Reading 35: Financial Analysis Techniques-LOS h 习题精选

2011, techniques, center, prepared, following

Session 8: Financial Reporting and Analysis: The Income Statement, Balance Sheet, and Cash Flow Statement
Reading 35: Financial Analysis Techniques

LOS h: Describe how ratio analysis and other techniques can be used to model and forecast earnings.

McQueen Corporation prepared the following common-size income statement for the year ended December 31, 20X7:

Sales

100%

Cost of goods sold

60%

Gross profit

40%

For 20X7, McQueen sold 250 million units at a sales price of $1 each. For 20X8, McQueen has decided to reduce its sales price by 10%. McQueen believes the price cut will double unit sales. The cost of each unit sold is expected to remain the same. Calculate the change in McQueen’s expected gross profit for 20X8 assuming the price cut doubles sales.

A)	$150 million increase.

B)	$80 million increase.

C)	$50 million increase.

20X7 gross profit is equal to $100 million ($1 × 250 million units sold × 40% gross profit margin). The 10% price cut to $0.90 will increase cost of goods sold to 67% of sales [COGS=0.6($1) = $0.60; $0.60 / $0.90 = 67%.]. As a result, gross profit will decrease to 33% of sales. If unit sales double in 20X8, gross profit will equal $150 million ($0.90 × 500 million units × 33% gross profit margin). Therefore, gross profit will increase $50 million ($150 million 20X8 gross profit – $100 million 20X7 gross profit).

. Reading 74: Alternative Investments-LOS d 习题精选

. Reading 71: Option Markets and Contracts-LOS l 习题精选

. Reading 64: Understanding Yield Spreads-LOS d 习题精选

. Reading 63: Overview of Bond Sectors and Instruments-LOS k 习

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Lightfoot Shoe Company reported sales of $100 million for the year ended 20X7. Lightfoot expects sales to increase 10% in 20X8. Cost of goods sold is expected to remain constant at 40% of sales and Lightfoot would like to have an average of 73 days of inventory on hand in 20X8. Forecast Lightfoot’s average inventory for 20X8 assuming a 365 day year.

A)	$8.0 million.

B)	$22.0 million.

C)	$8.8 million.

20X8 sales are expected to be $110 million [$100 million × 1.1] and COGS is expected to be $44 million [$110 million sales × 40%]. With 73 days of inventory on hand, average inventory is $8.8 million [($44 million COGS / 365) × 73 days].

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In preparing a forecast of future financial performance, which of the following best describes sensitivity analysis and scenario analysis, respectively?

Description #1 – A computer generated analysis based on developing probability distributions of key variables that are used to drive the potential outcomes.

Description #2 – The process of analyzing the impact of future events by considering multiple key variables.

Description #3 – A technique whereby key financial variables are changed one at a time and a range of possible outcomes are observed. Also known as “what-if” analysis.

Sensitivity analysis

Scenario analysis

Description #3

Description #1

Description #3

Description #2

Description #3

Sensitivity analysis develops a range of possible outcomes as specific inputs are changed one at a time. Sensitivity analysis is also known as “what-if” analysis. Scenario analysis is based on a specific set of outcomes for multiple variables. Computer generated analysis, based on developing probability distributions of key variables, is known as simulation analysis.