WGB Exam - Do All Questions.
Part I -
(1) Assume you are an Analyst with a major investment bank and have been asked by senior management to research Sears Holdings Corp. (SHLD), Netflix (NFLX) and J.C. Penny Inc. (JCP), in which they are about to make an investment of $30 million. You need to provide a qualitative assessment of the firm and then do a quantitative assessment and report back to management in 1 week if these firms will be a sound investment. For your analyses you will need to;
(a) Do a financial statement analysis for the years 2014, 2015, 2016, 2017.
a. Provide an historical report of NWC
b. The FCF
c. The After Tax Operating Income
d. Report on Sales/Revenues
e. What can you conclude from the results of these analyses.
(b) Then do a more detailed analysis/evaluation for the same period using the 5 categories of financial analysis we used in the class, such as
a. Profitability ratios, e.g. Return on Sales, etc.
b. Debt Mgt Ratios, e.g. Debt to Equity Ratio
c. Liquidity Ratios, e.g. Current Ratios, Quick Ratio
d. Asset Mgt Ratios, e.g. Days Sales Outstanding, Inventory Turnover, etc
e. Market value Ratios, e.g. P/E
(c) From your analyses, are these good companies for your firm to invest in at this time?
(2) Attached are financial statements from Altria Group, see Appendix 1. a) Calculate the current and quick ratios for 2016 and 2017. Has Altria Group increased or decreased its liquidity position?
b) To the extent that the company increased inventory and accts receivable, what does that do to their cash flow and why?
c) Calculated the return on common equity and the return on total assets? Are they improving or getting worse?
d) Calculate Free Cash Flow for both 2017.
(2) Stewart Inc.'s latest EPS was $3.50, its book value per share was $22.75, it had 215,000 shares outstanding, and its debt-to-assets ratio was 46%. How much debt was outstanding?
(3) Last year Vaughn Corp. had sales of $315,000 and a net income of $17,832, and its year-end assets were $210,000. The firm's total-debt-to-total-assets ratio was 42.5%. Based on the DuPont equation, what was Vaughn's ROE?
(4) Last year Central Chemicals had sales of $205,000, assets of $127,500, a profit margin of 5.3%, and an equity multiplier of 1.2. The CFO believes that the company could reduce its assets by $21,000 without affecting either sales or costs. Had it reduced its assets in this amount, and had the debt-to-assets ratio, sales, and costs remained constant, by how much would the ROE have changed?
(5) Last year Mason Inc. had a total assets turnover of 1.33 and an equity multiplier of 1.75. Its sales were $195,000 and its net income was $10,549. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,250 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?
(6) Last year Rosenberg Corp. had $195,000 of assets, $18,775 of net income, and a debt-to-total-assets ratio of 32%. Now suppose the new CFO convinces the president to increase the debt ratio to 48%. Sales and total assets will not be affected, but interest expenses would increase. However, the CFO believes that better cost controls would be sufficient to offset the higher interest expense and thus keep net income unchanged. By how much would the change in the capital structure improve the ROE?
(7) Last year Altman Corp. had $205,000 of assets, $303,500 of sales, $18,250 of net income, and a debt-to-total-assets ratio of 41%. The new CFO believes the firm has excessive fixed assets and inventory that could be sold, enabling it to reduce its total assets to $152,500. Sales, costs, and net income would not be affected, and the firm would maintain the 41% debt ratio. By how much would the reduction in assets improve the ROE?
(8) Muscarella Inc. has the following balance sheet and income statement data:
|
Cash
|
$14,000
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Accounts payable
|
$42,000
|
|
Receivable
|
70,000
|
Other current liabilities
|
28,000
|
|
Inventories
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210,000
|
Total CL
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$70,000
|
|
Total CA
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$294,000
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Long-term debt
|
70,000
|
|
Net fixed assets
|
126,000
|
Common equity
|
280,000
|
|
Total assets
|
$420,000
|
Total liab. And equity
|
$420,000
|
|
Sales
|
$280,000
|
|
|
|
Net Income
|
$21,000
|
|
|
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70, without affecting either sales or net income. Assuming that inventories are sold off and not replaced to get the current ratio to the target level, and funds generated are used to buy back common stock at book value, by how much would the ROA and ROE change?
Exhibit 1 (in attached file)
The balance sheet and income statement shown (attached) are for CARMAX Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.
(9) What is CarMax's current ratio?
(10) Refer to Exhibit 1. What is CarMax's quick ratio?
(11) Refer to Exhibit 1. What is the firm's day's sales outstanding? Assume a 360-day year for this calculation.
(12) Refer to Exhibit 1. What is the firm's total assets turnover?
(13) Refer to Exhibit 1. What is the firm's inventory turnover ratio?
(14) Refer to Exhibit 1. What is the firm's TIE?
(15) Refer to Exhibit 1. What is the firm's EBITDA coverage?
(16) Refer to Exhibit 1. What is the firm's debt-to-assets ratio?
(17) Refer to Exhibit 1. What is the firm's ROA?
(18) Refer to Exhibit 1. What is the firm's ROE?
(19) Refer to Exhibit 1. What is the firm's BEP?
(20) Refer to Exhibit 1. What is the firm's profit margin?
(21) Refer to Exhibit 1. What is the firm's dividends per share?
(22) Refer to Exhibit 1. What is the firm's cash flow per share?
(23) Refer to Exhibit 1. What is the firm's P/E ratio?
(24) Refer to Exhibit 1. What is the firm's book value per share?
(25) Refer to Exhibit 1. What is the firm's market-to-book ratio?
PART II -
(1) Using either the Capital IQ Application or the Bloomberg terminal, download the financial statements for the following companies. (a) MasterCard Inc - MA, (b) Prudential - PRU, and (c) Facebook Inc - FB.
a) What is the net operating profit after taxes (NOPAT) for each company for 2017?
b) What is the amount of net operating working capital for 2016 and 2017?
c) What is the amount of total net operating capital for both years?
d) What was the free cash flows for 2016 and 2017?
e) What is the ROIC for 2016 and 2017?
f) Calculate the indicated ratios for (i) MasterCard, (ii) Prudential and (iii) Facebook
i. Has the firms' liquidity position improved or worsened? Explain
ii. Has the firms' ability to manage its assets improved or worsened? Explain.
iii. How has the firms' profitability changed in the last year?
Attachment:- Assignment Files.rar