Financial Statement Analysis
Mid Term Examination PGP‐II, Term‐IV Time: 90 Minutes, Max.Marks] = 25 (Attempt any five questions, all questions carry equal marks) 1. Below are a balance sheet and an income statement that have been reformulated. Balance Sheet Assets Liabilities and Equity 2009 2008 2009 2008 Operating assets 205.3 189.9 Operating liabilities 40.6 34.2 Financial assets 45.7 42.0 Financial liabilities 120.4 120.4 Shareholders’ equity 90.0 77.3 Total 251.0 231.9 Total 251.0 231.9 Income Statement ‐ 2009 Operating revenues Operating expenses Operating income Interest revenues Interest expenses Comprehensive income A. B. C. D.
134.5 (112.8) 21.7 2.5 (9.6) 14.6
How much was paid out in net dividends during 2009? What is free cash flow for 2009? What was the return on net operating assets in2009? What was the firm’s net borrowing cost?
2. Big Data Ltd. supplies you with the following details as given the Table. Determine its Basic EPS (BEPS) and Diluted EPS (DEPS) for both the years. Applicable tax rate is 35%. 2006‐07
2005‐06
9.15
6.56
2.00
2.00
20.00 lakh
20.00 lakh
1.20
0.60
Particulars Net profit attributable to existing equity shareholders (Rs. In Crores) No. of equity of equity shares outstanding (FV Rs. 10) in Crores No. of 6% of 6% foreign currency convertible bonds (FCCBs), equivalent of Rs. 100 each, issued on 1st October 2005. Each compulsorily convertible into 5 equity shares. Interest expense on FCCBs
3. (a) Chris Titera is the Chief Financial Officer (CFO) for Dallas Company. It is January 10 and Chris has just finished compiling the preliminary financial results for the most recent fiscal year that ended on December 31. The preliminary results indicate that Dallas lost $ 1, 00,000 during the year. Dallas is a large company (with assets in excess $ 1 billion), so the $ 1, 00,000 loss is essentially the same as zero. However, the Board of Directors of Directors thinks that it conveys a very negative image for Dallas Company to report a loss for year, even if the loss amount is small. As result, they have instructed Chris to look at numbers again and if he if he
(b) At the end of the fiscal year ending June 30, 2003, Microsoft reported common equity of $64.9 billion on its balance sheet, with $49.0 billion invested in financial assets (in the form of cash equivalents and short term investments) and no financing debt. For fiscal year 2004, the firm reported $7.4 billion in comprehensive income, of which $1.1 billion was after‐tax earnings on the financial assets. This month Microsoft is distributing $34 billion of financial assets to shareholders in the form of a special dividend. a. Calculate Microsoft’s return on common equity (ROCE) for 2004. b. Holding all else constant what would Microsoft’s ROCE be after the payout of $34 billion? c. Would you expect the payout to increase or decrease earnings growth in the future? Why? 4. H Ltd. Acquired as investment 15,000 shares in S Ltd. for Rs.1, 55,000 on 1st July, 1999. The Balance Sheets of the two companies on 31st March, 2000 were as follows:‐ Liabilities
H.Ltd.
S Ltd.
Rs.
Rs.
Equity shares of Rs. 10 each fully paid
9,00,000
2,50,000
General reserve
1,60,000
Profit & Loss Account
H.Ltd.
S Ltd.
Rs.
Rs.
Machinery
7,00,000
1,50,000
40,000
Furniture
1,00,000
70,000
80,000
25,000
Investment
1,55,000
Bills Payable
40,000
20,000
Stock
1,00,000
50,000
Creditors
50,000
30,000
Debtors
60,000
35,000
Cash at Bank
90,000
40,000
Bills receivable
25,000
20,000
12,30,000
3,65,000
Total
12,30,000
Assets
3,65,000
The following additional information is provided to you:‐ (i) General Reserve appearing in the balance sheet of S Ltd. Has remained unchanged since 31st March, 1999 (ii)
Profit earned by S Ltd. For the year ended 31st March, 2000 amounted to Rs.20, 000.
(iii)
On 1st February, 2000 H Ltd. Sold to S Ltd. Goods costing Rs. 8000 for Rs. 10,000. 25%of these goods remained unsold with S Ltd. On 31st March, 2000. Creditors of S Ltd. include Rs. 4,000 due to H Ltd. On account of these goods.
(iv)
Out of S Ltd’s acceptances, Rs. 15000 are those which have been accepted in favour of H Ltd. Out of these, H, Ltd. Had endorsed by 31st March, 2000 Rs. 8,000 worth of bills receivable in favour of its creditors.
You are required to draw a consolidated balance sheet as at 31st March, 2000. 5. The following is the reformulated comparative Balance Sheet for General Mills Inc,. As an analyst you are required to give insight into how a firm organizes its business. Further the operating income after tax for the firm is $1901 million and $1602 million for 2008 and 2007 respectively. The Net Operating assets for 2006 is $5360 million. Assume an expected normal rate of return of 9%. How much is the extra value in terms of Operating income over and
(in Million of Dollars) 2008
2007
50 1,082 1,367 511 3,108 6,786 3,777
50 953 1,173 444 3,014 6,835 3,694 67 1,587 17,817
Operating Assets
Working Cash Receivables Inventories Prepaid Expenses Land, Building and Equipment Goodwill Intangible assets Deferred tax assets Other assets Total Operating Liabilities Accounts Payable Deferred tax Liabilities Other liabilities Net Operating assets Net Financial Obligations: Current portion of debt Notes Payable Long‐term debt Cash Equivalents Common Shareholder’s Equity Minority Interest (MI) Common Shareholders' Equity (after MI)
‐ 1,750 18,413 937 1,483 3,164
442 2,209 4,349 ‐611
5,584 12,847
6,389 6,458 242 6,218
778 1,433 3,309
1,734 1,254 3,218 ‐367
5,520 12,297
5,839 6,458 1,139 5,319
6. Following is the cash flow statement for IBM (given in the next page). You are required to analyze the strategic business activities of the firm with respect to operational , investment and financing activities.
Consolidated Statement of Cash Flows International Business Machines Corporation and Subsidiary Companies
($ in millions) 2013
2012
2011
$ 16,483
$ 16,604
$ 15,855
3,327
3,392
3,589
1,351
1,284
1,226
For the year ended December 31:
Cash flows from operating activities
Net income Adjustments to reconcile net income to cash provided by operating activities Depreciation
Amortization of intangibles
614
688
697
(1,610 )
797
1,212
(236 )
(729)
(342)
(1,407 )
(2,230)
(1,279)
Retirement related
294
(1,008)
(1,371)
Inventories
(57 )
280
(163)
(747 )
733
(28)
(529 )
(224)
451
17,485
19,586
19,846
(3,623 )
(4,082)
(4,108)
372
410
608
(517 )
(635)
(559)
(4,608 )
(4,109)
(1,594)
4,873
3,142
3,345
(1,063 )
(608)
(291)
(3,056 )
(3,722)
(1,811)
297
599
14
(7,326 )
(9,004)
(4,396)
16,353
12,242
9,996
(10,013 )
(9,549)
(8,947)
621
(441)
1,321
(13,859 )
(11,995)
(15,046)
1,074
1,540
2,453
(4,058 )
(3,773)
(3,473)
(9,883 )
(11,976)
(13,696)
Stock-based compensation Deferred taxes
Net (gain)/loss on asset sales and other Change in operating assets and liabilities, net of acquisitions/divestitures
Receivables (including financing receivables)
Other assets/other liabilities
Accounts payable Net cash provided by operating activities Cash flows from investing activities
Payments for property, plant and equipment Proceeds from disposition of property, plant and equipment
Investment in software
Purchases of marketable securities and other investments
Proceeds from disposition of marketable securities and other investments
Non-operating finance receivables—net
Acquisition of businesses, net of cash acquired Divestiture of businesses, net of cash transferred
Net cash used in investing activities Cash flows from financing activities
Proceeds from new debt
Payments to settle debt Short-term borrowings/(repayments) less than 90 days—net
Common stock repurchases
Common stock transactions—other Cash dividends paid Net cash used in financing activities
28
(116)
(493)
304
(1,511)
1,262
10,412
11,922
10,661
$ 10,716
$ 10,412
$ 11,922
Income taxes paid—net of refunds received
$ 4,024
$ 3,169
$ 4,168
Interest paid on debt
$
982
$ 1,009
$
956
Capital lease obligations
$
14
$
$
39
Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at January 1
Cash and cash equivalents at December 31 Supplemental data
Amounts may not add du e to rounding. The accompanying notes on pages 84 through 146 are an integral part of the financial statements.
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