Question

In: Accounting

The following numbers were calculated from the financial statements of Bella’s Bone World (BBW) for 2019....

The following numbers were calculated from the financial statements of Bella’s Bone World (BBW) for 2019.

Net Operating Assets = $102,800,000 (102.8 million)

Net Financial Obligations = $20,700,000 (20.7 million)

Asset Turnover (2019) = 2.1

Core Operating Profit Margin, after tax = 7.95%

1. Calculate the core return on net operating assets for 2019. Use two places beyond the decimal and format as a percent. Do not include a percent sign.

2. You forecast that the core profit margin and asset turnover in the future will be the same as in 2019. You also forecast that sales will grow 4% per year in the future. The firm’s required return for its operations is 7.5%.

Calculate the enterprise price-to-book ratio. Format as a percentage with two places beyond the decimal.

Calculate the enterprise value. Format as a dollar value (not a decimal). Round to the nearest dollar. Do not use commas or a dollar sign.

3. The firm’s 46 million outstanding shares are traded at $4.20 each. Given your forecasts, what is your expected rate of return from buying the firm at this price? . Format as a percentage with two places beyond the decimal. Do not include a percent sign.

Expert Solution

1.

Asset Turnover = Sales / Asset = Sales / 102.8M = 1.2

Sales = 102.8 x 1.2 = 123.36 Million

Profit margin = Net profit / Sales = Net profit / 123.36 = 0.0795

Net profit = 123.36 x 0.0795 = 9.8 Million

Return on operating Asset (ROA) = Net profit / Operating Assets = 9.8 / 102.8

ROA = 0.0954

2.

Price to book ratio = Market price per share / Book value per share

Market price = $4.2

Book value per share = Total Shareholder's equity / Number of outstanding shares

Shareholder's equity = (Asset - Debt) = 102.8M - 20.7M = $82.1 Million

Book value = 82.1M / 46M = $1.7847 per share

Price to Book ratio = 4.2 / 1.78 = 2.35

Enterprise value = Market Capitalization + Market value of debt - Cash and Cash equivalents.

= (4.2 x 46M) + 20.7M

= 213.9 Million

3.

Earnings yield ratio = Earnings per share / Price of share

Price = 4.2

EPS = Net Income / Outstanding shares

Net Income = Sales x Profit margin

Sales = 123.36 x 104% = $128,294,400

Net Income = 128,294,400 x 0.0795 = $10,199,405

EPS = $10,199,405 / 46,000,000 = $0.2217

Earnings yield ratio = 0.2217 / 4.2 = 0.05279

ekkarill92 answered 2 years ago

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