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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 $400 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $340.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had not 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 $640 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 $4,100 3,280 164 3.444 Industry Average $5,125 4,100 205 4.305

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 $400 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $340.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had not 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 $640 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 $4,100 3,280 164 3.444 Industry Average $5,125 4,100 205 4.305

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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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 $400 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $340.0 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 $640 million in long-term assets last year. Income Statement For the Year Ended on December 31 (Millions of dollars) J&H Corp. $4,100 3,280 164 3,444 $656 66 $590 236 $354 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 Industry Average $5,125 4,100 205 4,305 $820 123 $697 279 $418
Transcribed Image Text: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 $400 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory. • The company reported $340.0 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 $640 million in long-term assets last year. Income Statement For the Year Ended on December 31 (Millions of dollars) J&H Corp. $4,100 3,280 164 3,444 $656 66 $590 236 $354 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 Industry Average $5,125 4,100 205 4,305 $820 123 $697 279 $418
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 $4,100 3,280 164 ооо 3,444 $656 66 $590 236 $354 Industry Average $5,125 4,100 205 4,305 $820 123 $697 279 $418 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. The company has no notes payable reported in its balance sheet, so all its current liabilities are its operating liabilities. J&H Corp. has $-$28.0 million of noninterest-bearing current assets net of noninterest-charging liabilities. Based on the information on industry averages, other players in the industry would generate higher profits than J&H Corp. if they had no debt and held no financial assets. J&H Corp.'s net operating working capital is $60.0 million. J&H Corp.'s total net operating capital consists of its net operating working capital and total investment in long-term assets.
Transcribed Image Text: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 $4,100 3,280 164 ооо 3,444 $656 66 $590 236 $354 Industry Average $5,125 4,100 205 4,305 $820 123 $697 279 $418 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. The company has no notes payable reported in its balance sheet, so all its current liabilities are its operating liabilities. J&H Corp. has $-$28.0 million of noninterest-bearing current assets net of noninterest-charging liabilities. Based on the information on industry averages, other players in the industry would generate higher profits than J&H Corp. if they had no debt and held no financial assets. J&H Corp.'s net operating working capital is $60.0 million. J&H Corp.'s total net operating capital consists of its net operating working capital and total investment in long-term assets.
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