Computron's Balance Sheets (Millions of Dollars) 2019 2020 Assets Cash and equivalents $ 60 $ 50 Short-term investments 100 10 Accounts receivable 400 520 Inventories 620 820 Total current assets $ 1,180 $ 1,400 Gross fixed assets $ 3,900 $ 4,820 Less: Accumulated depreciation 1,000 1,320 Net fixed assets $ 2,900 $ 3,500 Total assets $ 4,080 $ 4,900 Liabilities and equity Accounts payable $ 300 $ 400 Notes payable 50 250 Accruals 200 240 Total current liabilities $ 550 $ 890 Long-term bonds 800 1,100 Total liabilities $ 1,350 $ 1,990 Common stock 1,000 1,000 Retained earnings 1,730 1,910 Total equity $ 2,730 $ 2,910 Total liabilities and equity $ 4,080 $ 4,900 Computron's Income Statement (Millions of Dollars) 2019 2020 Net sales $ 5,500 $ 6,000 Cost of goods sold (Excluding depr. & amort.) 4,300 4,800 Depreciation and amortizationa 290 320 Other operating expenses 350 420 Total operating costs $ 4,940 $ 5,540 Earnings before interest and taxes (EBIT) $ 560 $ 460 Less interest 68 108 Pre-tax earnings $ 492 $ 352 Taxes (25%) 123 88 Net Income $ 369 $ 264 Notes: a Computron has no amortization charges. Other Data 2020 2019 Stock price $57.00 $40.00 Shares outstanding (millions) 100 100 Common dividends (millions) $90 $84 Tax rate 25% 25% Weighted average cost of capital (WACC) 10.00% 10.00% Computron's Statement of Cash Flows (Millions of Dollars) 2020 Operating Activities Net Income before preferred dividends $ 264 Noncash adjustments Depreciation and amortization 320 Due to changes in working capital Change in accounts receivable (120) Change in inventories (200) Change in accounts payable 100 Change in accruals 40 Net cash provided by operating activities $ 404 Investing activities Cash used to acquire fixed assets $ (920) Change in short-term investments 90 Net cash provided by investing activities $ (830) Financing Activities Change in notes payable $ 200 Change in long-term debt 300 Payment of cash dividends (84) Net cash provided by financing activities $ 416 Net change in cash and equivalents $ (10) Cash and securities at beginning of the year 60 Cash and securities at end of the year $ 50 Calculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). Explain whether you think the decline in the ROIC was due to operating profitability or capital utilization. Explain whether you think Computron’s growth added value. Hint: ROIC = NOPAT / Total Net Operating Capital

Computron's Balance Sheets (Millions of Dollars) 2019 2020 Assets Cash and equivalents $ 60 $ 50 Short-term investments 100 10 Accounts receivable 400 520 Inventories 620 820 Total current assets $ 1,180 $ 1,400 Gross fixed assets $ 3,900 $ 4,820 Less: Accumulated depreciation 1,000 1,320 Net fixed assets $ 2,900 $ 3,500 Total assets $ 4,080 $ 4,900 Liabilities and equity Accounts payable $ 300 $ 400 Notes payable 50 250 Accruals 200 240 Total current liabilities $ 550 $ 890 Long-term bonds 800 1,100 Total liabilities $ 1,350 $ 1,990 Common stock 1,000 1,000 Retained earnings 1,730 1,910 Total equity $ 2,730 $ 2,910 Total liabilities and equity $ 4,080 $ 4,900 Computron's Income Statement (Millions of Dollars) 2019 2020 Net sales $ 5,500 $ 6,000 Cost of goods sold (Excluding depr. & amort.) 4,300 4,800 Depreciation and amortizationa 290 320 Other operating expenses 350 420 Total operating costs $ 4,940 $ 5,540 Earnings before interest and taxes (EBIT) $ 560 $ 460 Less interest 68 108 Pre-tax earnings $ 492 $ 352 Taxes (25%) 123 88 Net Income $ 369 $ 264 Notes: a Computron has no amortization charges. Other Data 2020 2019 Stock price $57.00 $40.00 Shares outstanding (millions) 100 100 Common dividends (millions) $90 $84 Tax rate 25% 25% Weighted average cost of capital (WACC) 10.00% 10.00% Computron's Statement of Cash Flows (Millions of Dollars) 2020 Operating Activities Net Income before preferred dividends $ 264 Noncash adjustments Depreciation and amortization 320 Due to changes in working capital Change in accounts receivable (120) Change in inventories (200) Change in accounts payable 100 Change in accruals 40 Net cash provided by operating activities $ 404 Investing activities Cash used to acquire fixed assets $ (920) Change in short-term investments 90 Net cash provided by investing activities $ (830) Financing Activities Change in notes payable $ 200 Change in long-term debt 300 Payment of cash dividends (84) Net cash provided by financing activities $ 416 Net change in cash and equivalents $ (10) Cash and securities at beginning of the year 60 Cash and securities at end of the year $ 50 Calculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). Explain whether you think the decline in the ROIC was due to operating profitability or capital utilization. Explain whether you think Computron’s growth added value. Hint: ROIC = NOPAT / Total Net Operating Capital

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter21: The Statement Of Cash Flows

Section: Chapter Questions

Problem 9E: Partially Completed Spreadsheet Hanks Company has prepared the following changes in account balances...

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Computron's Balance Sheets (Millions of Dollars)
	2019	2020
Assets
Cash and equivalents	$ 60	$ 50
Short-term investments	100	10
Accounts receivable	400	520
Inventories	620	820
Total current assets	$ 1,180	$ 1,400
Gross fixed assets	$ 3,900	$ 4,820
Less: Accumulated depreciation	1,000	1,320
Net fixed assets	$ 2,900	$ 3,500
Total assets	$ 4,080	$ 4,900

Liabilities and equity
Accounts payable	$ 300	$ 400
Notes payable	50	250
Accruals	200	240
Total current liabilities	$ 550	$ 890
Long-term bonds	800	1,100
Total liabilities	$ 1,350	$ 1,990
Common stock	1,000	1,000
Retained earnings	1,730	1,910
Total equity	$ 2,730	$ 2,910
Total liabilities and equity	$ 4,080	$ 4,900


Computron's Income Statement (Millions of Dollars)	2019	2020
Net sales	$ 5,500	$ 6,000
Cost of goods sold (Excluding depr. & amort.)	4,300	4,800
Depreciation and amortizationa	290	320
Other operating expenses	350	420
Total operating costs	$ 4,940	$ 5,540
Earnings before interest and taxes (EBIT)	$ 560	$ 460
Less interest	68	108
Pre-tax earnings	$ 492	$ 352
Taxes (25%)	123	88
Net Income	$ 369	$ 264

Notes:
a Computron has no amortization charges.

Other Data	2020	2019
Stock price	$57.00	$40.00
Shares outstanding (millions)	100	100
Common dividends (millions)	$90	$84
Tax rate	25%	25%
Weighted average cost of capital (WACC)	10.00%	10.00%


Computron's Statement of Cash Flows (Millions of Dollars)
		2020
Operating Activities
Net Income before preferred dividends		$ 264
Noncash adjustments
Depreciation and amortization		320
Due to changes in working capital
Change in accounts receivable		(120)
Change in inventories		(200)
Change in accounts payable		100
Change in accruals		40
Net cash provided by operating activities		$ 404

Investing activities
Cash used to acquire fixed assets		$ (920)
Change in short-term investments		90
Net cash provided by investing activities		$ (830)

Financing Activities
Change in notes payable		$ 200
Change in long-term debt		300
Payment of cash dividends		(84)
Net cash provided by financing activities		$ 416

Net change in cash and equivalents		$ (10)
Cash and securities at beginning of the year		60
Cash and securities at end of the year		$ 50

Calculate Computron’s return on invested capital (ROIC). Computron has a 10% cost of capital (WACC). Explain whether you think the decline in the ROIC was due to operating profitability or capital utilization. Explain whether you think Computron’s growth added value.

Hint: ROIC = NOPAT / Total Net Operating Capital

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