FIN320 Homework Assignment 4

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Use the following information to answer questions 1 - 13

As of December 31, 2014, assets were $20, liabilities were $12 and paid-in-capital was $1. There was no treasury
stock or accumulated other comprehensive income at either the beginning or ending of 2015. During the year
revenues were $40, gains (net of losses) were $1, paid-in-capital increased by $2 and the company paid out
dividends of $4. At the end of the year, equity was $22 and total liabilities were $20.

1) How much total equity was there on January 1, 2015?

Ans: Equity = Assets – Liabilities

So, at January 1, 2015
Equity = (Assets) $20 – (Liabilities) $12
Equity = $ 8

2) How much retained earnings was there at January 1, 2015?

Ans: Equity is made up of paid-in-capital and retained earnings. So, the formula will be:
Equity = paid-in-capital + retained earning
Or Retained earnings = Equity – paid-in-capital
At January 1, 2015 it will be:
Retained earnings = (Equity) $8 – (paid-in-capital) $1
Retained earnings = $ 7

3) How much paid-in-capital was there at December 31, 2015?

Ans: At the start of the year i.e. January 1, 2015 the paid-in-capital was $1 and it increased by $2 during the year.
So, the paid-in-capital at December 31, 2015 was $3.

4) How much retained earnings was there at December 31, 2015?

Ans: Retained earnings = (Equity) $22 – (paid-in-capital) $3

Retained earnings = $ 19

6) How much net income was earned during the year ended 12/31/15?

Ans: Net Income? = (Revenue) $40 – (Expenses)? + (Gains) $1

To calculate expenses & Net Income:

Because (Retained earnings) $19 = (Opening Retained Earnings) $7+ {Net Income for the period} – (Dividends) $4
Or (Retained earnings) $19 = (Open. Retained Earnings) $7+ {(Revenues) $40 – (Expenses) + (Gain) $1} –
(Dividends) $4
Expenses = (Open. Retained Earnings) $7+ (Revenues) $40 -(Retained earnings) $19 + (Gains) $1 – (Dividends) $4
Expenses = $25
So Net Income = (Revenue) $40 – (Expenses) $25 + (Gains) $1

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FIN320 Homework Assignment 4
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Net Income = $16
7) How much were expenses during the year ended 12/31/15?

Ans: As calculated above, during the year ended December 31, 2015, expenses were $ 25.

8) How much total assets did the company have at December 31, 2015?

Ans: Assets = (Equity) $22 + (Liabilities) $20

Assets = $42

9) What was the profit margin for the year ended 12/31/15?

Ans: Profit Margin % = Profit i.e. (Revenue $40 – Expenses $25) / Total Revenue $40 x 100
Profit Margin % = $15 / $40 x 100 = 37.5 %
10) What was the asset turnover for the year ended 12/31/15?

Ans: Asset Turnover = (Revenue) $40 / Total Assets $ 42 = 0.95

11) What was the return on assets for the year ended 12/31/15?

Ans: return on Assets = (Net Income) $16 / Total Assets $ 42 = 0.38

12) What was the equity multiplier for the year ended 12/31/15?

Ans: Equity multiplier = (Total Assets) $42 / Total Equity $22 = 1.91

13) What was the return on equity for the year ended 12/31/15?

Ans: Return on Equity = (Net Income) $16 / Total Equity $22 = 0.73

14) Give four examples of operating activities, i.e. cash received from: or cash paid for:

Ans:
1. Cash paid for purchase of inventory
2. Cash paid for payment of current liabilities
3. Cash received from sales of goods
4. Cash received from current receivables

15) Give four examples of investing activities

Ans:
1. Cash paid for acquisition of property and equipment
2. Cash paid for purchase of Long-term securities
3. Cash received from sales of subsidiaries
4. Cash received from sales of marketable securities

16) Give four examples of financing activities.

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FIN320 Homework Assignment 4
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Ans:
1. Cash paid for principal repayment of finance lease obligations
2. Cash paid for dividends
3. Cash received from issuance of share capital
4. Cash received from issuance of long-term debt securities

17) Which tends to be more volatile, operating income or operating cash flows?

Ans: Operating cash flows are more volatile because operating cash flows are affected by external factors e.g.
market routines for payment of liabilities, which are more volatile as compared to internal factors related to
operating income e.g. increase or decrease in inventory production.

USE THE FINANCIAL STATEMENTS FROM THE MOST RECENTLY FILED Annual Report to
Shareholders FOR your selected company TO COMPLETE THE REMAINDER OF THIS ASSIGNMENT.

18) According to the statement of cash flows, what was the change in net operating working capital (“NOWC)?

Ans: There is an overall increase of $53,051,000 in NOWC, as per the extract of Consolidated Statement of cash
flows (Pg. 43) reproduced below:

Changes in assets and liabilities: 2020

$ ‘000
Merchandise inventory (21,615)
Operating lease assets 261,303
Other assets (32,845)
Decrease in Current Assets (A) 206,843
Operating lease liabilities (271,519)
Accounts payable 44,949
Accrued compensation and payroll taxes (38,603)
Accrued and other liabilities 5,279
Decrease in Current Liabilities (B) (259,894)

Overall Increase in Net Operating Working (53,051)

Capital (A + B)

19) If NOWC = current assets – current liabilities excluding debt included in current liabilities, what was the change
in NOWC?

Ans: There is an overall decrease of $218,468,000 in NOWC excluding debt related to operating lease in current
liabilities, as per the extract of Consolidated Statement of cash flows (Pg. 43) reproduced below:
Changes in assets and liabilities: 2020
$ ‘000
Merchandise inventory (21,615)
Operating lease assets 261,303
Other assets (32,845)
Decrease in Current Assets (A) 206,843
Accounts payable 44,949
Accrued compensation and payroll taxes (38,603)
Accrued and other liabilities 5,279

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FIN320 Homework Assignment 4
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Increase in Current Liabilities (B) excluding 11,625
debt

Overall decrease in Net Operating Working 218,468

Capital
(Current Assets - Current Liabilities excl. debt)

20) Identify the non-cash items included in net income.

Ans: As per the Consolidated Statements of cash flow at (Pg. 43), the non-cash items are as below:
1.
2020
Sr. # Item Amount $
‘000
1 Depreciation and amortization 181,379
2 Share-based compensation 23,038
3 Deferred income taxes 6,541
4 Loss on impairment of assets 66,252

21) How much cash flow was earned during the past fiscal year?

Ans: As per the Consolidated Statements of cash flow at (Pg. 43), there was a cashflow decrease in $80,283,000
during the past fiscal year ended February 2019.

22) How much cash was paid for CAPEX during the most recent fiscal year?

Ans: As per the Consolidated Statements of cash flow at (Pg. 43), $210,360,000 was paid for CAPEX during the
recent fiscal year ended February 2020.

23) How much cash was used/received from debt related activities?

Ans: As per the Consolidated Statements of cash flow at (Pg. 43), $261,303,000 was received from operating lease
assets / debt related assets while $271,519,000 was used for operating lease / debt related liabilities.

24) How much cash was used/received from transactions with the owners?

Ans: As per the Consolidated Statements of cash flow at (Pg. 43), $2,119,000 ware received from below described
transactions with the owners, while $213,251,000 were used for below described transactions with the owners.

Net proceeds from stock options exercised / Total Cash received $ 2,119

Repurchase of common stock as part of publicly announced programs (112,381)

Repurchase of common stock from employees (8,087)
Cash dividends paid (92,783)
Total Cash used for transaction with owners $ (213,251)

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FIN320 Homework Assignment 4
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25) How much cash was received from customers?

Ans: As per Page # 39 re. Consolidated Balance Sheets and Pg. 40 re. Consolidated Statement of Operations, a total
amount of $4,282,625,000 was received from customers. It is calculated below:

Closing Receivables= Opening receivables + Revenue – Cash received from customers

$119,064 = $93,477 + $4,308,212 - Cash received from customers
Cash received from customers = $93,477 + $4,308,212 - $119,064
Cash received from customers = $ 4,282,625 (Amount in ‘000)

26) How much inventory was purchased during the year?

Ans: As per Page # 40 re. Consolidated Statement of Operations, a total amount of $2,807,785 of inventory was
purchased during the year ended February 2020. It is calculated below:

Cost of Sales = Opening Inventory + Purchases – Closing Inventory

$2,785,911 = $424,404 + Purchases - $446,278
Purchases = $2,785,911 - $424,404 + $446,278
Purchases = $2,807,785 (Amount in ‘000)

27) How much cash was paid for inventory during the year?

Ans: As per Page # 39 re. Consolidated Balance Sheets and Pg. 40 re. Consolidated Statement of Operations, a total
amount of $1,870,154,000 was paid for inventory. It is calculated below:

Closing Payables = Opening payables + Purchases – Cash Paid to Suppliers

$ 285,746 = $240,671 +$ 1,915,229 - Cash Paid to Suppliers
Cash Paid to Suppliers = $240,671 +$ 1,915,229 - $ 285,746
Cash Paid to Suppliers for inventory = $1,870,154 (Amount in ‘000)

28) How much cash was paid for:

Income taxes

Interest

Operating lease payments

Ans: As per the Supplemental Disclosures of Cash Flow Information at (Pg. 50 & 55), an amount of $69,689,000
was paid for income taxes, $ 828,000 for Interest & $328,925,000 for Operating lease payments.

29) Using the CFA formulas calculate:

Free Cash Flow

Free Cash Flow to the Firm

Free Cash Flow to Equity

Ans:
1. Free Cash Flow = Cash flow from Operating activities (Pg. 43) - Capex
Free Cash Flow = $415,416 - $210,360
Free Cash Flow = $205,056 (Amount in ‘000)

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FIN320 Homework Assignment 4
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2. Free Cash Flow to Firm = EBIT – Provision for income taxes + D&A – Capex – Increase in Non-Cash
working capital (Pg. 32)
Free Cash Flow to Firm = $245,278 – $54,021 + $179,050 - $210,360 – ($296,174 - $503,608)
Free Cash Flow to Firm = $367,381 (Amount in ‘000)
(Figures from Pg. 32, 40 & 43)

3. Free Cash Flow to Equity= = Cash flow from Operating activities – Capex + Debt (Stock options)
Free Cash Flow to Equity = $415,416 - $210,360 + $2,119
Free Cash Flow to Equity = $207,175 (Amount in ‘000)

30) Using the traditional formula: EBIT (1-t) + D&A – Capex – Increase in NOWC, calculate free cash flow. (use
an effective tax rate of 25%)

Ans:

Free Cash Flow = EBIT (1-t) + D&A – Capex – Increase in NOWC

Free Cash Flow = $245,278 (1-0.25) + $179,050 - $210,360 – $53,051
Free Cash Flow = $99,597.5 (Amount in ‘000)

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