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7. Analyzing accounting data for managerial decisions Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case: 38H Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. Last year, 38 Corp. reported a book value of $350 million in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297.5 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable daims last year. There were no changes in the accounts payables during the reporting period. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560 million in long-term assets last year. Income Statement For the Year Ended on December 31 Millions of dollars) J&H Corp. $3,700 2,960 148 3,108 $592 Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income 59 $533 213 $320 Industry Average $4,625 3,700 185 3,885 $740 111 $629 252 $377

7. Analyzing accounting data for managerial decisions Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case: 38H Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. Last year, 38 Corp. reported a book value of $350 million in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297.5 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable daims last year. There were no changes in the accounts payables during the reporting period. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560 million in long-term assets last year. Income Statement For the Year Ended on December 31 Millions of dollars) J&H Corp. $3,700 2,960 148 3,108 $592 Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income 59 $533 213 $320 Industry Average $4,625 3,700 185 3,885 $740 111 $629 252 $377

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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7. Analyzing accounting data for managerial decisions. Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case: J&H Corp, recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. •Last year, J&H Corp. reported a book value of $350 million in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297.5 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560 million in long-term assets last year. Income Statement For the Year Ended on December 31 Millions of dollars) J&H Corp. Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income $3,700 2,960 148 3,108 $592 59 $533 213 $320 Industry Average $4,625 3,700 185 3,885 $740 111 $629 252 $377
Transcribed Image Text:7. Analyzing accounting data for managerial decisions. Accounting data are used to analyze cash flows, and this analysis is critical for decision making. Consider the following case: J&H Corp, recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. •Last year, J&H Corp. reported a book value of $350 million in current assets, of which 40% is cash, 42% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $297.5 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period. The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $560 million in long-term assets last year. Income Statement For the Year Ended on December 31 Millions of dollars) J&H Corp. Net sales Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income $3,700 2,960 148 3,108 $592 59 $533 213 $320 Industry Average $4,625 3,700 185 3,885 $740 111 $629 252 $377
Based on the information given to Jeffrey, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Which of the following statements in his report are true? Check all that apply. J&H Corp. has -$94.5 million of noninterest-bearing current assets net of noninterest-charging liabilities. 3&H Corp. has $250.7 million of net operating capital. The firm uses $465.5 million of total net operating capital to run the business. J&H Corp, has $147.0 million in nonoperating assets. Based on the information on industry averages, other players in the industry would generate higher profits than 1814 Corp. if they had no debt and held no financial assets.
Transcribed Image Text:Based on the information given to Jeffrey, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Which of the following statements in his report are true? Check all that apply. J&H Corp. has -$94.5 million of noninterest-bearing current assets net of noninterest-charging liabilities. 3&H Corp. has $250.7 million of net operating capital. The firm uses $465.5 million of total net operating capital to run the business. J&H Corp, has $147.0 million in nonoperating assets. Based on the information on industry averages, other players in the industry would generate higher profits than 1814 Corp. if they had no debt and held no financial assets.
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