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00-Text-Ch4 Additional Problems Updated

Friedmans Inc., a large jewelry chain store, saw increasing sales and assets from 2005 to 2010 but declining profits over several years. Its dividend payments also increased substantially. This could indicate the company is struggling to finance its rapid growth through increased borrowing. Gadzooks, a family clothing store, experienced steady sales growth from 2005 to 2010 but highly variable profits over the years. Calculating its actual and sustainable growth rates could help assess the health of the company's expansion. For Baltimore Beverages, calculating the projected sustainable and actual growth rates from 2011 to 2015 would provide insight into whether the company's growth is financially stable or unsustainable over the long run.

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38 views

00-Text-Ch4 Additional Problems Updated

Friedmans Inc., a large jewelry chain store, saw increasing sales and assets from 2005 to 2010 but declining profits over several years. Its dividend payments also increased substantially. This could indicate the company is struggling to finance its rapid growth through increased borrowing. Gadzooks, a family clothing store, experienced steady sales growth from 2005 to 2010 but highly variable profits over the years. Calculating its actual and sustainable growth rates could help assess the health of the company's expansion. For Baltimore Beverages, calculating the projected sustainable and actual growth rates from 2011 to 2015 would provide insight into whether the company's growth is financially stable or unsustainable over the long run.

Uploaded by

zombies_me
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLS, PDF, TXT or read online on Scribd
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ANALYSIS FOR FINANCIAL MANAGEMENT

10th Edition
Robert C. Higgins
Additional Problems
Chapter 4
1) a. Friedmans Inc. is the third largest jewelry chain store in the U.S. with 645 stores
nationwide. Use the information below from Friedmans annual financial statements to
calculate the actual and sustainable growth rate for each year.
b. Do you think Friedmans Inc. is having a problem financing its growth? Is the
increase in dividends a good idea for Friedmans?

Sales
Net income
Total assets
Equity
Dividends

Friedmans Inc. ($ in millions)


2005
2006
2007
2008
2009
$ 192.14 $ 237.29 $ 287.31 $ 339.19 $ 411.78 $
19.27
11.22
16.48
19.70
223.35
268.58
275.30
318.43
147.35
171.55
180.63
191.90
211.03
0.36
0.79

2010
446.84
12.23
451.32
222.57
0.94

2) a. Given the following accounting data for Gadzooks, a family clothing store,
calculate the companys actual and sustainable growth rates for 2006 through
2010.
Gadzooks ($ in millions)
2005
Sales

2006
$

128.40

2007
$

171.60

2008
$

208.20 $

2009
241.60

2010
$

288.40

Net income

8.00

8.30

0.40

6.10

12.80

Total assets

64.70

84.30

86.40

96.70

118.80

49.10
-

58.50
-

60.00
###

66.10
-

79.40
-

Equity
Dividends

30.80

3. Question 1.f in the additional problems for Chapter 3 asks you to construct a five year financial
projection for Baltimore Beverages Company beginning in 2011. Calculate Baltimore Beverages's
sustainable and actual growth rates in these years. What do these numbers suggest to you?

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