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1. Prepare an analysis of the automobile manufacturing industry using Porter’s five forces framework. For each component force provide support for your conclusion. In addition, at the completion of your analysis provide a conclusion, along with support, of whether you expect the automobile industry to report high or low profitability in the near future.
2. Tremble Company manufactures outdoors wear for women. During 2009, the company reported the following items that affected cash.
Required:
Indicate whether each of these items is a cash flow from operating activities (O), investing activities (I), or financing activities (F).
_____A. Paid cash for supplies
_____B. Purchased equipment by paying cash
_____C. Collected cash on account from customers
_____D. Paid dividends to stockholders
_____E. Paid suppliers for fabric
_____F. Borrowed money from a bank on a long-term note
_____G. Paid interest to bank on the note
_____H. Paid wages to employees
_____I. Sold shares of common stock to new stockholders
3. The following selected financial data pertain to four companies: a hotel, a travel agency, a meat packing company and a pharmaceutical company.
Required: Match each with the financial information and explain why you made your choice as you did.
Balance Sheet Data
(component percentages)
Company
1
Company
2
Company 3
Company 4
Cash
7.2
22.0
6.0
11.2
Accounts Receivable
28.0
40.0
3.4
23.0
Inventory
21.4
0.5
0.9
27.4
Property, Plant & Equipment
32.0
19.0
75.1
25.0
Income Statement Data
(component percentages)
Gross Profit
15.2
Not Applicable
Not Applicable
44.0
Profit before Taxes
1.8
3.3
2.5
7.0
Ratios
Current ratio (over the last five years)
1.6
1.3
0.5
1.8
Inventory turnover ratio
27.8
Not Applicable
Not Applicable
3.4
Debt-to-equity ratio
1.8
2.3
5.8
1.4
4. Use the current asset section of the balance sheets of the El Paso Company as of January 31, 2012 and 2011 presented below to answer the questions that follow.
2012 2011
Cash and cash equivalents $ 75,000 $ 58,800
Trade accounts receivable, net 157,500 193,200
Inventory 208,200 253,400
Other current assets 18,400 15,500
Total current assets $ 459,100 $ 520,900
Total assets $2,650,000 $3,430,000
Required:
(a) In the spaces provided below, complete a Percentage Change analysis of the current asset section of El Paso Company's balance sheet for 2012, using the following format to provide your answers for the amount of dollar change and the amount of percentage change, rounding “% Change” to one decimal place, e.g., 8.3%.
Accounts $ Change % Change
(b) Provide a short evaluation of this analysis.
5. Comparative financial statement data for Donovan Company and Maltese Company, two competitors in the same industry, appear below. All balance sheet data are as of December 31, 2012, and December 31, 2011.
Donovan Company
Maltese Company
2012
2011
2012
2011
Net sales
$1,549,035
$339,038
Cost of goods sold
1,080,490
241,000
Operating expenses
302,275
79,000
Interest expense
8,980
2,252
Income tax expense
54,500
6,650
Current Assets
325,975
312,410
83,336
79,467
Common Stock, $10 par
500,000
500,000
120,000
120,000
Retained earnings
173,460
146,595
38,096
28,998
Non-current liabilities
108,500
90,000
29,620
25,000
Current liabilities
65,325
75,815
35,348
30,281
REQUIRED:
(a) Prepare a common-size 2012 income statement using the data for Donovan Company and Maltese Company in columnar form.
(b) Comment on the relative profitability of the companies by computing the return on assets (Net income/(Average total assets) and the return on total equity (Net income / (Average Shareholders’ Equity) ratios for both companies.