Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 1, Problem 10PC
Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firm’s economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.22 (pages 60–61) presents common-size condensed
- A. Amazon.com: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that reported in Exhibit 1.22.
- B. Carnival Corporation: Owns and operates cruise ships.
- C. Cisco Systems: Manufactures and sells computer networking and communications products.
- D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees.
- E. eBay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform.
- F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees.
- G. Johnson & Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products.
- H. Kellogg’s: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years.
- I. MGM Mirage: Owns and operates hotels, casinos, and golf courses.
- J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years.
- K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers.
- L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell, KFC, and Pizza Hut.
REQUIRED
Use the ratios to match the companies in Exhibit 1.22 with the firms listed above.
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statement are used by financial analysts to:
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What are financial ratios?
Using numerical values from financial statements, financial ratios are created to obtain useful information about a company. Using the numbers on a company's balance sheet, income statement, and cash flow statement, quantitative analysis of a company's liquidity, leverage, growth, margins, profitability, rates of return, valuation, and other factors can be performed. Financial analysis ratio is used for 2 main purpose; to track the company’s performance and to make comparative judgements of the company performance. Users from outside: Retail investors, financial analysts, creditors, rivals, tax and regulatory authorities, and industry observers are internal users. Owners, employees, and the management team.
Chapter 1 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 1 - Prob. 1QECh. 1 - Economic Attributes Framework Applied to the...Ch. 1 - Identification of Commodity Businesses. A recent...Ch. 1 - Identification of Company Strategies. Refer to the...Ch. 1 - Prob. 5QECh. 1 - Prob. 6QECh. 1 - Effect of Industry Economics on Balance Sheets....Ch. 1 - Effect of Business Strategy on Common-Size Income...Ch. 1 - Prob. 9QECh. 1 - Effect of Industry Characteristics on Financial...
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- Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.23 (pages 6263) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.23 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies and a brief description of their activities follow. A. Abercrombie Fitch: Sells retail apparel primarily through stores to the fashionconscious young adult and has established itself as a trendy, popular player in the specialty retailing apparel industry. B. Allstate Insurance: Sells property and casualty insurance, primarily on buildings and automobiles. Operating revenues include insurance premiums from customers and revenues earned from investments made with cash received from customers before Allstate pays customers claims. Operating expenses include amounts actually paid or expected to be paid in the future on insurance coverage outstanding during the year. C. Best Buy: Operates a chain of retail stores selling consumer electronic and entertainment equipment at competitively low prices. D. E. I. du Pont de Nemours: Manufactures chemical and electronics products. E. Hewlett-Packard: Develops, manufactures, and sells computer hardware. The firm outsources manufacturing of many of its computer components. F. 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Omnicom Group: Creates advertising copy for clients and is the largest marketing services firm in the world. Omnicom purchases advertising time and space from various media and sells it to clients. Operating revenues represent commissions and fees earned by creating advertising copy and selling media time and space. Operating expenses includes employee compensation. K. Pacific Gas Electric: Generates and sells power to customers in the western United States. L. Procter Gamble: Manufactures and markets a broad line of branded consumer products. REQUIRED Use the ratios to match the companies in Exhibit 1.23 with the firms listed above.arrow_forwardEffect of Industry Characteristics on Financial Statement Relations: A Global Perspective. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. 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