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Finance
$35 to $40

$35 to $40

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question

Is the estimate of $35 to $40 for Owen’s shares a fair evaluation? Explain. Type a three- to four-sentence response below.

Ratio Type

2012

2013

Current (times)

3.40

3.43

Quick (times)

2.18

1.83

Debt (%)

37.65%

35.31%

Times interest earned (times)

8.50

11.61

Inventory turnover (times)

6.99

4.79

Total asset turnover (times)

2.78

2.71

Average collections period (days)

50.14

50.99

Return on equity (%)

11.60

10.81
### Exhibit C2.1: KF Income Statements 2012–2013 #### 2012 - **Sales**: $6,572,800 - **Cost of Goods Sold**: $4,896,700 - **Gross Margin**: $1,676,100 - **Administrative Expenses**: $1,281,700 - **Depreciation**: $72,000 - **Earnings Before Interest and Taxes (EBIT)**: $322,400 - **Interest**: $37,900 - **Earnings Before Taxes**: $284,500 - **Taxes (at 40%)**: $113,800 - **Net Income**: $170,700 #### 2013 - **Sales**: $7,811,500 - **Cost of Goods Sold**: $5,866,200 - **Gross Margin**: $1,945,300 - **Administrative Expenses**: $1,491,200 - **Depreciation**: $86,000 - **Earnings Before Interest and Taxes (EBIT)**: $367,100 - **Interest**: $31,600 - **Earnings Before Taxes**: $335,500 - **Taxes (at 40%)**: $134,200 - **Net Income**: $201,300 ### Exhibit C2.2: KF Balance Sheets 2012–2013 #### Assets ##### 2012 - **Cash**: $300,000 - **Accounts Receivable**: $915,000 - **Inventory**: $700,000 - **Other Current Assets**: $36,200 - **Current Assets**: $1,951,200 - **Gross Fixed Assets**: $350,000 - **Accumulated Depreciation**: ($135,000) - **Net Fixed Assets**: $215,000 - **Total Assets**: $2,361,200 ##### 2013 - **Cash**: $244,000 - **Accounts Receivable**: $1,106,600 - **Inventory**: $1,222,300 - **Other Current Assets**: $46,100 - **Current Assets**: $2,619,000 - **Gross Fixed Assets**: $493,
Transcribed Image Text:### Exhibit C2.1: KF Income Statements 2012–2013 #### 2012 - **Sales**: $6,572,800 - **Cost of Goods Sold**: $4,896,700 - **Gross Margin**: $1,676,100 - **Administrative Expenses**: $1,281,700 - **Depreciation**: $72,000 - **Earnings Before Interest and Taxes (EBIT)**: $322,400 - **Interest**: $37,900 - **Earnings Before Taxes**: $284,500 - **Taxes (at 40%)**: $113,800 - **Net Income**: $170,700 #### 2013 - **Sales**: $7,811,500 - **Cost of Goods Sold**: $5,866,200 - **Gross Margin**: $1,945,300 - **Administrative Expenses**: $1,491,200 - **Depreciation**: $86,000 - **Earnings Before Interest and Taxes (EBIT)**: $367,100 - **Interest**: $31,600 - **Earnings Before Taxes**: $335,500 - **Taxes (at 40%)**: $134,200 - **Net Income**: $201,300 ### Exhibit C2.2: KF Balance Sheets 2012–2013 #### Assets ##### 2012 - **Cash**: $300,000 - **Accounts Receivable**: $915,000 - **Inventory**: $700,000 - **Other Current Assets**: $36,200 - **Current Assets**: $1,951,200 - **Gross Fixed Assets**: $350,000 - **Accumulated Depreciation**: ($135,000) - **Net Fixed Assets**: $215,000 - **Total Assets**: $2,361,200 ##### 2013 - **Cash**: $244,000 - **Accounts Receivable**: $1,106,600 - **Inventory**: $1,222,300 - **Other Current Assets**: $46,100 - **Current Assets**: $2,619,000 - **Gross Fixed Assets**: $493,
**EXHIBIT C2.3: Financial Ratios for the Electronic Arts Industry** This exhibit provides an overview of key financial ratios for the Electronic Arts industry, presented as industry averages across the third quartile, median, and first quartile results. - **Current (times):** - Third Quartile: 2.6 - Median: 1.7 - First Quartile: 1.3 - **Quick (times):** - Third Quartile: 1.6 - Median: 0.8 - First Quartile: 0.6 - **Debt %:** - Third Quartile: 41 - Median: 57 - First Quartile: 71 - **Times interest earned (times):** - Third Quartile: 7.4 - Median: 3.9 - First Quartile: 1.3 - **Inventory turnover (times):** - Third Quartile: 8.1 - Median: 6.9 - First Quartile: 3.5 - **Total asset turnover (times):** - Third Quartile: 3.5 - Median: 2.8 - First Quartile: 2.0 - **Average collection period (days):** - Third Quartile: 41 - Median: 50 - First Quartile: 68 - **Return on equity %:** - Third Quartile: 27.3 - Median: 19.5 - First Quartile: 7.8 This data provides a comprehensive look at the financial health and efficiency of companies within the Electronic Arts industry, indicating their liquidity, leverage, operational efficiency, and profitability. The ratios are vital for evaluating financial performance and making informed business decisions.
Transcribed Image Text:**EXHIBIT C2.3: Financial Ratios for the Electronic Arts Industry** This exhibit provides an overview of key financial ratios for the Electronic Arts industry, presented as industry averages across the third quartile, median, and first quartile results. - **Current (times):** - Third Quartile: 2.6 - Median: 1.7 - First Quartile: 1.3 - **Quick (times):** - Third Quartile: 1.6 - Median: 0.8 - First Quartile: 0.6 - **Debt %:** - Third Quartile: 41 - Median: 57 - First Quartile: 71 - **Times interest earned (times):** - Third Quartile: 7.4 - Median: 3.9 - First Quartile: 1.3 - **Inventory turnover (times):** - Third Quartile: 8.1 - Median: 6.9 - First Quartile: 3.5 - **Total asset turnover (times):** - Third Quartile: 3.5 - Median: 2.8 - First Quartile: 2.0 - **Average collection period (days):** - Third Quartile: 41 - Median: 50 - First Quartile: 68 - **Return on equity %:** - Third Quartile: 27.3 - Median: 19.5 - First Quartile: 7.8 This data provides a comprehensive look at the financial health and efficiency of companies within the Electronic Arts industry, indicating their liquidity, leverage, operational efficiency, and profitability. The ratios are vital for evaluating financial performance and making informed business decisions.
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