1. You have summarized the Helpful Company financial statements as shown below:
ID: 2725234 • Letter: 1
Question
1. You have summarized the Helpful Company financial statements as shown below:
A.Use the balance sheet data to identify 2015 sources and uses of cash.
B. Based on these financial statements alone comment on Helpful Company's change in financial position from 2014 to 2015. (Support your comments with whatever ratios you think are appropriate and additional analysis you would suggest.)
C. What is the2015 …...Net working capital...Operating income ...Dividend payout ratio...Free cash flow
D.Use the DuPont identity to calculate and explain 2014-15 changes in ROA and ROE components.
E. Use this statement data to concisely explain and illustrate the concepts of "internal" and "sustainable" growth
F. Based on the 2015 data what is the estimated EFN for 2016 assuming …...A 5% increase in net income, assets, and current liabilities...No change in the payout ratio or long- term debt
Source/Use 2014 2015 Sales 4203 4500 Depreciation 785 950 EBIT 995 920 Interest 180 195 Taxes 285 255 Net Income 530 470 Dividends 225 250 Current assets 2200 2430 Fixed assets 7345 7650 Total Assets 9545 10080 Current liabilities 1000 1120 Long term debt 3100 3295 Equity 5445 5665 Total Liabilities and equity 9545 10080Explanation / Answer
Ans:
(A) Calculation of sources and uses of cash or funds:
Comparative balance sheet with sources and uses of cash
Millions
2014
2015
Source
Use
Current assets
$ 2,200.00
$ 2,430.00
$ 230.00
Fixed assets
$ 7,345.00
$ 7,650.00
$ 305.00
Total assets
$ 9,545.00
$ 10,080.00
$ 535.00
current liabilities
$ 1,000.00
$ 1,120.00
$ 120.00
Long term debt
$ 3,100.00
$ 3,295.00
$ 195.00
Total liabilities
$ 4,100.00
$ 4,415.00
Total equity
$ 5,445.00
$ 5,665.00
$ 220.00
Total income
$ 645.00
Total sources and uses
$ 1,070.00
$ 1,070.00
One common short-hand definition of cash flow is net profit plus depreciation. This definition isn't worth much, however. If your company is breaking even, so what I am trying say that your cash flow is positive, try to maintain in this way every year.
For management reporting, however, it's often useful to show cash flows using the traditional method of Sources and Uses of Funds, as shown in this Excel report. This statement, shown here, uses a balance-sheet format to present its cash flow information. However, when a balance sheet includes a section of Sources and Uses of Funds, it answers the "so what?" question. It shows whether Cash has increased or decreased, and shows what brought that change. Therefore, the primary advantage of this statement is that it gives managers important information about how their decisions about assets and liabilities can have a significant effect on the financial health of their company.
= Current assets – Current liabilities
= $2430 - $1120
= $1310.
Calculation of operating income:
= Revenue – Cost of good sold & other expenses
= Operating income also called as EBIT
= $920.
Calculation of dividend payout ratio:
= Dividends / net income
= $250/$470
=53.19 or 0.5319
= Net profit / Total average assets
= $470 / $9813
= 0.04789.
Calculation of Return on equity:
= Net profit after tax / Total Revenue
= $470 / $4500
= 0.1044.
Millions
2014
2015
Source
Use
Current assets
$ 2,200.00
$ 2,430.00
$ 230.00
Fixed assets
$ 7,345.00
$ 7,650.00
$ 305.00
Total assets
$ 9,545.00
$ 10,080.00
$ 535.00
current liabilities
$ 1,000.00
$ 1,120.00
$ 120.00
Long term debt
$ 3,100.00
$ 3,295.00
$ 195.00
Total liabilities
$ 4,100.00
$ 4,415.00
Total equity
$ 5,445.00
$ 5,665.00
$ 220.00
Total income
$ 645.00
Total sources and uses
$ 1,070.00
$ 1,070.00
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