Analyzing and Interpreting Financial Statements

Chapter 4 Analyzing and Interpreting Financial Statements

Solutions to Problems and Cases

4.2 Borden Formal Wear Inc. (a)

 Horizontal and vertical analysis: Borden Formal Wear Inc. Balance sheets as at December 31,

  Current assets Cash Accounts receivable Inventory Total current assets Property, plant and equipment Land Buildings (net) Equipment (net) Total property, plant, and equipment Total assets Current liabilities Accounts payable Long term liabilities Bank loans Total liabilities Shareholders’ equity Common shares Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity ($ millions) 2010

  10 10 25 45

  50 250 100 400

  445

  28

  75 103

  124 218 342

  445 100.00% 27.86% 48.99% 76.85%

  16.86% 23.15%

  6.29%

  100.00%

  Vertical Vertical Horizontal Analysis ($ millions) Analysis Analysis % 2009 % % change

  2.25% 12 2.56% -16.67% 2.25% 13 2.78% -23.08% 5.61% 65 13.89% -61.54% 10.11% 90 19.23% -50.00%

  11.24% 40 8.55% 25.00% 56.18% 250 53.42% 0.00% 22.47% 88 18.80% 13.64% 89.89%

  378

  80.77%

  -4.91%

  21.74%

  25.00% 24.10%

  0.00% -16.48% -11.17%

  -4.91% 1 5.82%

468 100.00%

  23 4.92%

  60 12.82% 83 17.74%

  124 26.49% 261 55.77% 385 82.26%

  468 100.00%

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Chapter 4

4.4 (a)

Graphic Chips Limited Gross profit margin =

Sales − Cost of goods sold Gross profit 2,550 − 1,750 × 100% = × 100% = × 100% = 31.4% Sales revenue Sales 2,550

(b) Operating profit margin Earnings before interest and taxes = × 100% Sales revenue EBIT = × 100% Sales 250 = × 100% 2,550 = 9.8% Sales revenue to capital employed = Net asset turnover =

(c)

Sales revenue Total shareholders' equity + Long-term liabilities 2,550 1,200 + 800 + 300

=

= 1.11 times

(d)

Leverage...