Financial

Chapter 2: Problem 8

A: Market capitalization is the total market value of equity. This can be achieved by multiplying the market price per share times the number of shares. In the year 2005 market capitalization was 10.6 billion shares x $36.00 share = $381 billion. The 2009 market capitalization is $10.5 billion shares x $10.80 share = $113.4. The resulting change over the period is $113.4 - $381.60 = -$268.2 billion which can be attributed to a drop in stock prices.

B: Market to book ratio is the ratio of a firm’s market (equity) capitalization to the book value of its stockholder’s equity. In 2005 the market equity = $381.6 billion and the book value equity = $113 billion 381.6/113 = ratio of 3.38 billion. In 2009 market to book value 113.4 divided by 105, 113.4/105 = 1.08. The change over the period is 1.08 – 3.38 = -2.3.The market to book value ratio is a valuable tool that offers investor’s the opportunity to know the company’s assessment of assets. Firms with low market to book ratio are classified as value stock and those with high market to book ratios as growth stock. The final change over the period of -2.3 is not at par with most successful firm’s that usually exceeds.

C: The debt to equity ratio in a balance sheet gives us an idea to know the extent to which a company relieves on debt as a source of financing. The 2005 book debt to equity is derived by dividing the total debt ratio of $370 billion by gives us $3.27 billion. In 2009 book debt to equity of $524 billion is divided by $105 billion to get $4.99 billion. The changeover is $4.99 – $3.27 to get $1.72 billion. This is useful in comparing the firm’s debt to the market value of its equity.

Chapter 2: Problem 12

Global Revenue for the year 2009 was $186.7 million. They pursued an aggressive campaign to increase revenue by 1.15% to $214,705 million. (1.15 x 186.7= $214,705 million.)

A: EBIT is the earnings before interest and taxes and in 2009 it was adjusted to $214,705 million, the...