CFA Level I:FSA : financial analysis techniques(Reading 28) 习题精选 techniques

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1. If a firm has a net profit margin of 21% and a return on equity of 14%, its equity turnover ratio is closest to: A. 0.67x B. 0.78x C. 1.5x

Ans: A The calculation are as follows: 0.14    =          0.21              *Equity turnover →Equity turnover= 0.14/0.21=0.67

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2. The following is the information on Company A: Debt ratio 0.175 Total liabilities $5,000 Total interest bearing debt $3,500 Return on equity (ROE) 16.0% The firm’s return on assets (ROA) is closest to: A. 11% B. 12% C. 25%

Ans: B →Asset=3,500/Debt ratio=3,500/0.175=20,000 Equity=Asset –Liabilities=20,000-5,000=15,000 ROA =            = 0.12

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3. A company collected $57,500 in accounts receivable and repaid $37,500 in interest bearing short-term loans. The combined effect that transactions will invrease CFO for the company is: A. $20,000 B. $57,500 C. 95,000

Ans: B Collecting account receivable will increase CFO by $57,500. Repaying short-term loan is a financing activities, which reduces CFF (rather than CFO) by $37,500.

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4. Three companies operating in the same industry produced the following results during the same year: Company Avg. inventory ($millions) Sales($millions) Days of inventory on hand (DOH) A 1.8 25 60 days B 2.0 26 60 days C 2.3 27 65 days Which company produced the highest gross profit margin during the year? A. Company A B. Company B C. Company C

Ans: A. The days of inventory on hand (DOH) can be deconstructed into: → Cost of goods sold = 365 * So the cost of goods sold for the three companies: A =365 *(1.8/60) =10.95 B =365 *(2.0/60) =12.17 C= 365 *(2.3/65) =12.92 The formula for gross profit margin is: Gross profit margins for the three companies are: A= 1- (10.95/25) =0.562 B= 1- (12.17/26) =0.532 C= 1- (12.92/27) =0.522 (This could also be solved somewhat intuitively by recognizing that company A achieved roughly comparable sales results on proportionately much less inventory in both dollar amount and in days of inventory on hand. Its profit margin must have been higher!)

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5. The cash conversion cycle (CCC) decreases if there is an increase in the number of: A. Days of payables. B. Days of sales outstanding (DSO). C. Days of inventory on hand (DOH).

Ans: A. The cash conversion cycle shoes how long it takes a firm to convert resource inputs into cash flows. Increasing the number of days of payables reduces the cash conversion cycle. B. Increasing  the DSO increases the CCC. C. Increasing  the DOH increases the CCC.

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6. A company’s days of sales outstanding (DSO) decreased, while its cost of goods sold (COGS) relative to sales and receivable remain unchanged. The company’s gross profit will: A. Decline. B. Increase. C. Remain unchanged.

Ans. B. A decrease in DSO means that receivables turnover increased. For receivables turnover to increase while receivables remained stable means that revenues must have increased. This will result in higher gross profits because the gross margin remained the same.

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7. Selected information for a company and the common size data for its industry are provided below. Company (￡) Common Size Industry Data (% of sales) EBIT 76,000 28.0 Pretax profit 66,400 19.6 Net income 44,500 13.1 Sales 400,000 100.0 Total assets 524,488 140.0 Total equity 296,488 74.0 ROE 15% 17.7% Which of the following is most likely a contributor to the company’s inferior ROE compared to that of the industry? The company’s: A. Tax burden ratio. B. Interest burden ratio. C. Financial leverage ratio.

Ans. C. Calculation Company Industry Tax burden ratio Net Inc/EBT 44,500/66,400= 0.67 13.1/19.6=0.67 Financial leverage Total assets/Equity 524,488/296,488=1.77 140/74 = 1.89 Interest burden ratio EBT/EBIT 66,400/76,000= 0.87 19.6/28.0=0.70 The company has a lower financial leverage ratio relative to the industry, which is one of the causes of the company’s lower relative ROE performance. The tax burden ratio is the same as the industry and the interest burden ratio is higher, which would increase ROE. EBT: Pretax profit (earnings before tax) Net Inc: Net income

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8. The following information is available: Income Statement Items ($) Sales 421,000 Cost of goods sold (COGS) 315,000 Balance Sheet Items Cash 30,000 Accounts receivable 40,000 Inventories 36,000 Accounts payable 33,000 The company’s cash conversion cycle (in days) is closest to: A. 38.2. B. 45.2. C. 76.4.

Ans: A. Cash conversion cycle = DOH + DSO – Days of payables Formula Calculation Days DOH: Days of inventory on hand 41.7 Inventory turnover = =8.75 DSO: Days of sales outstanding 34.7 Receivables turnover = =10.53 Number of days of payables: -38.2 Payables turnover = =9.55 * When purchases are not available (as in this case), the COGS can be used to estimate payables turnover. Cash conversion cycle 38.2

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9. An analyst has calculated the following ratios for a company: Operating Profit Margin 17.5% Net Profit Margin 11.7% Total Asset Turnover 0.89times Return on Assets 10.4% Financial Leverage 1.46 Debt to Equity 0.46 The company’s return on equity (ROE) is closest to: A. 4.8%. B. 15.2%. C. 22.7%.

Ans: B. Using DuPont analysis, there are two ways to calculate ROE from the information provided: ROE = Net profit margin × Asset turnover × Financial leverage = 11.7 × 0.89 × 1.46 = 15.2 ROE = ROA × Financial leverage =10.4×1.46 =15.2

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10. Selected information from a company’s recent income statement and balance sheets is presented below. Selected Income Statement Data for the year ended December 31st (Can $ thousands) 2011 Sales $2,240,000 Cost of goods sold 1,320,000 Gross profit 920,000 Net Income $316,600 Selected Balance Sheet Data as of December 31st (Can $ thousands) 2011 2010 Assets Cash & investments $210,700 $191,600 Accounts receivable 212,800 201,900 Inventories 63,000 71,500 Total current assets $486,500 $465,000 Liabilities Accounts payable $129,600 $157,200 Other current liabilities 130,700 182,700 Total current liabilities $260,300 $339,900 The company operates in an industry in which suppliers offer terms of 2/10, net 30. The payables turnover for the average company in the industry is 8.5 times. Which of the following statements is most accurate? In 2011, the company on average: A. took advantage of early payment discounts. B. paid its accounts within the payment terms provided. C. paid its accounts more promptly than the average firm in the industry.

Ans: C. Purchases = COGS + End inventory – Beginning inventory = 1,320,000 + (63,000 – 71,500) = 1,311,500 Average payables = ? × (129,600 + 157,200) = 143,400 Payables turnover = Purchases ÷ Average payables = 1,311,500 ÷ 143,400 = 9.15 times Days in payables = 365 ÷ Payables turnover ratio Firm: 365 days ÷ 9.15 = 39.9 days Industry: 365 days ÷ 8.5 times = 42.9 days The firm’s days in payables is 39.9 days; therefore, it appears the firm does not normally take supplier-provided discounts (paying in 10 days) nor pay its accounts within the 30-day terms provided. However, on average, the firm is paying faster than the average firm in the industry (42.9 days).