FINANCIAL ACCOUNTING: TOOLS FOR BUSINES
9th Edition
ISBN: 9781119595649
Author: Kimmel
Publisher: WILEY
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Textbook Question
Chapter 11, Problem 11.6EYCT
DECISION MAKING ACROSS THE ORGANIZATION
During a recent period, the fast-food drain Wendy’s International purchased many treasury shares. This caused the number of shares outstanding to fall from 124 million to 105 million. The following information was drawn from the company’s financial statements (in millions).
Instructions
Use the information provided to answer the following questions.
(a) Compute earnings per share, return on common stockholders’ equity and return on assets for both years. Discuss the change in the company’s profitability over this period.
(b) Compute the dividend payout ratio. Also compute the average cash dividend paid per share of common stock (dividends paid divided by the average number of common shares outstanding). Discuss any change in these ratios during this period and the implications for the company’s dividend policy.
(c) Compute the debt to assets ratio and limes interest earned. Discuss the change in the company’s solvency.
(d) Based on your findings in (a) and (c), discuss to what extent any change in lie return on common stockholders’ equity was tire result of increased reliance on debt.
(e) Does it appear that the purchase of
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The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.
Ratios Calculated
Year 1
Year 2
Year 3
Price-to-cash-flow
2.80
1.96
1.57
Inventory turnover
5.60
4.48
3.58
Debt-to-equity
0.60
0.48
0.38
Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply.
A plausible reason why Blue Hamster Manufacturing Inc.’s price-to-cash-flow ratio has decreased is that investors expect lower cash flow per share in the future.
Blue Hamster Manufacturing Inc.’s ability to meet its debt obligations has improved since its debt-to-equity ratio…
Suppose you are conducting an analysis of the financial performance of Blue Hamster Manufacturing Inc. over the past three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.
Ratios Calculated
Year 1
Year 2
Year 3
Price-to-cash-flow
6.40
8.32
9.32
Inventory turnover
12.80
15.36
17.20
Debt-to-equity
0.20
0.21
0.25
Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply.
A. The company’s creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time.
B. Blue…
Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Lucas Hunter and Simmons’ controller, John Jameson, in January, after the close of the fiscal year:Lucas: I’ve been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won’t look good to our shareholders. Is there anything we can do about this?John: What do you mean? The past is the past, and the numbers are in. There isn’t much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I don’t see much leeway for significant change at this point.Lucas: No, no. I’m not suggesting that we “cook the books.” But look at the cash flow from operating activities on the statement of cash…
Chapter 11 Solutions
FINANCIAL ACCOUNTING: TOOLS FOR BUSINES
Ch. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Prob. 4QCh. 11 - Prob. 5QCh. 11 - Prob. 6QCh. 11 - Prob. 7QCh. 11 - Which is the boiler investmentcommon stock with a...Ch. 11 - Prob. 9QCh. 11 - Prob. 10Q
Ch. 11 - Prob. 11QCh. 11 - Prob. 12QCh. 11 - Indicate how each of these accounts should be...Ch. 11 - What three conditions must be met before a cash...Ch. 11 - Prob. 15QCh. 11 - Prob. 16QCh. 11 - Prob. 17QCh. 11 - Prob. 18QCh. 11 - Prob. 19QCh. 11 - Prob. 21QCh. 11 - Prob. 22QCh. 11 - Prob. 23QCh. 11 - Prob. 24QCh. 11 - Prob. 25QCh. 11 - Prob. 26QCh. 11 - Prob. 11.1BECh. 11 - Prob. 11.2BECh. 11 - Prob. 11.3BECh. 11 - Prob. 11.4BECh. 11 - Prob. 11.6BECh. 11 - Prob. 11.8BECh. 11 - Prob. 11.9BECh. 11 - Prob. 11.10BECh. 11 - Prob. 11.11BECh. 11 - Prob. 11.12BECh. 11 - Prob. 11.13BECh. 11 - Prob. 11.14BECh. 11 - Prob. 11.1aDIECh. 11 - Prob. 11.2aDIECh. 11 - Prob. 11.2bDIECh. 11 - Prob. 11.3aDIECh. 11 - Prob. 11.3bDIECh. 11 - Prob. 11.4aDIECh. 11 - Prob. 11.3ECh. 11 - Prob. 11.4ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Prob. 11.8ECh. 11 - Prob. 11.9ECh. 11 - Prob. 11.11ECh. 11 - Prob. 11.19ECh. 11 - Prob. 11.3EYCTCh. 11 - Prob. 11.4EYCTCh. 11 - DECISION MAKING ACROSS THE ORGANIZATION During a...Ch. 11 - Prob. 11.7EYCTCh. 11 - Prob. 11.8EYCTCh. 11 - Prob. 11.9EYCTCh. 11 - Prob. 11.12EYCTCh. 11 - Prob. 11.1IECh. 11 - Prob. 11.2IECh. 11 - Prob. 11.3IE
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