a. Compute PPE turnover for 2016 (Total revenue in 2016 is $4,129,359 thousand).

Question

a.

Compute PPE turnover for 2016 (Total revenue in 2016 is $4,129,359 thousand). Does the level of its PPE turnover suggest that Cabela’s is capital intensive? (Hint: The median PPE turnover for all publicly traded companies is approximate 1.3.)

b.

Cabela'sreported depreciation expense of $150,163 thousand in 2016. How much of this related to Land? How much of this expense related to Construction in progress? Explain.

c.

Assuming that Cabela's uses straight-line depreciation, estimate the useful life of its depreciable PPE assets.

d.

By what percentage are Cabela's assets “used up” at year-end 2016? What implication does the assets-used-up ratio have for forecasting Cabela's cash flows?

Following are selected disclosures from Cabela's Inc. (an outdoor adventure superstore) Property and equipment consisted of the following at the years ended (in thousands) Depreciable in Years 2016 Land and improvements Buildings and improvements Furniture, fixtures and equipment Assets held under capital lease Property and equipment Less accumulated depreciation and amortization 2015 S 364,694 $ 325,576 1,181,704 834,656 12,979 2,354,915 7 to 40 3 to 15 Up to 30 1,311,941 905,739 12,979 2,595,353 (833,956) (707,183) 1,761,397 45,812 $1.807,209 1,647,732 163,570 $1.811.302 Construction in progress

Explanation / Answer

a. PPE Turnover = Revenue/PPE net of Depreciation  

On putting the values we get the ratio as 2.28. NOTE: PPE is taken as on 2016 and not the average of 2015 and 2016.

This indicates that the company is not capital intensive as for every dollar of PPE it is generating more revenue as compared to the median

b. Nil or Zero.

Land is not a depreciating asset as it is assumed to have unlimited useful life.

Construction in Progress: These are assets that the company is still building and they are yet to start and generate cash for the company. Hence, no depreciation for the construction in progress as well.

c.

Depreciating Assets: Plant and equipment - Land - Construction in Progress

2595353-364694-45812 = 2184847

Depreciation per year ( as per information in b.) = 150163

Hence Useful Life = Depreciating Assets/Depreciation per year = 14.6 years

d.  

Percent Used up = 833956/2184847 = 38%

The used up percent implies that the assets are worth 62% of their original vlaue. Now whether this number is good or not depends on the industry and the nature of business. If the other companies in the industry have similar used up % then the used up Number of Cabela's is fine and does not point to any significant cash outgo.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.