Question
In: Finance
Calculate the following financial indicators for the last five financial years. Answers including formula to compute...
Calculate the following financial indicators for the last five financial years. Answers including formula to compute the indicators must be provided.
(i) Compounded average revenue (Sales) growth over 5 years
(ii) Compounded average net income growth over 5 years
(iii) Gross profit margin
(iv) Operating profit margin
(v) Asset turnover ratio
(vi) Return on revenue (Sales)
(vii) Return on equity
(viii) Return on total assets
(ix) Current ratio
(x) Debt ratio
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Company A Income Statement
| Fiscal Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Period Ended | 31 Dec 2015 | 31 Dec 2016 | 31 Dec 2017 | 31 Dec 2018 | 31 Dec 2019 |
| Period Length | 12 Months | 12 Months | 12 Months | 12 Months | 12 Months |
| Source | ARS | ARS | ARS | ARS | ARS |
| Revenue | 4,761.85 | 5,252.33 | 4,618.20 | 5,602.42 | 6,234.76 |
| Total Revenue | 4,761.85 | 5,252.33 | 4,618.20 | 5,602.42 | 6,234.76 |
| Selling/General/Admin. Expenses, Total | 328.78 | 326.33 | 346.71 | 376.19 | 471.86 |
| Depreciation/Amortisation | 75.13 | 68.94 | 76.29 | 74.5 | 136.88 |
| Unusual Expense (Income) | -4.97 | -27.73 | -28.09 | 0.75 | 10.31 |
| Other Operating Expenses, Total | -30.5 | -27.4 | -302.32 | -61.46 | -339.11 |
| Total Operating Expense | 3,171.85 | 3,600.60 | 2,198.29 | 2,416.83 | 2,155.93 |
| Operating Income | 1,590.01 | 1,651.74 | 2,419.91 | 3,185.59 | 4,078.84 |
| Interest Inc.(Exp.),Net-Non-Op., Total | 293.28 | 291.96 | 444.44 | 353.13 | 181.69 |
| Other, Net | -44.53 | -36.79 | -48.83 | -30.22 | -32.06 |
| Net Income Before Taxes | 1,838.76 | 1,906.90 | 2,815.53 | 3,508.50 | 4,228.47 |
| Provision for Income Taxes | 343.5 | 402.63 | 468.95 | 658.69 | 814.83 |
| Net Income After Taxes | 1,495.26 | 1,504.27 | 2,346.58 | 2,849.81 | 3,413.64 |
| Net Income Before Extra. Items | 1,065.65 | 1,190.34 | 1,569.56 | 1,762.49 | 2,135.89 |
| Net Income | 1,065.65 | 1,190.34 | 1,569.56 | 1,762.49 | 2,135.89 |
| Income Available to Com Excl ExtraOrd | 1,065.65 | 1,190.34 | 1,569.56 | 1,762.49 | 2,135.89 |
| Income Available to Com Incl ExtraOrd | 1,065.65 | 1,190.34 | 1,569.56 | 1,762.49 | 2,135.89 |
| Diluted Net Income | 1,129.43 | 1,254.80 | 1,630.46 | 1,836.46 | 2,192.02 |
| Diluted Weighted Average Shares | 4,769.84 | 4,766.94 | 4,742.10 | 4,705.62 | 5,004.08 |
| Diluted EPS Excluding ExtraOrd Items | 0.24 | 0.26 | 0.34 | 0.39 | 0.44 |
| DPS - Common Stock Primary Issue | 0.09 | 0.1 | 0.12 | 0.12 | 0.12 |
| Diluted Normalised EPS | 0.24 | 0.26 | 0.34 | 0.39 | 0.44 |
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Company A Balance Sheet
| Fiscal Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Period Ended | 31 Dec 2015 | 31 Dec 2016 | 31 Dec 2017 | 31 Dec 2018 | 31 Dec 2019 |
| Source | ARS | ARS | ARS | ARS | ARS |
| Cash | 1,753.28 | 1,456.43 | 1,789.86 | 2,559.01 | 4,022.57 |
| Short Term Investments | 2,400.02 | 3,351.08 | 4,315.46 | 2,500.83 | 2,145.04 |
| Cash and Short Term Investments | 4,153.30 | 4,807.51 | 6,105.32 | 5,059.84 | 6,167.61 |
| Accounts Receivable - Trade, Net | 374.23 | 468.23 | 460.71 | 251.9 | 341.62 |
| Total Receivables, Net | 1,194.43 | 1,318.45 | 801.77 | 617.55 | 978.47 |
| Prepaid Expenses | 186.88 | 269.47 | 307.26 | 869.57 | 640.43 |
| Other Current Assets, Total | 155.61 | 532.76 | 1,120.77 | 770.77 | 1,113.42 |
| Total Current Assets | 12,626.53 | 11,765.26 | 12,312.13 | 12,446.27 | 16,624.98 |
| Property/Plant/Equipment, Total - Gross | 1,134.94 | 1,154.90 | 1,226.44 | 1,166.70 | 1,501.43 |
| Accumulated Depreciation, Total | -326.61 | -373.47 | -386.42 | -414.05 | -442.45 |
| Property/Plant/Equipment, Total - Net | 808.33 | 781.43 | 840.02 | 752.66 | 1,268.52 |
| Goodwill, Net | - | - | - | - | - |
| Intangibles, Net | 461.06 | 441.84 | 563.3 | 634.72 | 988.08 |
| Long Term Investments | 32,613.42 | 31,972.30 | 46,684.88 | 49,625.58 | 61,728.07 |
| Total Assets | 47,052.59 | 45,740.77 | 61,539.18 | 64,647.56 | 82,345.92 |
| Accounts Payable | 167.89 | 155.94 | 271.11 | 221.49 | 282.15 |
| Accrued Expenses | 2,004.66 | 1,974.06 | 1,343.60 | 1,544.27 | 2,216.65 |
| Notes Payable/Short Term Debt | 1,762.48 | 710.64 | 1,250.63 | 1,729.47 | 2,501.03 |
| Other Current liabilities, Total | 2,488.49 | 3,201.23 | 4,507.64 | 4,436.10 | 5,978.32 |
| Total Current Liabilities | 6,930.32 | 7,728.40 | 8,861.34 | 9,395.32 | 12,427.18 |
| Total Long Term Debt | 13,841.31 | 12,478.95 | 18,955.93 | 20,440.49 | 27,461.01 |
| Total Debt | 16,110.58 | 14,876.11 | 21,694.93 | 23,633.95 | 31,411.06 |
| Deferred Income Tax | 784.7 | 725.21 | 901.23 | 961.01 | 1,462.44 |
| Other Liabilities, Total | 558.6 | 507.74 | 702.85 | 543.79 | 712.42 |
| Total Liabilities | 29,147.29 | 28,135.93 | 43,126.29 | 45,694.85 | 58,986.45 |
| Common Stock, Total | 6,309.29 | 6,309.50 | 6,309.50 | 6,309.50 | 9,327.42 |
| Retained Earnings (Accumulated Deficit) | 10,755.21 | 11,469.72 | 12,539.21 | 13,862.06 | 15,369.08 |
| Treasury Stock - Common | -72.72 | -107.22 | - | - | - |
| Unrealised Gain (Loss) | 5.65 | 20.05 | 21.65 | 2.31 | 144.65 |
| Other Equity, Total | 907.88 | -87.2 | -457.46 | -1,221.16 | -1,481.68 |
| Total Equity | 17,905.31 | 17,604.85 | 18,412.89 | 18,952.71 | 23,359.47 |
| Total Liabilities & Shareholders' Equity | 47,052.59 | 45,740.77 | 61,539.18 | 64,647.56 | 82,345.92 |
| Total Common Shares Outstanding | 4,247.97 | 4,237.39 | 4,162.81 | 4,162.81 | 5,037.49 |
| Tangible Book Value per Share, Common Eq | 4.11 | 4.05 | 4.29 | 4.4 | 4.44 |
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Company A Cash Flow
| Fiscal Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| Period Ended | 31 Dec 2015 | 31 Dec 2016 | 31 Dec 2017 | 31 Dec 2018 | 31 Dec 2019 |
| Source | ARS | ARS | ARS | ARS | ARS |
| Net Income/Starting Line | 1,495.26 | 1,504.27 | 2,346.58 | 2,849.81 | 3,413.64 |
| Depreciation/Depletion | 73.18 | 65.98 | 69.27 | 63.34 | 118.42 |
| Non-Cash Items | -391.75 | -167.87 | -708.12 | -567.49 | -844.16 |
| Cash Taxes Paid | 260.79 | 349.84 | 378.75 | 389.7 | 471.31 |
| Changes in Working Capital | 1,287.26 | 1,899.88 | 424.41 | -1,799.09 | -482.33 |
| Cash from Operating Activities | 2,466.65 | 3,305.22 | 2,139.16 | 557.74 | 2,224.04 |
| Capital Expenditures | -64.02 | -75.94 | -149.28 | -89.35 | -81.47 |
| Other Investing Cash Flow Items, Total | 218.1 | 4.56 | -1,620.78 | -1,266.26 | -277.05 |
| Cash from Investing Activities | 154.08 | -71.38 | -1,770.05 | -1,355.60 | -358.52 |
| Total Cash Dividends Paid | -384.07 | -383.03 | -424.71 | -504.09 | -520.21 |
| Issuance (Retirement) of Stock, Net | 196.45 | -56.73 | 0 | -341.83 | 0 |
| Cash from Financing Activities | -1,213.12 | -2,461.88 | 979.3 | -217.11 | -767 |
| Foreign Exchange Effects | 39.63 | -128.63 | -46.66 | -59.78 | -41.88 |
| Net Change in Cash | 1,447.23 | 643.33 | 1,301.75 | -1,074.75 | 1,056.64 |
Solutions
Expert Solution
(i) Compounded average revenue (Sales) growth over 5 years (CAGR for revenue)-
Formula -
Answer -
(ii) Compounded average net income growth over 5 years (CAGR for net income) -
Formula - Same as used in (i) above
Answer -
(iii) Gross profit margin -
Formula -
In the given example, we do not have direct total COGS. Hence we will have to calculate the same.
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Gross Profit Margin | 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 |
| Part A: Computation of COGS | |||||
| Total Operating Expense | 3,171.85 | 3,600.60 | 2,198.29 | 2,416.83 | 2,155.93 |
| Less: | |||||
| Selling/General/Admin. Expenses, Total | 328.78 | 326.33 | 346.71 | 376.19 | 471.86 |
| Depreciation/Amortisation | 75.13 | 68.94 | 76.29 | 74.50 | 136.88 |
| Unusual Expense (Income) | -4.97 | -27.73 | -28.09 | 0.75 | 10.31 |
| COGS | 2,772.91 | 3,233.06 | 1,803.38 | 1,965.39 | 1,536.88 |
| Part B: (Answer) | |||||
| [(Revenue - COGS)/Revenue]*100 | 41.77 | 38.45 | 60.95 | 64.92 | 75.35 |
Notes:
- Other Operating Expenses, Total have been assumed to be part of COSG or operating expenses.
What does this formula tell us? -
- By taking difference of Revenue - COGS, we arrive at gross profit/gross margin.
- And when you divide the same by revenue, you are computing percent gross margin earned by organisation as compared to revenue.
(iv) Operating profit margin -
What is operating profit/income?
- To calculate operating profit, we shall deduct all the non-operating expenses and incomes from the net profit.
- Formula -
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| Operating Margin | 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 |
| Revenue (A) | 4,761.85 | 5,252.33 | 4,618.20 | 5,602.42 | 6,234.76 |
| Operating Income (B) | 1,590.01 | 1,651.74 | 2,419.91 | 3,185.59 | 4,078.84 |
| Operating profit margin =(B/A)*100 | 33.39% | 31.45% | 52.40% | 56.86% | 65.42% |
(v) Asset turnover ratio -
- Asset turnover ratio is the ratio of total revenue or sales to average assets.
- In our example we shall assume that 2015, is the first year of the company.
Formula -
Answer =
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 | |
| Revenue (A) | 4,761.85 | 5,252.33 | 4,618.20 | 5,602.42 | 6,234.76 |
| Total Closing Assets | 47,052.59 | 45,740.77 | 61,539.18 | 64,647.56 | 82,345.92 |
| Total Opening Assets | 0.00 | 47,052.59 | 45,740.77 | 61,539.18 | 64,647.56 |
| (Total Opening Assets+Total Closing Assets)/2 ___(B) | 23,526.30 | 46,396.68 | 53,639.98 | 63,093.37 | 73,496.74 |
| Asset turnover = (A/B) | 0.20 | 0.11 | 0.09 | 0.09 | 0.08 |
(vi) Return on revenue (Sales) -
- It is a measure of company profitability based on the amount of revenue generated.
- In simple words, it compares net income for every dollar of the revenue.
Answer:
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 | |
| Revenue (A) | 4,761.85 | 5,252.33 | 4,618.20 | 5,602.42 | 6,234.76 |
| Net Income before taxes (B) | 1,838.76 | 1,906.90 | 2,815.53 | 3,508.50 | 4,228.47 |
| Return on revenue (Sales) = (B/A) | 0.39 | 0.36 | 0.61 | 0.63 | 0.68 |
(vii) Return on equity -
Formula -
Answer -
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 | |
| Net Income (A) | 1,495.26 | 1,504.27 | 2,346.58 | 2,849.81 | 3,413.64 |
| Total Equity (B) | 17,905.31 | 17,604.85 | 18,412.89 | 18,952.71 | 23,359.47 |
| Return on equity (A/B) | 11.97 | 11.70 | 7.85 | 6.65 | 6.84 |
(viii) Return on total assets -
Formula -
Answer -
| 2015 | 2016 | 2017 | 2018 | 2019 | |
| 31-Dec-15 | 31-Dec-16 | 31-Dec-17 | 31-Dec-18 | 31-Dec-19 | |
| EBIT (A) | 1,838.76 | 1,906.90 | 2,815.53 | 3,508.50 | 4,228.47 |
| Total Assets (B) | 47,052.59 | 45,740.77 | 61,539.18 | 64,647.56 | 82,345.92 |
| Return on total assets (A/B) | 0.04 |
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