Assignment
Problem 1
Use the following selected balance sheet and income statement data for Valero Energy Corporation (in $ millions) to compute a) return on equity, b) profit margin (PM), c) asset turnover (AT), and d) financial leverage (FL) for fiscal 2013. Show that ROE = PM × AT × FL.
|
(Millions of Dollars)
|
2013
|
2012
|
|
Operating revenues
|
$138,074
|
$ 139,250
|
|
Interest expense (non-operating expense)
|
365
|
313
|
|
Net income attributable to Valero stockholders
|
2,720
|
2,090
|
|
Total assets
|
47,260
|
44,477
|
|
Total Valero stockholders' equity
|
19,460
|
18,032
|
|
Statutory tax rate
|
37%
|
37%
|
Problem 2
Income statements and balance sheets follow for The New York Times Company. Refer to these financial statements to answer the requirements.
|
The New York Times Company
Consolidated Statements of Income
|
|
|
Fiscal year ended
|
|
(in thousands)
|
Dec. 29, 2013
|
Dec. 30, 2012
|
|
Operating revenues
|
|
|
|
Circulation
|
$ 824,277
|
$ 795,037
|
|
Advertising
|
666,687
|
711,829
|
|
Other
|
86,266
|
88,475
|
|
Total revenues
|
1,577,230
|
1,595,341
|
|
Production Costs
|
|
|
|
Raw materials
|
92,886
|
106,381
|
|
Wages and benefits
|
332,085
|
331,321
|
|
Other
|
201,942
|
213,616
|
|
Total production costs
|
626,913
|
651,318
|
|
Selling, general and administrative expenses
|
706,354
|
711,112
|
|
Depreciation and amortization
|
78,477
|
78,980
|
|
Total operating costs
|
1,411,744
|
1,441,410
|
|
Pension settlement expense
|
3,228
|
47,657
|
|
Multiemployer pension plan withdrawal expense
|
6,171
|
0
|
|
Other expense
|
0
|
2,620
|
|
Operating profit
|
156,087
|
103,654
|
|
Gain on sale of investments
|
0
|
220,275
|
|
Impairment of investments
|
0
|
5,500
|
|
(Loss)/income from joint ventures
|
(3,215)
|
2,936
|
|
Premium on debt redemption
|
0
|
0
|
|
Interest expense, net
|
58,073
|
62,808
|
|
Income from continuing operations before income taxes
|
94,799
|
258,557
|
|
Income tax expense
|
37,892
|
94,617
|
|
Income from continuing operations
|
56,907
|
163,940
|
|
Discontinued operations:
|
|
|
|
(Loss) from discontinued operations, net of tax
|
(20,413)
|
(113,447)
|
|
Gain on sale, net of tax
|
28,362
|
85,520
|
|
Income/(loss) from discontinued operations, net of tax
|
7,949
|
(27,927)
|
|
Net income/(loss)
|
64,856
|
136,013
|
|
Net (income)/loss attributable to the noncontrolling interest
|
249
|
(166)
|
|
Net income/(loss) attributable to New York Times Company common stockholders
|
65,105
|
135,847
|
|
The New York Times Company
Consolidated Balance Sheets
|
|
|
As of
|
|
(in thousands)
|
Dec. 29, 2013
|
Dec. 30, 2012
|
|
|
|
|
|
Cash and cash equivalents
|
$ 482,745
|
$ 820,490
|
|
Short-term investments
|
364,880
|
134,820
|
|
Accounts receivable, net
|
202,303
|
197,589
|
|
Deferred income taxes
|
65,859
|
58,214
|
|
Prepaid assets
|
20,250
|
23,085
|
|
Other current assets
|
36,230
|
26,320
|
|
Assets held for sale
|
0
|
137,050
|
|
Total current assets
|
1,172,267
|
1,397,568
|
|
Long-term marketable securities
|
176,155
|
4,444
|
|
Investments in joint ventures
|
40,213
|
40,872
|
|
Property plant and equipment, net
|
713,356
|
773,469
|
|
Goodwill, net
|
125,871
|
122,691
|
|
Deferred income taxes
|
179,989
|
302,212
|
|
Miscellaneous assets
|
164,701
|
166,214
|
|
Total assets
|
$2,572,552
|
$2,807,470
|
|
|
|
|
Accounts payable
|
$ 90,982
|
$ 88,990
|
|
Accrued payroll and other related liabilities
|
91,629
|
86,772
|
|
Unexpired subscriptions
|
58,007
|
57,336
|
|
Accrued expenses
|
107,755
|
118,753
|
|
Accrued incomes taxes
|
138
|
38,932
|
|
Liabilities held for sale
|
0
|
32,373
|
|
Total current liabilities
|
348,511
|
423,156
|
|
|
|
|
|
Long-term debt and capital lease obligations
|
684,142
|
696,752
|
|
Pension benefits obligation
|
444,328
|
737,889
|
|
Postretirement benefits obligation
|
90,602
|
110,347
|
|
Other
|
158,435
|
173,690
|
|
Total other liabilities
|
1,377,507
|
1,718,678
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
Common stock of $0.10 par value:
|
|
|
|
Class A common stock
|
15,129
|
15,027
|
|
Class B convertible
|
82
|
82
|
|
Additional paid-in capital
|
33,045
|
25,610
|
|
Retained earnings
|
1,283,518
|
1,230,450
|
|
Common stock held in treasury, at cost
|
(86,253)
|
(96,278)
|
|
Accumulated other comprehensive income loss), net of tax
|
(402,611)
|
(512,566)
|
|
Total New York Times Company stockholders' equity
|
842,910
|
662,325
|
|
Noncontrolling interest
|
3,624
|
3,311
|
|
Total stockholders' equity
|
846,534
|
665,636
|
|
Total liabilities and stockholders' equity
|
$2,572,552
|
$2,807,470
|
Required:
a. Compute net operating profit after tax (NOPAT) for 2013 and 2012. Assume that combined federal and state statutory tax rates are 37% for both years.
i. NOPAT for 2013
ii. NOPAT for 2012
b. Compute net operating assets (NOA) for 2013 and 2012.
c. Compute return on net operating assets (RNOA) for 2013 and 2012. Net operating assets are $412,630 thousand in 2011.
d. Compute return on common shareholders equity (ROE) for 2013 and 2012. Stockholders' equity attributable to New York Times Company in 2011 is $506,360 thousand.
e. What is nonoperating return component of ROE for 2013 and 2012?
f. Comment on the difference between ROE and RNOA. What inference do you draw from this comparison?
Problem 3
Income statements and balance sheets follow for Snap-On Incorporated. Refer to these financial statements to answer the requirements.
|
Snap-On Incorporated
Consolidated Statements of Earnings
|
|
(Amounts in millions)
|
For the fiscal year ended
|
|
|
2013
|
2012
|
|
Net sales
|
$ 3,056.5
|
$ 2,937.9
|
|
Cost of goods sold
|
(1,583.6)
|
(1,547.9)
|
|
Gross profit
|
1,472.9
|
1,390.0
|
|
Operating expenses
|
(1,012.4)
|
(980.3)
|
|
Operating earnings before financial services
|
460.5
|
409.7
|
|
|
|
|
|
Financial services revenue
|
181.0
|
161.3
|
|
Financial services expenses
|
(55.3)
|
(54.6)
|
|
Operating income from financial services
|
125.7
|
106.7
|
|
Operating earnings
|
586.2
|
516.4
|
|
Interest expense
|
(56.1)
|
(55.8)
|
|
Other income (expense) -- net
|
(3.9)
|
(0.4)
|
|
Earnings before income taxes and equity earnings
|
526.2
|
460.2
|
|
Income tax expense
|
(166.7)
|
(148.2)
|
|
Earnings before equity earnings
|
359.5
|
312.0
|
|
Equity earnings, net of tax
|
0.2
|
2.6
|
|
Net earnings
|
359.7
|
314.6
|
|
Net earnings attributable to noncontrolling interests
|
(9.4)
|
(8.5)
|
|
Net earnings attributable to Snap-on Incorporated
|
$ 350.3
|
$ 306.1
|
|
Snap-On Incorporated
Consolidated Balance Sheets
|
|
|
Fiscal Year End
|
|
(Amounts in millions)
|
2013
|
2012
|
|
|
|
|
|
Cash and cash equivalents
|
$ 217.6
|
$ 214.5
|
|
Trade and other accounts receivable - net
|
531.6
|
497.9
|
|
Finance receivables - net
|
374.6
|
323.1
|
|
Contract receivables - net
|
68.4
|
62.7
|
|
Inventories - net
|
434.4
|
404.2
|
|
Deferred income tax assets
|
85.4
|
81.8
|
|
Prepaid expenses and other assets
|
84.2
|
84.8
|
|
Total current assets
|
1,796.2
|
1,669.0
|
|
Property and equipment - net
|
392.5
|
375.2
|
|
Deferred income tax assets
|
57.1
|
110.4
|
|
Long-term finance receivables - net
|
560.6
|
494.6
|
|
Long-term contract receivables - net
|
217.1
|
194.4
|
|
Goodwill
|
838.8
|
807.4
|
|
Other intangibles - net
|
190.5
|
187.2
|
|
Other assets
|
57.2
|
64.1
|
|
Total assets
|
$ 4,110.0
|
$ 3,902.3
|
|
|
|
|
|
Notes payable and current maturities of long-term debt
|
$ 113.1
|
$ 5.2
|
|
Accounts payable
|
155.6
|
142.5
|
|
Accrued benefits
|
48.1
|
50.6
|
|
Accrued compensation
|
95.5
|
88.3
|
|
Franchisee deposits
|
59.4
|
54.7
|
|
Other accrued liabilities
|
243.7
|
247.9
|
|
Total current liabilities
|
715.4
|
589.2
|
|
Long-term debt
|
858.9
|
970.4
|
|
Deferred income tax liabilities
|
143.8
|
127.1
|
|
Retiree health care benefits
|
41.7
|
48.4
|
|
Pension liabilities
|
135.8
|
260.7
|
|
Other long-term liabilities
|
84.0
|
87.5
|
|
Total liabilities
|
1,979.6
|
2,083.3
|
|
|
|
|
|
Preferred stock
|
-
|
-
|
|
Common stock
|
67.4
|
67.4
|
|
Additional paid-in capital
|
225.1
|
204.6
|
|
Retained earnings
|
2,324.1
|
2,067.0
|
|
Accumulated other comprehensive income (loss)
|
(44.8)
|
(124.2)
|
|
Treasury stock at cost
|
(458.6)
|
(412.7)
|
|
Total shareholders' equity attributable to Snap-on Inc.
|
2,113.2
|
1,802.1
|
|
Noncontrolling interests
|
17.2
|
16.9
|
|
Total shareholders' equity
|
2,130.4
|
1,819.0
|
|
Total liabilities and shareholders' equity
|
$ 4,110.0
|
$ 3,902.3
|
Required:
a. Compute the company's current ratio and quick ratio for fiscal 2013 and 2012. Comment on any observed trend.
b. Compute the company's times interest earned and liabilities-to-equity ratio for 2013 and 2012. Comment on any observed trend.
c. Summarize your findings in a conclusion about the company's liquidity and solvency. Do you have any concerns about the company's ability to meet its debt obligations?
Problem 4
Refer to Target's financial statements at the website to answer the questions that follow:
In the event that you cannot find the information you need to answer the question, indicate what information is missing and why you need it.
1. In footnote number 1, the company refers to "fiscal year". Explain that paragraph to someone reading financial statements for the first time. Explain why the fiscal year end date changes.
a.
2. Summarize what is being disclosed in footnote 7 "Canada Exit". Do you think this disclosure is important to an investor? Why or why not?
3. Compute the current ration and quick ratio for the three years presented in the financial statements. Show all computational work.
4. Compute times interest earned and the liabilities to equity ratios for each of the three years presented. (Check out the footnotes for Interest expense.) Comment on any noticeable change. Comment on any noticeable change.
5. Compute net operating profit in 2015 after tax (NOPAT). You will find the 2015 effective tax rate in the footnotes to the financial statements. Would it be prudent to compare the 2015 result to the 2013 or 2014 NOPAT?
6. Compute the return on equity for 2015. Comment.
7. Calculate the Gross Profit Percentage for the three years presented. Is there a trend?
8. Using the information you gathered above, would you recommend that your parents buy Target stock? Clearly outline why or why not?