Financial Ratios and Net Profit Margin
Financial Statement Analysis Exercises
(Chapter 2)
2-4.
Consider the following potential events that might have taken place atVodafone Group Plc on 31
March, 2012. For each one, indicate which line items in Vodafone’s balance sheet would be affected and by how much. Also indicate the change to Vodafone’s book value of equity. (In all cases, ignore any tax consequences for simplicity.)
a.
b.
A warehouse fire destroyed £50 million worth of uninsured inventory.
c.
Vodafone used £50million in cash and £50million in new long-term debt to purchase a
£100million of buildings worldwide.
d.
A large customer owing £20million for products it already received declared bankruptcy, leaving no possibility that Vodafonewould ever receive payment.
e.
Vodafone’s engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50%.
f.
A key competitor announces a radical new pricing policy that will drastically undercut
Vodafone’s prices.
a.
Non-current liabilities would decrease by £200 million, and cash would decrease by the same amount. The book value of equity would be unchanged.
b.
Inventory would decrease by £50 million, as would the book value of equity.
c.
Non-current assets would increase by £100 million, cash would decrease by £50 million, and noncurrent liabilities would increase by £50 million.There would be no change to the book value of equity. d.
Accounts receivable would decrease by £20 million, as would the book value of equity.
e.
This event would not affect the balance sheet.
f.
2-8.
Vodafone used £200 million of its available cash to repay £200 million of its long-term debt.
This event would not affect the balance sheet.
In early 2009, General Electric (GE) had a book value of equity of $105 billion, 10.5 billion shares outstanding, and a market price of $10.80 per share. GE also had cash of $48 billion, and total debt of $524 billion. Three
(Chapter 2)
2-4.
Consider the following potential events that might have taken place atVodafone Group Plc on 31
March, 2012. For each one, indicate which line items in Vodafone’s balance sheet would be affected and by how much. Also indicate the change to Vodafone’s book value of equity. (In all cases, ignore any tax consequences for simplicity.)
a.
b.
A warehouse fire destroyed £50 million worth of uninsured inventory.
c.
Vodafone used £50million in cash and £50million in new long-term debt to purchase a
£100million of buildings worldwide.
d.
A large customer owing £20million for products it already received declared bankruptcy, leaving no possibility that Vodafonewould ever receive payment.
e.
Vodafone’s engineers discover a new manufacturing process that will cut the cost of its flagship product by over 50%.
f.
A key competitor announces a radical new pricing policy that will drastically undercut
Vodafone’s prices.
a.
Non-current liabilities would decrease by £200 million, and cash would decrease by the same amount. The book value of equity would be unchanged.
b.
Inventory would decrease by £50 million, as would the book value of equity.
c.
Non-current assets would increase by £100 million, cash would decrease by £50 million, and noncurrent liabilities would increase by £50 million.There would be no change to the book value of equity. d.
Accounts receivable would decrease by £20 million, as would the book value of equity.
e.
This event would not affect the balance sheet.
f.
2-8.
Vodafone used £200 million of its available cash to repay £200 million of its long-term debt.
This event would not affect the balance sheet.
In early 2009, General Electric (GE) had a book value of equity of $105 billion, 10.5 billion shares outstanding, and a market price of $10.80 per share. GE also had cash of $48 billion, and total debt of $524 billion. Three