ANALYSIS FOR FINANCIAL MANAGEMENT

10TH Edition
Robert C. Higgins
Additional Problems
Chapter 2
1. Problem of the Unidentified Industries
Below are 2010 common size financial statements and selected ratios for representative
companies in five diverse industries. The industries represented are:
A.
B.
C.
D.
E.

Power/energy producer
Software manufacturer
Jewelry stores
Commercial airline
Grocery stores.

The industries and the companies are not in the same order. Your job is to match them
and to explain your choices.

Percentage Income Statements

Company
Sales
Cost of Goods Sold

1
100.0
74.3

2
100.0
37.2

3
100.0
108.2

4
100.0
90.9

5
100.0
7.6

25.7
18.4

62.8
39.4

(8.2)
-

9.1
-

92.4
40.0

7.2
2.1

23.4
4.1

(8.2)
6.4

9.1
2.3

52.4
6.1

Operating Profit
Interest Expense
Non-Operating Income/Expense
Special Items

5.2
1.4
(0.7)

19.3
1.2
0.1
(0.2)

(14.5)
3.3
0.5
(3.5)

6.9
1.3
0.3
-

46.3
(0.8)
-

Pretax Income
Total Income Taxes
Minority Interest
Income Before Extraordinary Items
Preferred Dividends

3.1
1.3
1.8
-

18.0
7.2
10.8
-

(20.8)
(7.6)
(13.2)
0.1

5.8
1.9
0.6
3.4
0.0

45.6
15.0
30.5
-

Available for Common

Extraordinary Items

1.8
(0.0)

10.8
-

(13.3)
(0.1)

3.3
(0.2)

30.5
(1.5)

Adjusted Net Income

1.8

10.8

(13.4)

3.2

29.0

Gross Profit
Selling, General, & Admin. Exp.
Operating Income
Deprerciation & Amortization

Percentage Balance Sheets

ASSETS
Cash & Equivalents
Net Receivables
Inventories
Other Current Assets

0.9
3.8
22.4
2.8

10.7
6.1
37.5
4.3

10.4
4.9
1.3
3.6

0.6
11.0
2.1
6.1

53.3
6.2
7.4

Total Current Assets

Gross Plant,Property & Equipment
Accumulated Depreciation

29.8
78.3
29.8

58.6
46.9
14.7

20.2
89.9
20.6

19.7
81.6
22.8

66.9
8.9
5.0

Net Plant,Property & Equipment

Other Investments
Intangibles
Deferred Charges
Other Assets

48.5
20.0
1.7

32.3
8.3
0.6
0.2

69.4
1.1
3.9
1.5
4.0

58.7
15.6
3.6
2.5
-

3.9
23.9

100.0

100.0

100.0

100.0

100.0

1.9

3.2

5.8

0.5

Notes Payable
Accounts Payable
Taxes Payable
Accrued Expenses
Other Current Liabilities

16.6
3.3
9.0

2.5
3.5
3.0
6.5
2.4

0.5
5.0
16.0
4.7

3.3
8.8
0.9
0.5
7.6

2.0
2.5
1.3
13.1

Total Current Liabilities

Long Term Debt
Deferred Taxes

30.7
45.1
1.4

21.0
11.0
-

32.0
34.4
-

21.6
28.4
8.9

18.8
1.4

Investment Tax Credit

Minority Interest
Other Liabilities

5.8

4.4

21.3

0.4
4.6
9.4

83.0
4.9

36.4
0.1

87.7
0.3
-

73.3
0.5
12.9

20.2
-

11.5
6.1
5.5

20.3
43.2
-

19.8
(1.9)
5.9

13.4
-

47.9
31.9
-

17.0

63.6

12.0

26.2

79.8

100.0

100.0

100.0

100.0

100.0

Total Assets
LIABILITIES
Long Term Debt Due In One Year

Total liabilities
Preferred stock
Common Stock
Capital Surplus
Retained Earnings
Less: Treasury Stock
Total equity
Total liabilities and owners' equity

5.4

Selected Ratios
Current Ratio
Inventory Turnover
Total Asset Turnover
Average Collection Per (Days)
Return on Equity (%)
Total Debt/Total Assets (%)

1.0
9.1
2.7
5.0
28.5
47.0

2.8
1.0
1.0
23.0
16.7
16.6

0.6
46.4
0.7
28.0
(70.8)
40.7

0.9
61.7
1.1
41.0
15.6
32.2

3.6
0.5
49.0
16.3
-

2) XYZ Corp has net income of $50 million, total liabilities of $100 million, 50% of
which is interest-bearing debt at 10% interest. The ROE for XYZ is 20% and the tax
rate is 35%. Find XYZs ROA and ROIC.
3) What would be the immediate impact (increase, decrease, or no effect) of the
following transactions on (i) ROE, (ii) ROIC, and (iii) the Current Ratio for Anchor
Corp? Ignore depreciation, interest expense and taxes.
a) Anchor purchases machinery using trade credit for $20,000.
b) Anchor collects $30,000 from customers on accounts receivable.
c) Anchor pays off bank-notes payable for $10,000 by rolling short-term debt into
long-term debt of 5-year bonds at the same interest rate.
d) Anchor sells common stock for $30,000.
e) Anchor acquires a trademark for $20,000. It pays $10,000 in cash and signs a
$10,000 note payable due in 3 years.