J&H; Corp. recently hired Jeffrey. His immediate mandate was to analyze the comp
ID: 2615854 • Letter: J
Question
J&H; Corp. recently hired Jeffrey. His immediate mandate was to analyze the company. He has to submit a report on the company's operational efficiency and estimate potential investment in working capital. He has the income statement from last year and the following information from the company's financial reports as well as some industry averages. Last year, J&H; Corp. reported a book value of $500 million in current assets, of which 20% is cash, 22% is short-term investments, and the rest is accounts receivable and inventory The company reported $425.0 million of current liabilities including accounts payable and accruals. Interestingly, the company had no notes payable claims last year. There were no changes in the accounts payables during the reporting period The company, however, invested heavily in plant and equipment to support its operations. It reported a book value of $800 million in long-term assets last year Income Statement For the Year Ended on December 31 (Millions of dollars) Industry &H; Corp Average $4,875 3,900 195 4,095 $780 Net sales $3,900 3,120 156 3,276 $624 62 $562 225 $337 Operating costs, except depreciation and amortization Depreciation and amortization Total operating costs Operating income (or EBIT) Less: Interest Earnings before taxes (EBT) Less: Taxes (40%) Net income $663 265 $398 Based on the information given to Jeffrey, he submits a report on January 1 with some important calculations for management to use, both for analysis and to devise an action plan. Which of the following statements in his report are true? Check all that apply The company is using-$35.0 million in net operating working capital acquired by investor-supplied funds J&H; Corp.'s NOPAT is $374.4 million, which is lower than the industry average of $468.0 million J&H; Corp. has $110.0 million in nonoperating assets. The firm uses $765.0 million of total net operating capital to run the business. J&H; Corp.'s net operating working capital is $75.0 million.Explanation / Answer
1.Net operating working capital = Current assets- Current liabilities
= 500m*(1-22%) – 425m
= - $35m
Statement 1 is true
2.NOPAT= $624m – 40%*624m = $374.4m
Statement 2 is true
3. Nonoperating assets= Cash + Marketable securities
= (20+22%)*500 m
=$210m
Statement 3 is false
4: Net operating capital=Net Operating Working Capital + Non-current Operating Assets
= -$35 m + 800 m
= $765m
Statement 4 is true
5. Since Net operating working capital = -$35 m, this statement is false
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