Interest Coverage Ratio for your company is or is not acceptable for its future.

Question 5.19 – Interest Coverage Ratio or Debt Service Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Profit Before Taxes
B Interest Expense
C Interest Coverage Ratio
D Why is or is not the Interest Coverage Ratio acceptable for your company?

Question 5.20 –Earnings per Share

Earnings per share means the part of a company’s earnings, net of taxes and preferred stock dividends, allotted to each share of common stock. It is a widely used barometer to measure a company’s profitability per share of common stock. Historically, the Earnings Per Share has played a significant role in determining the market price for stocks. A company’s earnings can change suddenly for many reasons including manipulation, accounting changes, and restatements. For this and many other reasons, the earnings per share is not an absolute determinate of the market value for a company’s shares.

Enter the amounts, for all three periods, for the Earnings Per Share from your company’s Income Statement.

Enter the amounts in dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Earnings Per Share. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Price/Earnings Ratio for your company’s stock is or is not adequate for its future.

Question 5.20 – Earnings per Share

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Earnings Per Share
B Why is or is not the Earnings Per Share adequate for your company’s stock?
C Earnings Per Share trend description

Question 5.21 – Price/Earnings Ratio

This ratio is used to learn what investors are currently willing to pay for the company’s earnings. The Price/Earnings Ratio is one of the most widely used measures of stock value. It shows the relationship between the current stock price and the company’s per share of stock. The higher the Price/Earnings Ratio, the more the market is willing to pay for a company’s earnings. Some investors believe a high P/E indicates an overpriced stock. This may be true but it may also mean the market is optimistic about the stock’s future and is willing to pay more for the stock. A low Price/Earnings Ratio might suggest “no confidence” for the stock or it could mean the price is undervalued and may rise in the future. Some “undervalued” stocks have become big winners for some investors. Please note there is a strong emphasis on the word “some”.

Enter the amounts, for all three periods, for the current price of your company’s common stock. Also enter Earnings Per Share from your company’s Income Statement. For each period, calculate the Price/Earnings Ratio using the following formula.

Current Stock Price ÷ Earnings Per Share

Enter the amounts in dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Price/Earnings Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Price/Earnings Ratio for your company’s stock is or is not adequate for its future.

Question 5.21 – Price/Earnings Ratio

Accounts Current Yr Previous Yr Next Previous Yr Industry Ratio
A Stock Price
B Earnings Per Share
C Price/Earnings Ratio
D Why is or is not the Price/Earnings Ratio adequate for your company’s stock?
E Price/Earnings Ratio trend description

Question 5.22 –Dividend per Share

Dividend per share means the part of a company’s earnings paid directly to stockholders for each share of common stock. For companies with preferred stock, the dividends for the preferred stock are identified separate of the dividends for common stock. For some investors dividend income is very significant. Dividends provide income to investors even when the market price for the share may decline.

Companies with a strategic focus on growth may choose to reinvest all their earnings in the company. Typically growth companies will pay low or no dividend. Often, companies might pay high dividends to their shareholders when they have reached their maturity and there is little opportunity for growth. For mature companies, a more effective use of the earnings is to return them to the shareholders in the form of dividends.

Enter the amounts, for all three periods, for the Dividend Per Share of common stock from your company’s Income Statement.

Enter the amounts in dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Dividend Per Share. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Dividend Per Share for your company’s stock is or is not adequate for its future.

Question 5.22 – Dividend per Share

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Dividend Per Share
B Why is or is not the Dividend Per Share adequate for your company’s stock?

Question 5.23 – Dividend Payout Ratio

This ratio is used to measure the percent of the company’s earnings being returned to the stockholders. The Dividend Payout Ratio is another widely used measure of stock value particularly for those investors interested in stocks with income. It allows investors to identify companies with sufficient internal growth to possibly pay dividends in the future. A ratio between 40% and 60% would allow a company to pay a dividend while continuing to reinvest earnings in the company.

Enter the amounts, for all three periods, for Earnings Per Share and Dividend Per Share from your company’s Income Statement. For each period, calculate the Dividend Payout Ratio using the following formula.

Dividend Per Share ÷ Earnings Per Share

Enter the amounts in dollars from the SEC Form 10K, for the current year, the previous year and the next previous year. Describe the trend direction for the Dividend Payout Ratio. Use phrases like: up only this year but level in previous years, consistently up, down only this year, consistently down or level for all years. Also, in your opinion is the trend positive, negative, insignificant?

Last, in your opinion, explain why the Dividend Payout Ratio for your company’s stock is or is not adequate for its future.

Question 5.23 – Dividend Payout Ratio

Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Dividend Per Share
B Earnings Per Share
C Dividend Payout Ratio
D Why is or is not the Dividend Payout Ratio adequate for your company’s stock?

Questions for Chapter 6

Question 6.0 – Calculate the Altman Z-Score

Calculate the Altman Z-Score for you company for the current year, previous year and next previous year. Describe the Altman Z-Score trend. What does the Altman Z-Score trend tell you about the financial strength of your company?

Question 6.0 – Altman Z-Score
Accounts Current Yr Previous Yr Next Previous Yr Trend Description
A Altman Z-Score
B What does the Altman Z-Score trend tell you about the financial strength of your company?

Question 6.1 – What did you learn about your company

What are the major items you learned about your Company? Why were they important for you?

Question 6.1 – What did you learn about your company
What did you learn Why was it important
A
B
C
D
E

Question 6.2 – Would you buy, sell, hold or stay away

Answer if you would buy, sell, hold or stay away from your company’s common stock. Additionally, what are the three major reasons you might buy, sell, hold or stay away from your company’s common stock?

Question 6.2 – Buy, Sell, Hold or Stay Away
A Would you buy, sell, hold or stay away
B Reason 1
C Reason 2
D Reason 3