corporate finance chp 2

gross margin

gross profit/sales

operating margin

operating income/sales

net proft margin

net income/sales

current ratio

current assets/liabilities

quick ratio

current assets-inventory/current liabilties

cash ratio

cash/ current liabilties

accounts receivable days

accounts receivable/average daily sales

fixed asset turnover

sales/fixed assets

total asset turnover

sale/total assets

inventory turnover

cost of goods sold/ inventory

EBT/interest coverage

EBIT / interest expense

EBITDA/ interest coverage

EBITDA/interest coverage

debt to equity ratio

debt/equity

debt to capital ratio

debt / equity + debt

debt to enterprise value

total assets/ total equity

equity multiplier

net debt/enterprise value

returns on equity

net income / book value of equity

return on assets

net income + interest expense / total assets

return on invested capital

EBIT ( 1- tax rate) / book value of equity + net debt

market to book ratio

market value of equity / book value of equity

price to earnings ratio

share price / earning per share

enterprise value ratios

enterprise value / EBIT or EBITDA or SALES

Suppose Global had an additional $1 million depreciation expense in 2016. If Global’s tax rate on pretax income is 26%, what would be the impact of this expense on Global’s earnings? How would it impact Global’s cash at the end of the year?

Compute Global’s accounts payable days, inventory days, and inventory turnover for 2016.

Information provided:

• Inventory = $15.3 million

• Accounts payable = $29.2 million

• Cost of goods sold (cost of sales) = $153.4 million

Compute Rylan’s accounts receivable days, accounts payable days, and inventory days based on the following information:

Item	Amount
Accounts receivable	$635
Inventory	$925
Accounts payable	$1,259
Sales	$8,052
Cost of goods sold	$5,140

Assess Global’s ability to meet its interest obligations by calculating interest coverage ratios using both EBIT and EBITDA.

Information provided:

Item	2015	2016
EBIT	$7.1 million	$10.4 million
Depreciation and amortization	$1.1 million	$1.2 million
Interest expense	$4.6 million	$7.7 million

Assess Rylan’s ability to meet its interest obligations by calculating interest coverage ratios using both EBIT and EBITDA.

Information provided:

Item	2015	2016
EBIT	$1,090	$1,163
EBITDA	$1,497	$1,425
Interest expense	$135	$114

Consider the following data for Walmart Stores and Target Corporation (in billions of dollars).

Item	Walmart (WMT)	Target (TGT)
Sales	$469	$73
Operating income	$28	$5
Net income	$17	$3
Market capitalization	$222	$38
Cash	$8	$1
Debt	$54	$18

Compare Walmart’s and Target’s operating margin, net profit margin, P/E ratio, and the ratio of enterprise value to operating income and sales.

Assess how Global’s ability to use its assets effectively has changed in the last year by computing the change in its return on assets (ROA).

Information provided:

Item	2015	2016
Net income	$1.9 million	$2.0 million
Interest expense	$4.6 million	$7.7 million
Total assets	$128.9 million	$170.1 million

The following table contains information about Walmart (WMT) and Nordstrom (JWN). Compute their respective ROEs and then determine how much Walmart would need to increase its profit margin in order to match Nordstrom’s ROE.

Company	Profit margin	Asset turnover	Equity multiplier
Walmart	3.6%	2.3	2.7
Nordstrom	6.1%	1.5	4.2

The following table contains information about Campbell Soup (CPB) and General Mills (GIS). Compute their respective ROEs and then determine how much General Mills would need to increase its equity multiplier in order to match Campbell’s ROE.

Company	Profit margin	Asset turnover	Equity multiplier
Campbell Soup	5.7%	0.97	6.84
General Mills	10.4%	0.78	2.97