Student Ch03 FOF8e

CHAPTER 3 NEW PROBLEMS
UNDERSTANDING FINANCIAL STATEMENTS

AND CASH FLOW
3-1.
WORKING WITH INCOME STATEMENT
DATA
Net income
Shares outstanding
$280,000
80,000
Solution
Earnings per share
$3.50
3-2.
DATA
Sales
Cost of goods sold
General and administrative expenses
Depreciation expenses
Interest expense
Income taxes
$525,000
$200,000
$62,000
8,000
12,000
97,200
Solution
Income Statement and Common-Sized Income Statement:
Sales
Cost of Goods sold
Gross Profits
General & Admin expenses
62,000
Depreciation expense
8,000
Total operating expense
Operating income (EBIT)
Interest expense
Earnings before taxes
Taxes (40%)
Net Income
$525,000
200,000
325,000
70,000
255,000
12,000
243,000
97,200
$145,800
3-3.
WORKING WITH BALANCE SHEET
DATA
Cash
Account receivables
Accounts payable
Short-term notes payable
Inventories
Gross fixed assets
Other current assets
Accumulated depreciation
Long-term debt
Common stock
Other assets
Retained earnings
50,000
42,700
23,000
10,500
40,000
1,280,000
5,000
312,000
200000
490,000
15,000
?
Solution
Balance Sheet:
Cash
Accounts receivable
Inventory
Total current assets
Gross Buildings and equipment
Accumulated Depreciation
Net fixed assets
Other assets
Total assets
$50,000
42,700
40,000
5,000
137,700
1,280,000
312,000
968,000
15,000
$1,120,700
Notes payable
Accounts payable
Total current liabilities
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
Total liabilities and equity
$10,500
23,000
33,500
200,000
233,500
490,000
397,200
887,200
$1,120,700
Net Working Capital =

Debt Ratio =
$104,200
20.8%
3-4.
DATA
Cash
Account receivables
Accounts payable
Inventories
Gross fixed assets
Long-term debt
Common stock
Other assets
Retained earnings
30,000
63,800
52,500
11,000
66,000
1,061,000
86,000
210,000
480,000
25,000
?
Solution
Balance Sheet:
Cash
Accounts receivable
Inventory
Net fixed assets
Other assets
Total assets
$30,000
63,800
66,000
159,800
1,061,000
86,000
975,000
25,000
$1,159,800
Accounts payable
Notes payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
52,500
$11,000
11,000
210,000
221,000
480,000
458,800
938,800
$1,159,800
3-7.
WORKING WITH INCOME STATEMENT AND BALANCE SHEET
DATA
Sales
Cash
Cost of goods sold
Account receivables
Accounts payable
Interest expense
Income taxes
Inventories
Marketing, general and administrative expenses
Gross fixed assets
Long-term debt
Common stock
Other assets
Retained earnings
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
$550,000
190,000
?
$320,000
73,000
38,000
65,000
26,000
29,000
59,850
47,000
$45,000
648,000
360,000
120,000
15,000
138,500
$
$
$550,000
320,000
230,000
45,000
38,000
$
$
$
Balance Sheet:
Cash
83,000
147,000
26,000
121,000
59,850
$61,150
119,500
Accounts receivable
Inventory
Net fixed assets
Other assets
Total assets
73,000
47,000
239,500
648,000
190,000
458,000
15,000
$712,500
Accounts payable
Notes payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
$
$
$

Debt Ratio =
65,000
29,000
94,000
360,000
454,000
120,000
138,500
258,500
712,500
$145,500
63.7%
3-13.
WORKING WITH STATEMENT OF CASH FLOWS
DATA
Increase in inventories
Operating income
Dividends
Increase in accounts payables
Interest expense
Increase in common stock
Increase in accounts receivable
Increase in long-term debt
Increase in short-term notes payable
Increase in gross fixed assets
Increase in paid in capital
Income taxes
Beginning cash
$7,000
219,000
29,000
43,000
45,000
5,000
17,000
69,000
53,000
15,000
54,000
20,000
45,000
250,000
Solution
Cash Flows from Operating Activities
Net Income
Adjustments:
Depreciation
Increase in account payable
Net Cash provided by operating activities
$129,000
17,000
(69,000)
(7,000)
43,000
$113,000
Cash Flows from Investing Activities

Increase in plant and equipment
(54,000)
Cash Flows from Financing Activities

Increase in notes payable
Issued new common stock
Dividends
Net cash provided by financing activities
Net Decrease in cash

Beginning cash
Ending cash
15,000
53,000
25,000
(29,000)
64,000
$123,000
250,000
$373,000
MINI CASE
a. Comparison of profit margins from 2009 to 2010
Time Warner
Sales
Cost of goods sold
Gross profits
Selling, general, and administrative
expenses
Depreciation and amortization
Other operating expenses
Total operating expenses
2009
$25,388
14,235
$11,153
2010
$26,888
15,023
$11,865
6,073
6,126
280
330
6,683
264
47
6,437
Operating income
Interest expense
Nonoperating income (expenses)
Earnings before tax
Income taxes
Net income (loss)
Gross profit margin

Operating profit margin
Net profit margin
$4,470
1,166
(67)
$3,237
1,153
$2,084
$5,428
1,178
(331)
$3,919
1,348
$2,571
2009
2010
43.9%
17.6%
8.2%
44.1%
20.2%
9.6%
2009
$36,149
28,821
$7,328
2010
$38,063
29,624
$8,439
2,123
$5,205
466
919
$5,658
2,049
$3,609
1,983
$6,456
409
580
$6,627
2,314
$4,313
Walt Disney
Sales
Cost of goods sold
Gross profits
Selling, general, and
administrative expenses
Operating income
Interest expense
Earnings before tax
Income taxes
Net income (loss)
Gross profit margin

Net profit margin
2009
2010
20.3%
14.4%
10.0%
22.2%
17.0%
11.3%
b. Comparison of profit margins bertween Time Warner and Walt disney

Time Warner
2009
43.9%
17.6%
Gross profit margin

7
2010
44.1%
20.2%
Net profit margin
8.2%
9.6%
c. Comparison of balance sheets and asset-to-sales relationships
Sales
Total assers
Sales-to-assets
Time Warner
2009
25,388 $
66,059 $
0.38
$
$
3-A1
COMPUTING FREE ANDE FINANCING CASH FLOWS
DATA
increase in inventories
$
32
Operating income
215
Dividends
25
Increase in ACCOUNTS PAYABLE
48
interest expense
50
27
depreciation expense
20
78
increase in other current assets
25
55
Income taxes
45
Solution:
operating income
income taxes
215
(45)
20
190
$
Change in net operating working capital
Increase in other current assets
Increase in accounts payable
(32)
(78)
(25)
48
(87)
increase in fixed assets
(55)
2010
26,888
66,524
0.40
Free cash flows

Financing cash flows
Interest expense
Dividends
48
(50)
(25)
27
(48)
3-A2
INTERPRETING CASH FLOWS
No quantitative solution
3-A3
COMPUTING FREE AND FINANCING CASH FLOWS
DATA
2011
Cash
$89,000
Accounts receivable
$64,000
Inventory
$112,000
Prepaid expenses
$10,000
$275,000
Gross fixed assets
$238,000
($40,000)
Net fixed assets
$198,000
Total assets
$473,000
Accounts payable
Accrued liabilities
Mortgage payable
Total debt
Preferred stock
Common stock
Retained earnings
Total equity
Total debt and equity
$85,000
$68,000
$153,000
$70,000
$223,000
$0
$205,000
$45,000
$250,000
$473,000
Sales
Cost of goods sold
Gross profit
$184,000
(60,000)
$124,000
9
2012
$100,000
$70,000
$100,000
$10,000
$280,000
$311,000
($66,000)
$245,000
$525,000
$90,000
$63,000
$153,000
$0
$153,000
$120,000
$205,000
$47,000
$372,000
$525,000
Selling, general & administrative

Operating income
Interest expense
Earnings before tax
Taxes
Net income
(44,000)
(26,000)
$54,000
(4,000)
$50,000
(16,000)
$34,000
Preferred stock dividend

Earnings available to common stockholders
Dividends to common stockholders
Increase in retained earnings
$10,000
$24,000
$22,000
$2,000
Solution
Free Cash Flows :
After-tax cash flows from operations
Tax expense
Increase in current assets
Change in non-interest bearing current liab
Increase in net operating working capital
Purchase of fixed assets
Free Cash Flows :
Financing Cash Flows:
Interest expense
Repayment of long-term debt
Increase in preferred stock
Preferred stock dividends
Common stock dividends
$54,000
26,000
(16,000)
$64,000
($5,000)
$0
-5,000
-73,000
($14,000)
(4,000)
-70,000
120,000
-10,000
-22,000
14,000
3A-4.
COMPUTING FREE CASH FLOWS AND FREE CASH FLOWS ANALYSIS
DATA
Assets:
2011
10
2012
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Less: accumulated depreciation
Net plant and equipment
Total assets
$200
450
550
1,200
2,200
(1,000)
1,200
$2,400
$150
425
625
1,200
2,600
(1,200)
1,400
$2,600
Liabilities and Equity:

Accounts payable
Notes payable--current (9%)
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
Total liabilities and owners equity
2009
$200
200
600
2010
$150
150
300
600
900
700
1,600
$2,400
900
800
1,700
$2,600
Income Statement:
Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Net operating income
Interest expense
Net income before taxes
Taxes (40%)
Net income
2009
$1,200
700
500
30
220
250
50
200
80
$120
2010
$1,450
850
600
40
200
360
64
296
118
$178
Solution
Step 1: Determine the after-tax cash flows from operations
Plus depreciation
Less income tax expense
11
$360
200
(118)
$442
Step 2: Calculate the change in the net working capital

12/31/2011
Current assets
$1,200
Current liabilities
200
Net working capital
$1,000
Step 3: Compute the change in fixed and other assets

Change in gross fixed assets
Change in other assets
Change in gross fixed and other assets
Step 4: Wrapping it up
Less investments:
Investment in net working capital
Investment in gross fixed and other assets
Free cash flows
12/31/2012
$1,200
150
$1,050
$400
0
$400
$442
(50)
(400)
($8)
Cash flows distributed to investors

Interest paid to lenders
($64)
150
(78)
0
$8
12
100.0%
38.1%
61.9%
11.8%
1.5%
13.3%
48.6%
2.3%
46.3%
18.5%
27.8%
13
14
2.6%
5.5%
5.7%
13.8%
91.5%
7.4%
84.1%
2.2%
100.0%
4.5%
0.9%
0.9%
18.1%
19.1%
41.4%
39.6%
80.9%
100.0%
15
16
17
2009
100.0%
56.1%
43.9%
2010
100.0%
55.9%
44.1%
23.9%
1.1%
1.3%
26.3%
22.8%
1.0%
0.2%
23.9%
18
17.6%
4.6%
-0.3%
12.8%
4.5%
8.2%
20.2%
4.4%
-1.2%
14.6%
5.0%
9.6%
Increase
(Decrease)
% Change
0.2%
0.4%
2.6%
14.7%
1.4%
16.5%
2009
100.0%
79.7%
20.3%
2010
100.0%
77.8%
22.2%
5.9%
14.4%
1.3%
2.5%
15.7%
5.7%
10.0%
5.2%
17.0%
1.1%
1.5%
17.4%
6.1%
11.3%
Increase
(Decrease)
% Change
1.9%
9.4%
2.6%
17.8%
1.3%
13.5%
Walt Disney
2009
20.3%
14.4%
2010
22.2%
17.0%
19
10.0%
$
$
11.3%
Walt Disney
2009
2010
36,149 $
38,063
63,117 $
69,206
0.57
0.55
20
change
$11,000
$6,000
($12,000)
$0
$5,000
$73,000
($26,000)
$47,000
$52,000
$5,000
($5,000)
$0
($70,000)
($70,000)
$120,000
$0
$2,000
$122,000
$52,000
21
22
23
Changes
$0
($50)
($50)
24
CHAPTER 3 PROBLEMS
AND CASH FLOW
3-1.
REVIEW OF FINANCIAL STATEMENTS
DATA
Inventory
General and admin. Expenses
Common Stock
Cash
Operating expenses
Notes payable
Interest expense
Net Sales
Accounts receivable
Accounts payable
Long-Term Debt
Cost of Goods sold
Buildings and Equipment
Taxes
Retained earnings
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profit
Interest expense
Taxes (40%)
Net Income
850
500
Balance Sheet:
Cash
Accounts receivable
Inventory
Buildings and equipment
Net buildings and equipment
Total assets
Accounts payable
Notes payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
3-2.
COMPUTING CASH FLOWS
DATA
Operating Income
Interest Expense
Dividens
Increase in net fixed assets
Depreciation Expense
Income taxes
Beginnnig cash
Solution
*Net Income
Adjustments:
Depreciation
Net Cash provided by operating activites
Cash Flows from Investing Acitvities
**Increase in gross fixed assets
Cash Flows from Financing Acitvities
Dividens
Decrease in Cash
Beginning Cash
Ending cash
* Net Income = operating income interest expense income taxes
** The change in gross fixed assets is equal to the change in net fixed assets ($23) plus the
depreciation expense for the year of $12, resulting in a change in gross fixed assets of $35.
3-3.
DATA
Cash
Long-Term Debt
Net Sales
Accounts payable
Notes payable
Accounts receivable
Interest expense
Accrued expenses
Common Stock
Cost of Goods sold

Inventory
Taxes
Prepaid expenses
Taxes payable
Retained earnings
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
Balance Sheet:
Cash
Accounts receivable
Inventory
Prepaid expenses
Net fixed assets
Total assets
Notes payable
Accounts payable
Taxes payable
Accrued expenses
Long-term debt
Total Liabilities
79,000
66,000
Common Stock
Retained earnings
Total equity
A)
Debt Ratio =
B)
Common-Sized Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
$573,000
297,000
276,000
79,000
66,000
145,000
131,000
4,750
126,250
50,500
$75,750
Common-Sized Balance Sheet:

Cash
Accounts receivable
Inventory
Prepaid expenses
Net fixed assets
Total assets
225,000
153,000
99,300
14,500
491,800
895,000
263,000
632,000
1,123,800
Notes payable
Accounts payable
Taxes payable
Accrued expenses
Long-term debt
75,000
102,000
53,000
7,900
237,900
334,000
Total Liabilities
Common Stock
Retained earnings
Total equity
571,900
289,000
262,900
551,900
1,123,800
3-4.
STATEMENT OF CASH FLOWS
Westlake Corporation generated a positive cash flow from operations ($566),
but even a greater amount was used to invest in fixed assets ($1,064).
3-5.
DATA
Dividends
Operating income
Interest expense
Increase in bank debt
Increase in accrued expenses
Income taxes
Solution
*Net Income
Adjustments:
Depreciation

Dividens
Increase in cash
Problem 3-6 does not have a numerical solution.
3-7.
INTERPRETING FINANCIAL STATEMENTS AND MEASURING CASH FLOWS
DATA
Assets:
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Total assets
Accounts payable
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
Income Statement:
2009
$200
450
550
1,200
2,200
(1,000)
1,200
$2,400
2009
$200
200
600
900
700
1,600
$2,400
2009
Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Interest expense
Taxes (40%)
Net income
$1,200
700
500
30
220
250
50
200
80
$120
Solution
A)
Debt Ratio =
B)
Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Interest expense
Taxes (40%)
Net income
2010
$1,450
850
600
40
200
360
64
296
118
$178
Common-Sized Balance Sheet

Assets:
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Total assets
2010
$150
425
625
1,200
2,600
(1,200)
1,400
$2,600

Accounts payable
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
2010
$150
150
300
600
900
800
1,700
$2,600

Net Income
Adjustments:
Depreciation
Decrease in accounts receivable
Decrease in account payable
Dividens
Cash, January1, 2010
Cash, December 31, 2010
3-8.
DATA
Balance Sheet:
Cash
Marketable Securities
Receivables
Inventory
2009
$15,000
6,000
42,000
51,000
Prepaid expenses
Gross plant and equipment
Total assets
1,200
115,200
316,000
(30,000)
$401,200
Accounts payable
Accruals
Notes payable
Long-term debt
Common stock
2009
$48,000
6,000
15,000
69,000
160,000
172,200
$401,200
Sales
Cost of goods sold
Gross profit
Less: Operating and interest expenses:
General and administration
Interest
Depreciation
Total Operating and interest expenses
Less: Taxes
Net income available to common stockholders
Less: Cash dividends
Change in Retained earnings
Solution
A)
Net working capital =
Debt Ratio =
B)
Statement of Cash Flows
Net Income
Adjustments
30,000
10,000
30,000
$63,300
55.1%
42,900
Depreciation
Increase in marketable securities
Prepaid Expenses
Increase in inventories (less A/P)
Decrease in accruals
Decrease in notes payable
Net cash provided by operating activities
Increase in gross plant and equipment

Decrease in debt
Dividends
Net decrease in cash
Cash, January 1, 2010
30,000
(200)
9,000
100
(24,000)
(1,000)
(2,000)
(14,000)
(10,000)
(31,800)
(1,000)
15,000
14,000
C)
Balance Sheet:
Cash
Receivables
Inventory
Prepaid expenses
Net fixed assets
Total assets
($1,000)
$200
($9,000)
$33,000
($100)
$23,100
($16,000)
$7,100
Accounts payable
Accruals
Notes payable
Long-term debt
Common stock
$9,000
($1,000)
($2,000)
$6,000
($10,000)
$11,100
$7,100
3-9.
MEASURING CASH FLOWS
DATA
Abrahams Manufacturing Company Balance Sheet
At 12/31/2009 and 12/31/2010
Assets:
Cash
Accounts Receivable
Inventory
Prepaid expenses
Total assets
2009
$89,000
64,000
112,000
10,000
275,000
238,000
(40,000)
$473,000
Liabilities and Equity

Accounts Payable
Accrued liabilities
Mortgage Payable
Preferred stock
Common stock
Retained earnings
2009
$85,000
68,000
153,000
70,000
0
205,000
45,000
$473,000
Abrahams Manufacturing Company Income Statement

For the Year Ended 12/31/2010
Sales (all credit)
Less: cost of goods sold
Gross profits
Less: operating expenses
General and administrative
Depreciation
Total
Operating income
Interest expense
Taxes
44,000
26,000

1. The only entry in the accumulated depreciation account is for 2010 depreciation.
2. Common stock dividends for 2010
22,000
Solution
Net Income
Adjustments
Depreciation
Decrease in inventory
Decrease in accrued liabilities
Net cash provided from operating activities
24,000
26,000
(6,000)
12,000
5,000
(5,000)

Net cash used for investing activities
(73,000)

Decrease in mortgage payable
Dividends
Net cash provided from financing activities
(70,000)
120,000
(22,000)
Net increase in cash

11,000
89,000
$100,000
3-10.
CORPORATE INCOME TAX
Sales
Cost of Goods Sold and Operating Expenses
Operating Income
Other Taxable Income and Expenses:
Interest Expense
Total Taxable Income

Tax Computation:
Tax rates
15% $
25%
34%
Income
50,000
25,000
425,000
$500,000
surtax for income between $100,000 and $335,000

5%
Tax Liability
3-11.
Sales
Cost of Goods Sold
Gross Profits
Operating Expenses
Operating Income
Interest Income
Interest Expense
Tax Computation
20,000
(100,000)
Tax rates
15% $
25%
34%
Income
50,000
25,000
1,845,000
$1,920,000

5%
Tax Liability
3-12.
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Cash operating expenses
Depreciation
Operating Income
Interest Expense
Tax Computation
Tax rates
15% $
25%
34%
Income
50,000
25,000
275,000
$350,000

5%
Tax Liability
MINI CASE
DATA
Income Statements
For the years ending 2008 and 2009
Sales
Cost of goods sold
Gross profit
Toyota
2008
$262,394
199,912
62,482
Selling, general, and administrative expenses

Operating profit
Interest expense
Nonoperating income
Taxable Income
Income Taxes
Income before extraordinary items
Extraordinary items
Net income
Annual Balance Sheet ($ millions)
At 12/31/2008 and 12/31/2009
24,938
14,883
22,661
460
4,043
26,244
9,098
17,146
Toyota
2008
Assets:
Cash & equivalents
Accounts receivables
Inventories
Gross plant, property & equipment
Net plant, property & equipment
Investments
Intangibles
Other assets
Total assets
$23,012
68,519
18,222
10,880
120,633
173,633
95,661
77,972
125,363
$323,968
Liabilities:
Accounts payable
Notes payable
Accrued expenses
Short-term notes
Income Taxes Payable
Other current liabilities
Long term notes
Deferred Taxes
Other long-term liabilities
Total Liabilities
Common stock
Paid-in capital
Retained earnings
Less: Treasury Stock
Common equity
46,124
22,086
16,039
3,050
31,882
119,181
59,706
10,969
15,642
205,498
3,963
4,966
121,443
(11,902)
118,470
$323,968
Solution
A)
Common-Sized Income Statement
Sales
Cost of goods sold
Gross profit
Toyota
2008
$262,394
199,912
62,482

Operating profit
Interest expense
Nonoperating income
Taxable Income
Income Taxes
Net income
24,938
14,883
22,661
460
4,043
26,244
9,098
17,146
General Motors
Common-Sized Income Statement

Sales
Cost of goods sold
Gross profit
Operating profit
Interest expense
Nonoperating income
Taxable Income
Income Taxes
Income before extraordinary items
Extraordinary items
Net income
2007
$179,984
160,856
19,128
14,412
9,513
(4,797)
3,307
1,969
(6,135)
37,162
(43,297)
4,565
(38,732)
Toyota

Assets:
Cash & equivalents
Inventories
Investments
Intangibles
Other assets
2008
$23,012
68,519
18,222
10,880
120,633
173,633
95,661
77,972
125,363
Total assets
Liabilities:
Accounts payable
Notes payable
Accrued expenses
Short-term notes
Long term notes
Total Liabilities
Common stock
Paid-in capital
Retained earnings
Common equity
$323,968
$46,124
22,086
16,039
31,882
119,181
59,706
15,642
205,498
3,963
4,966
121,443
118,470
$323,968
General Motors

Assets:
Cash & equivalents
Inventories
Investments
Intangibles
Other assets
Total assets
Liabilities:
Accounts payable
Notes payable
Accrued expenses
Short-term notes
2007
$26,956
9,659
14,939
8,849
60,403
97,319
47,590
49,729
0
38,751
$148,883
$29,439
6,047
34,024
0
5,813

Long term notes
Total Liabilities
Common stock
Paid-in capital
Retained earnings
Common equity
B)
Gross profits/sales
Operating profits/sales
Net Income/sales
C)
This question does not have a numerical solution
D)
F)
75,323
33,384
77,270
185,977
943
15,319
(53,356)
(37,094)
$148,883
Toyota
23.8%
8.6%
6.5%
BLEMS
AL STATEMENTS
OW
6,500
850
45,000
16,550
1,350
600
900
500
12,800
9,600
4,800
55,000
5,750
122,000
34,000
1,440
?
$12,800
5,750
7,050
1,350
5,700
900
4,800
1,440
$3,360
$16,550
9,600
6,500
32,650
122,000
34,000
88,000
$120,650
$4,800
600
5,400
55,000
60,400
45,000
15,250
60,250
$120,650
25
30
75
25
25
15
20
23
12
17
20
$33
12
(25)
(30)
25
$15
($35)
$20
($15)
$5
($15)
20
$5
ssets ($23) plus the

fixed assets of $35.
-5
66,000
225,000
334,000
573,000
102,000
79,000
895,000
75,000
153,000
4,750
7,900
289,000
297,000
99,300
50,500
263,000
14,500
53,000
262,900
$573,000
297,000
276,000
145,000
131,000
4,750
126,250
50,500
$75,750
$225,000
153,000
99,300
14,500
491,800
895,000
263,000
632,000
$1,123,800
$75,000
102,000
53,000
7,900
237,900
334,000
571,900
289,000
262,900
551,900
$1,123,800
$253,900
50.9%
100.0%
51.8%
48.2%
13.8%
11.5%
25.3%
22.9%
0.8%
22.0%
8.8%
13.2%
20.0%
13.6%
8.8%
1.3%
43.8%
79.6%
-23.4%
56.2%
100.0%
6.7%
9.1%
4.7%
0.7%
21.2%
29.7%
50.9%
25.7%
23.4%
49.1%
100.0%
25
27
65
5
215
40
50
20
48
15
55
45
$120
20
(65)
(5)
40
15
$125
($55)
$27
$48
($25)
$50
$120
CASH FLOWS
2010
$150
425
625
1,200
2,600
(1,200)
1,400
$2,600
2010
$150
150
300
600
900
800
1,700
$2,600
2010
$1,450
850
600
40
200
360
64
296
118
$178
$900
34.6%
100.0%
58.6%
41.4%
2.8%
13.8%
24.8%
4.4%
20.4%
8.1%
12.3%
5.8%
16.3%
24.0%
46.2%
100.0%
-46.2%
53.8%
100.0%
5.8%
5.8%
11.5%
23.1%
34.6%
30.8%
65.4%
100.0%
$178
200
25
(75)
($50)
$278
(400)
150
($78)
72
($50)
$200
$150
CASH FLOWS
2010
$14,000
6,200
33,000
84,000
($1,000)
$200
($9,000)
$33,000
1,100
138,300
330,000
(60,000)
$408,300
($100)
$23,100
$14,000
($30,000)
$7,100
2010
$57,000
5,000
13,000
75,000
150,000
183,300
$408,300
$9,000
($1,000)
($2,000)
$6,000
($10,000)
$11,100
$7,100
$600,000
460,000
140,000
70,000
70,000
27,100
42,900
31,800
$11,100
$54,800
($14,000)
($41,800)
2010
$100,000
70,000
100,000
10,000
280,000
311,000
(66,000)
$525,000
2010
$90,000
63,000
153,000
0
120,000
205,000
47,000
$525,000
$184,000
60,000
124,000
70,000
54,000
4,000
50,000
16,000
10,000
24,000
depreciation.
$56,000
($73,000)
$28,000
$
$
3,000,000
(2,100,000)
900,000
(400,000)
$500,000
Taxes
7,500
6,250
144,500
$158,250
11,750
$170,000
$
$
$
5,000,000
(2,000,000)
3,000,000
(1,000,000)
2,000,000
(80,000)
$1,920,000
Taxes
7,500
6,250
627,300
$641,050
11,750
$652,800
3,000,000
(2,000,000)
1,000,000
(400,000)
(100,000)
500,000
(150,000)
$350,000
Taxes
7,500
6,250
93,500
$107,250
11,750
$119,000
Toyota
General Motors
2009
$208,995
172,663
36,332
2007
$179,984
160,856
19,128
2008
$148,979
149,311
(332)
25,804
15,221
(4,693)
477
147
(5,023)
(575)
(4,448)
14,412
9,513
(4,797)
3,307
1,969
(6,135)
37,162
(43,297)
4,565
(38,732)
14,801
9,931
(25,064)
3,055
(975)
(29,094)
1,766
(30,860)
(30,860)
Toyota
2009
Change
2007
General Motors
2008
$30,386
57,181
14,857
12,601
115,025
175,027
(99,677)
75,350
105,482
$295,857
$7,374
($11,338)
($3,365)
$1,721
($5,608)
$1,394
($195,338)
($2,622)
$0
$0
($19,881)
$26,956
9,659
14,939
8,849
60,403
97,319
47,590
49,729
0
0
38,751
$148,883
$14,066
7,711
13,042
6,505
41,324
86,919
45,042
41,877
0
0
7,846
$91,047
13,229
48,627
15,684
522
29,739
107,801
64,150
6,539
14,942
193,432
4,042
5,102
106,117
(12,836)
102,425
$295,857
($32,895)
$26,541
($355)
###
(2,528)
($2,143)
($11,380)
$4,444
($4,430)
($700)
($12,066)
$79
$136
($15,326)
($934)
29,439
6,047
34,024
-
22,236
15,754
35,921
###
5,813
75,323
33,384
1,822
75,733
29,594
77,270
185,977
943
15,319
(53,356)
71,874
177,201
1,017
15,755
(102,926)
(37,094)
$148,883
(86,154)
$91,047
Toyota
2008
100.0%
76.2%
23.8%
2009
$208,995
172,663
36,332
100.0%
82.6%
17.4%
9.5%
5.7%
8.6%
0.2%
1.5%
10.0%
3.5%
6.5%
25,804
15,221
(4,693)
477
147
(5,023)
(575)
(4,448)
12.3%
7.3%
-2.2%
0.2%
0.1%
-2.4%
-0.3%
-2.1%
100.0%
89.4%
10.6%
2008
$148,979
149,311
(332)
100.0%
100.2%
-0.2%
8.0%
5.3%
-2.7%
1.8%
1.1%
-3.4%
20.6%
-24.1%
2.5%
-21.5%
14,801
9,931
(25,064)
3,055
(975)
(29,094)
1,766
(30,860)
(30,860)
9.9%
6.7%
-16.8%
2.1%
-0.7%
-19.5%
1.2%
-20.7%
0.0%
-20.7%
General Motors
2007
Toyota
2008
2009
7.1%
21.1%
5.6%
3.4%
37.2%
53.6%
29.5%
24.1%
0.0%
0.0%
38.7%
$30,386
57,181
14,857
12,601
115,025
175,027
(99,677)
75,350
105,482
10.3%
19.3%
5.0%
4.3%
38.9%
59.2%
-33.7%
25.5%
0.0%
0.0%
35.7%
100.0%
$295,857
100.0%
14.2%
6.8%
5.0%
0.0%
9.8%
36.8%
18.4%
4.8%
63.4%
1.2%
1.5%
37.5%
36.6%
100.0%
$13,229
48,627
15,684
0
29,739
107,801
64,150
14,942
193,432
4,042
5,102
106,117
102,425
$295,857
4.5%
16.4%
5.3%
0.0%
10.1%
36.4%
21.7%
5.1%
65.4%
1.4%
1.7%
35.9%
34.6%
100.0%
General Motors
2007
2008
18.1%
6.5%
10.0%
5.9%
40.6%
65.4%
32.0%
33.4%
0.0%
0.0%
26.0%
100.0%
$14,066
7,711
13,042
6,505
41,324
86,919
45,042
41,877
0
0
7,846
$91,047
15.4%
8.5%
14.3%
7.1%
45.4%
95.5%
49.5%
46.0%
0.0%
0.0%
8.6%
100.0%
19.8%
4.1%
22.9%
0.0%
3.9%
$22,236
15,754
35,921
0
1,822
24.4%
17.3%
39.5%
0.0%
2.0%
50.6%
22.4%
51.9%
124.9%
0.6%
10.3%
-35.8%
-24.9%
100.0%
GM
10.6%
-2.7%
-21.5%
75,733
29,594
71,874
177,201
1,017
15,755
(102,926)
(86,154)
$91,047
83.2%
32.5%
78.9%
194.6%
1.1%
17.3%
-113.0%
-94.6%
100.0%
al Motors
Change
($12,890)
($1,948)
($1,897)
($2,344)
($19,079)
($10,400)
($2,548)
($7,852)
$0
$0
($30,905)
($7,203)
$9,707
$1,897
($3,991)
$410
($3,790)
($5,396)
($8,776)
$74
$436
($49,570)
CHAPTER 3 PROBLEMS
AND CASH FLOW
3-1.
DATA
Net income
Shares outstanding
$280,000
80,000
Solution
Earnings per share
3-2.
DATA
Sales
Cost of goods sold
General and administrative expenses
Interest expense
Income taxes
Solution
Income Statement and Common-Sized Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
3-3.
$525,000
200000
62000
8,000
12,000
97,200
DATA
Cash
Account receivables
Accounts payable
Inventories
Gross fixed assets
Long-term debt
Common stock
Other assets
Retained earnings
Solution
Balance Sheet:
Cash
Accounts receivable
Inventories
Net fixed assets
Other assets
Total assets
Notes payable
Accounts payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
Debt Ratio =
3-4.
50,000
42,700
23,000
10,500
40,000
1,280,000
5,000
312,000
200,000
490,000
15,000
?
DATA
Cash
Account receivables
Accounts payable
Inventories
Gross fixed assets
Long-term debt
Common stock
Other assets
Retained earnings
30,000
63,800
52,500
11,000
66,000
1,061,000
86,000
210,000
480,000
25,000
?
Solution
Balance Sheet:
Cash
Accounts receivable
Inventories
Gross fixed assets
Net fixed assets
Other assets
Total assets
Accounts payable
Notes payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
3-5.
DATA
Inventory
Common Stock
6,500
850
45,000
Cash
Operating expenses
Notes payable
Interest expense
Net Sales
Accounts receivable
Accounts payable
Long-Term Debt
Cost of Goods sold
Taxes
Retained earnings
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profit
Interest expense
Taxes (40%)
Net Income
Balance Sheet:
Cash
Accounts receivable
Inventory
Buildings and equipment
Net buildings and equipment
Total assets
Accounts payable
Notes payable
Long-term debt
16,550
1,350
600
900
500
12,800
9,600
4,800
55,000
5,750
122,000
34,000
1,440
?
Total Liabilities
Common Stock
Retained earnings
Total equity
3-6.
DATA
Cash
Long-Term Debt
Net Sales
Accounts payable
Notes payable
Accounts receivable
Interest expense
Accrued expenses
Common Stock
Cost of Goods sold
Inventory
Taxes
Prepaid expenses
Taxes payable
Retained earnings
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
$66,000
225,000
334,000
573,000
102,000
79,000
895,000
75,000
153,000
4,750
7,900
289,000
297,000
99,300
50,500
263,000
14,500
53,000
262,900
Balance Sheet:
Cash
Accounts receivable
Inventory
Prepaid expenses
Net fixed assets
Total assets
Notes payable
Accounts payable
Taxes payable
Accrued expenses
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
A)
Debt Ratio =
B)
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
Common-Sized Balance Sheet:
Cash
Accounts receivable
Inventory
Prepaid expenses
Net fixed assets
Total assets
Notes payable
Accounts payable
Taxes payable
Accrued expenses
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
3-7.
WORKING WITH INCOME STATEMENT AND BALANCE SHEET
DATA
Sales
Cash
Cost of goods sold
Account receivables
Accounts payable
Interest expense
Income taxes
Inventories
Marketing, general and administrative expenses
Gross fixed assets
Long-term debt
Common stock
Other assets
Retained earnings
$550,000
190,000
?
320,000
73,000
38,000
65,000
26,000
29,000
59,850
47,000
45,000
648,000
360,000
120,000
15,000
138,500
Solution
Income Statement:
Sales
Cost of Goods sold
Gross Profits
Interest expense
Taxes (40%)
Net Income
Number of common shares outstanding
Earnings per share
Dividends paid to stockholders
Dividends per share
Balance Sheet:
Cash
Accounts receivable
Inventory
Net fixed assets
Other assets
Total assets
Accounts payable
Notes payable
Long-term debt
Total Liabilities
Common Stock
Retained earnings
Total equity
Debt Ratio =
3-8.
DATA
Operating Income
Interest Expense
Dividends
Increase in net fixed assets
Depreciation Expense
Income taxes
Beginning cash
Solution
*Net Income
Adjustments:
Depreciation
Net Cash provided by operating activates
**Increase in gross fixed assets
Dividends
Decrease in Cash
Beginning Cash
Ending cash
25
30
75
25
25
15
20
23
12
17
20
3-9.
STATEMENT OF CASH FLOWS
No computations required.
3-10.
DATA
Dividends
Operating income
Interest expense
Income taxes
Beginning Cash
Solution
*Net Income
Adjustments:
Depreciation
$25
27
65
5
215
40
50
20
48
15
55
45
20
Dividends
Increase in cash
Beginning cash
Ending cash
Problem 3-11 does not have a numerical solution.
3-12.
MEASURING CASH FLOWS
DATA
Abrahams Manufacturing Company Balance Sheet
At 12/31/2011 and 12/31/2012
Assets:
Cash
Accounts Receivable
Inventory
Prepaid expenses
Total assets
2011
$89,000
64,000
112,000
10,000
275,000
238,000
(40,000)
$473,000
2012
$100,000
70,000
100,000
10,000
280,000
311,000
(66,000)
$525,000
Liabilities and Equity

Accounts Payable
Accrued liabilities
Mortgage Payable
Preferred stock
Common stock
Retained earnings
2011
$85,000
68,000
$153,000
70,000
0
205,000
45,000
$473,000
2012
$90,000
63,000
$153,000
0
120,000
205,000
47,000
$525,000
Abrahams Manufacturing Company Income Statement

For the Year Ended 12/31/2012
Sales (all credit)
Less: cost of goods sold
Gross profits
Less: operating expenses
$184,000
60,000
124,000
General and administrative

Depreciation
Total
Operating income
Interest expense
Taxes
44,000
26,000
1. The only entry in the accumulated depreciation account is for 2012 depreciation.
2. Common stock dividends for 2012
22,000
3. Net income is computed before dividend payments, or $34,000
Solution
Net Income
Adjustments
Depreciation
Decrease in inventory
Decrease in accrued liabilities
Net cash provided from operating activities
Net cash used for investing activities
Decrease in mortgage payable
Net cash provided from financing activities
Net increase in cash
3-13.
70,000
54,000
4,000
50,000
16,000
10,000
24,000
WORKING WITH STATEMENT OF CASH FLOWS

DATA
Operating income
Dividends
Increase in accounts payables
Interest expense
Increase in short-term notes payable
Increase in paid in capital
Income taxes
Beginning cash
Solution
Net Income
Adjustments:
Depreciation
Net Cash provided by operating activities
Issued new common stock
Dividends
Beginning cash
Ending cash
$7,000
219,000
29,000
43,000
45,000
5,000
17,000
69,000
53,000
15,000
54,000
20,000
45,000
250,000
3-14.
DATA
Assets:
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Total assets
2011
$200
450
550
$1,200
$2,200
(1,000)
1,200
$2,400
2012
$150
425
625
$1,200
$2,600
(1,200)
1,400
$2,600

Accounts payable
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
2011
$200
200
600
2012
$150
150
300
600
900
700
1,600
$2,400
900
800
1,700
$2,600
Income Statement:
Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Interest expense
Taxes (40%)
Net income
2011
$1,200
700
500
30
220
250
50
200
80
$120
2012
$1,450
850
600
40
200
360
64
296
118
$178
Solution
A)
Debt Ratio =
B)

Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Operating income
Interest expense
Taxes (40%)
Net income
Assets:
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Total assets
Accounts payable
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
Net Income
Adjustments:
Depreciation
Decrease in account payable
2012
2012
2012

Dividends
Cash, January1, 2012
3-15.
DATA
Balance Sheet:
Cash
Receivables
Inventory
Prepaid expenses
Total assets
2011
$15,000
6,000
42,000
51,000
1,200
115,200
316,000
(30,000)
$401,200
2012
$14,000
6,200
33,000
84,000
1,100
138,300
330,000
(60,000)
$408,300
Accounts payable
Accruals
Notes payable
Long-term debt
Common stock
2011
$48,000
6,000
15,000
69,000
160,000
172,200
$401,200
2012
$57,000
5,000
13,000
75,000
150,000
183,300
$408,300
Sales
Cost of goods sold
Gross profit
Less: Operating and interest expenses:
General and administration
Interest
Depreciation
$600,000
460,000
140,000
30,000
10,000
30,000
Total Operating and interest expenses

Less: Taxes
Less: Cash dividends
Change in Retained earnings
Solution
A)
Net working capital =
Debt Ratio =
B)
Net Income
Adjustments
Depreciation
Increase in marketable securities
Prepaid Expenses
Increase in inventories (less A/P)
Decrease in accruals
Net cash provided by operating activities

Decrease in notes payable
Decrease in debt
Dividends
Net decrease in cash
C)
Changes in the balance sheet:
Cash
70,000
70,000
27,100
42,900
31,800
$11,100
Receivables
Inventory
Prepaid expenses
Net fixed assets
Total assets
Accounts payable
Accruals
Notes payable
Long-term debt
Common stock
3-16.
Sales
Cost of Goods Sold and Operating Expenses
Operating Income
Interest Expense
Tax Computation:
3,000,000
(2,100,000)
(400,000)
Tax rates
Income
Taxes
5 % surtax for income between $100,000 and $335,000

5%
Tax Liability
3-17.
Sales
Cost of Goods Sold
5,000,000
(2,000,000)
Gross Profits
Operating Expenses
Operating Income
Interest Income
Interest Expense
Tax Computation
(1,000,000)
Tax rates
20,000
(100,000)
Income
Taxes
5% surtax for income between $100,000 and $335,000

5%
Tax Liability
3-18.
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Cash operating expenses
Depreciation
Operating Income
Interest Expense
Tax Computation
(400,000)
(100,000)
(150,000)
-$150,000
Tax rates

5%
Tax Liability
3,000,000
(2,000,000)
Income
Taxes
MINI CASE
a. Comparison of profit margins from 2009 to 2010
Time Warner
Sales
Cost of goods sold
Gross profits
Other operating expenses
Total operating expenses
Operating income
Interest expense
Earnings before tax
Income taxes
Net income (loss)
2009
$25,388
14,235
$11,153
6,073
280
330
6,683
$4,470
1,166
(67)
$3,237
1,153
$2,084
2010
$26,888
15,023
$11,865
6,126
264
47
6,437
$5,428
1,178
(331)
$3,919
1,348
$2,571
2009
2010
2009
$36,149
28,821
$7,328
2,123
$5,205
466
919
$5,658
2,049
$3,609
2010
$38,063
29,624
$8,439
1,983
$6,456
409
580
$6,627
2,314
$4,313
2009
2010
Gross profit margin

Net profit margin
Walt Disney
Sales
Cost of goods sold
Gross profits
Operating income
Interest expense
Earnings before tax
Income taxes
Net income (loss)
Gross profit margin

Net profit margin
b. Comparison of profit margins between Time Warner and Walt Disney
Time Warner
2009
2010
Time Warner
2009
25,388 $
66,059 $
2010
26,888
66,524
Gross profit margin

Net profit margin
c. Comparison of balance sheets and asset-to-sales relationships
Sales
Total assets
Sales-to-assets
$
$
APPENDIX SOLUTIONS
3-A1
COMPUTING FREE ANDE FINANCING CASH FLOWS
DATA
increase in inventories
Operating income
Dividends
Increase in ACCOUNTS PAYABLE
interest expense
depreciation expense
increase in other current assets
Income taxes
Solution:
operating income
income taxes
32
215
25
48
50
27
20
78
25
55
45

Increase in other current assets
increase in fixed assets
Free cash flows
Interest expense
Dividends
3-A2
INTERPRETING CASH FLOWS
No quantitative solution
3-A3
COMPUTING FREE AND FINANCING CASH FLOWS
DATA
Cash
Accounts receivable
Inventory
Prepaid expenses
Gross fixed assets
Net fixed assets
Total assets
Accounts payable
Accrued liabilities
Mortgage payable
Total debt
Preferred stock
Common stock
Retained earnings
2011
$89,000
$64,000
$112,000
$10,000
$275,000
$238,000
($40,000)
$198,000
$473,000
2012
$100,000
$70,000
$100,000
$10,000
$280,000
$311,000
($66,000)
$245,000
$525,000
$85,000
$68,000
$153,000
$70,000
$223,000
$0
$205,000
$45,000
$90,000
$63,000
$153,000
$0
$153,000
$120,000
$205,000
$47,000
Total equity
Total debt and equity
$250,000
$473,000
Sales
Cost of goods sold
Gross profit
Selling, general & administrative
Operating income
Interest expense
Earnings before tax
Taxes
Net income
$184,000
(60,000)
$124,000
(44,000)
(26,000)
$54,000
(4,000)
$50,000
(16,000)
$34,000
Preferred stock dividend

Dividends to common stockholders
Increase in retained earnings
Solution
Free Cash Flows :
Tax expense
Increase in current assets
Change in non-interest bearing current liabilities
Increase in net operating working capital
Purchase of fixed assets
Free Cash Flows :
Financing Cash Flows:
Interest expense
Repayment of long-term debt
3A-4.
$10,000
$24,000
$22,000
$2,000
$372,000
$525,000
COMPUTING FREE CASH FLOWS AND FREE CASH FLOWS ANALYSIS

DATA
Assets:
Cash
Accounts Receivable
Inventory
Current assets
Plant and equipment
Total assets
2011
$200
450
550
1,200
2,200
(1,000)
1,200
$2,400
2012
$150
425
625
1,200
2,600
(1,200)
1,400
$2,600

Accounts payable
Current liabilities
Bonds
Owners equity
Common stock
Retained earnings
Total owners equity
2011
$200
200
600
2012
$150
150
300
600
900
700
1,600
$2,400
900
800
1,700
$2,600
Income Statement:
Sales
Cost of goods sold
Gross profit
Operating expenses
Depreciation
Interest expense
Taxes (40%)
Net income
2011
$1,200
700
500
30
220
250
50
200
80
$120
2012
$1,450
850
600
40
200
360
64
296
118
$178
Solution
Step 1: Determine the after-tax cash flows from operations
Plus depreciation
Less income tax expense
Step 2: Calculate the change in the net working capital

12/31/2011
Current assets
Current liabilities
Net working capital
Step 3: Compute the change in fixed and other assets

Change in gross fixed assets
Change in other assets
Change in gross fixed and other assets
Step 4: Wrapping it up
Less investments:
Investment in net working capital
Investment in gross fixed and other assets
Free cash flows
Cash flows distributed to investors

Interest paid to lenders
12/31/2012
change
($1,000)
$200
($9,000)
$33,000
($100)
$23,100
$14,000
($30,000)
$7,100
$9,000
($1,000)
($2,000)
$6,000
($10,000)
$11,100
$7,100
2009
100.0%
56.1%
43.9%
23.9%
1.1%
1.3%
26.3%
17.6%
4.6%
-0.3%
12.8%
4.5%
8.2%
Increase
(Decrease)
2009
100.0%
79.7%
20.3%
5.9%
14.4%
1.3%
2.5%
15.7%
5.7%
10.0%
Increase
(Decrease)
2010
100.0%
55.9%
44.1%
22.8%
1.0%
0.2%
23.9%
20.2%
4.4%
-1.2%
14.6%
5.0%
9.6%
% Change
2010
100.0%
77.8%
22.2%
5.2%
17.0%
1.1%
1.5%
17.4%
6.1%
11.3%
% Change
$
$
Walt Disney
2009
2010
Walt Disney
2009
36,149 $
63,117 $
2010
38,063
69,206
change
$11,000
$6,000
($12,000)
$0
$5,000
$73,000
($26,000)
$47,000
$52,000
$5,000
($5,000)
$0
($70,000)
($70,000)
$120,000
$0
$2,000
$122,000
$52,000
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CHAPTER 3 NEW PROBLEMS

UNDERSTANDING FINANCIAL STATEMENTS

Net Working Capital =

Net Working Capital =

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Net Decrease in cash

Gross profit margin

Gross profit margin

b. Comparison of profit margins bertween Time Warner and Walt disney

Gross profit margin

Net profit margin

c. Comparison of balance sheets and asset-to-sales relationships

increase in fixed assets

Free cash flows

Selling, general & administrative

Preferred stock dividend

Liabilities and Equity:

Step 2: Calculate the change in the net working capital

Step 3: Compute the change in fixed and other assets

Cash flows distributed to investors

Cost of Goods sold

Common-Sized Balance Sheet:

Increase in gross fixed assets

Common-Sized Balance Sheet

Liabilities and Equity:

Cash Flows from Operating Activities

Cash Flows from Financing Activities

Liabilities and Equity

Abrahams Manufacturing Company Income Statement

Net income available to common stockholders

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Net increase in cash

Total Taxable Income

surtax for income between $100,000 and $335,000

surtax for income between $100,000 and $335,000

surtax for income between $100,000 and $335,000

Selling, general, and administrative expenses

Selling, general, and administrative expenses

Common-Sized Income Statement

Common-Sized Balance Sheet

Common-Sized Balance Sheet

Total current liabilities

ssets ($23) plus the

Liabilities and Equity

Abrahams Manufacturing Company Income Statement

General and administrative

WORKING WITH STATEMENT OF CASH FLOWS

Liabilities and Equity:

Common-Sized Income Statement:

Cash Flows from Investing Activities

Total Operating and interest expenses

Cash Flows from Financing Activities

5 % surtax for income between $100,000 and $335,000

5% surtax for income between $100,000 and $335,000

surtax for income between $100,000 and $335,000

Gross profit margin

Gross profit margin

Gross profit margin

Change in net operating working capital

Preferred stock dividend

COMPUTING FREE CASH FLOWS AND FREE CASH FLOWS ANALYSIS