ROE decomposition
(b.) extensive competition as there is competition in extreme amount which is involved with the grocery store chains.
(c.) D,A,E,B,F,C
This is the sequence which is followed for the analysis as firstly the competition dynamics will be identified and after that the strategies of the company will be considered. Once this is done the financial statements will be analysed and then the adjustments will be made to make the comparison. Then the calculation will be made for the profitability and risk so that they can be evaluated. With the help of the identified trends there will be making of the forecasted financial statements and thy will be used to value the firm.
(a.) Retained earnings is equal to $210000
Retained earnings = Total assets – contributed capital – other liabilities
= (180000+325000+600000+30000)-(100000+75000)-750000
= 1135000 -175000-750000
= $210000
(d.) i – (B), ii – (C), iii – (A), and iv – (D)
(b.) Negative or positive cash flows from operations, negative cash flows from investing and positive cash flows from financing. This is because the project which starts to generate the funds from the operations and the negative flows will start to decline which will make them at positive with the increase in growth. The funds are managed with the financing which makes it to be positive.
(c.) Maturity as at that time the operations would have been carried with the highest rate and all the risk is resolved.
(c.) $1,255,000
Collection = Sales – increase in accounts receivables
= 1300000-45000
=$1255000
(a.) Growth in accounts receivable or inventories that is less the growth rate in sales.
This will not create the cash problem as there will be no liability which will be created and accounts receivable growth can be less if more cash sales is made by the business.
(a.) A company signs a new contract with a customer.
The financial statements will not be adjusted as there will be no financial impact which will be made with the contract.
(d.) A memorandum entry only to note that the number of share outstanding triples for each ordinary shareholder so that the change in the number of shares in the company can be noted.
(a.) An increase in Land of $250,000 and an increase in Share Capital of $250,000 as the land is valued at acquisition cost and with the acquisition the land will increase and also shares are issues so share capital will rise.
Accrual accounting
(a.) The Liabilities to Assets ratio increases and the Long-term Debt to Long-term Capital ratio increases as the total liabilities and long term liabilities will be rising.
(a.) accounts receivable as if the credit sales will change then the balance of accounts receivable will also vary.
(c.) 12.3%
CAPM = Rf + b * risk premium
= 6 + 0.9*7
= 12.3%
(c.) $536,000
The returns to shareholders are paid in two forms which are cash dividend and share repurchase which makes the total dividend to be (412000+124000) which is $536000.
(a.) free cash flow from operations; required return to equity
The value of the business will be calculated by the cash generated from operations and in that payment to debt holders is not considered so return on equity is taken into account.
(b.) earnings as a periodic measure of shareholder wealth creation as by the residual income valuation the excessive income which is earned over the equity is calculated.
(b.) The lower average tax rate in FY16 offset the deterioration in activity as the tax rate has declined which increases Net income/EBT ratio and sales is reducing in comparison to assets from 1.5 to 1.4.
(b.) An unusually large number of bad debts had to be written off as with this the accounts receivable will reduce which will increase the turnover ratio.
(a.) £13.2 million because as per IFRS the intangible asset will be measured at cost less amortization expense which will be 12-2 that is 10 million and adding gain on this of 3.2 million will make the sale price to be 13.2 million.
(b.) A material reduction in expected useful life of a PPE asset as by this the amount of the depreciation will increase which will overstate the expense and income will be increasing.
(a.) Pharmaceutical industry as there is less amount of the debt which is involved and high level of equity is maintained in them.
(e.) None of the above as the accrual accounting is followed in which the recognition is made at all the time which is before, after and during the transaction.
(c.) The prospective analysis follows the financial analysis as after the determination of the financial aspects there is the preparation of prospective statements.
(c.) A firm’s industry and competitive strategy affect which accounting choices are appropriate as the accounting will be made on the basis of the strategies which have been adopted to be in lieu with the same.
(b.) After reviewing sales forecasts and income statements, Angela determines that the company has enough capacity to hire a new employee
as by the sales forecast the requirement will be identified and the profit will inform about the position of the company to pay them in appropriate manner.
(b.) Operating asset turnover as by this the efficiency of the management of assets in the company is identified.
(a.) Tends to move in line with economy-wide growth
This is because in cyclical industries the changes takes place in accordance with the change in the economy in direct manner.
(c.) 11.0 per cent
Cost of equity= Rf + b * risk premium
= 4 + 1.4*5
= 11.0%
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