Reference no: EM13160976
Part-1
1.Ouyang Inc. had average days of sales outstanding of 13 days in the most recent fiscal years. Ouyang Inc. wants to improve it to match the industry average of 10 days next year. Sales in the most recent fiscal year were $200 million and the predicted sales of next year is $250 million. To achieve the goal of decreasing the collection period, the change in the average A/R balance that must occur is closest to:
A) -$0.823 million
B) -$0.626 million
C) -$0.482 million
D) -$0.274 million
E) -$0.114 million
2.An analyst has the following data for Ouyang Inc.:
Financial Information 2010 2011 2012
ROE 22% 20% 18%
Return on total assets 4% 6% 8%
Total asset turnover 2.1 1.8 1.4
The most appropriate conclusion based only on the above information is that over the past three years:
A) net profit margin and financial leverage have both decreased;
B) net profit margin and financial leverage have both increased;
C) net profit margin has increased but financial leverage has decreased;
D) net profit margin has decreased but financial leverage has increased;
E) net profit margin and financial leverage have both remain unchanged.
3. A decomposition of ROE for Ouyang Inc. is as follows:
Financial Information 2011 2012
ROE 0.131 0.131
Tax burden 0.34 0.34
Interest burden 0.82 0.70
EBIT margin 12% 14%
Asset turnover 1.7 1.7
Leverage 2.3 2.3
Which of the following is the most reasonable conclusion based on the above decomposition:
A) The higher interest rate offset the improvement in profitability, leaving ROE unchanged.
B) The lower interest rate offset the improvement in profitability, leaving ROE unchanged.
C) The lower interest rate offset the improvement in profitability, leaving leverage unchanged.
D) The lower interest rate offset the improvement in efficiency, leaving leverage unchanged.
E) The higher interest rate offset the improvement in leverage, leaving efficiency unchanged.
4.For the year of 2013, Ouyang Inc. has a P/E ratio of 2.3 and Huang Inc. has a P/E ratio of 5.8. The most reasonable conclusion based on the P/E ratios may be:
A) Ouyang Inc. has a less capable CEO;
B) Huang Inc. has a better credit policy;
C) Ouyang Inc. has a higher market share;
D) investors are less confident in the future earnings power of Ouyang Inc.;
E) investors are happy with the social performance of Huang Inc.
5. Which ratio would a firm most likely use to assess its ability to meet long-term obligations?
A) activity ratios.
B) liquidity ratios.
C) solvency ratios.
D) current ratios.
E) gross profit margin.
Part-2
1. Download Toro's annual report from the activities folder and try questions 1-2.
What is the balance-sheet based accrual ratio of Toro for the year of 2011? Note that total debts should include debts, loans, bonds, leases, borrowings, ect., which have interest requirements. Long-term debts due within a year should be reclassified as short-term debts, but they are still debts in nature.
A) .08
B) .14
C) .18
D) .20
E) .24
2.What is the cash-flow-statement based accrual ratio of Toro for the year of 2011?
A) 0.28
B) 0.20
C) 0.03
D) -0.18
E) -0.28
3.What is the average age of the PP&E of Ouyang Inc. for the year of 2013?
Table: Ouyang Inc. Financial Information (in millions)
Financial Information 2013 2012 2011
PP&E 1,929 1,728 1,562
Accumulated Depreciation 328 283 263
PP&E, Net 1,601 1,445 1,299
Land 382 372 355
A) 38%
B) 34%
C) 30%
D) 26%
E) 21%
4.Ouyang Inc. reports $356 million capital lease in the balance sheet of 2013. It also discloses in its annual report that the value of total future capital lease payments is $928 million and the value of total future operating lease payments is $6,374 million. The adjustment a financial analyst should make is (round any ratio used in the calculation to two decimal places, such as 15%):
A) the long-term liabilities and long-term assets should be increased by $2,422 million approximately.
B) the long-term liabilities and long-term assets should be decreased by $2,422 million approximately.
C) the long-term liabilities and long-term assets should be increased by $1,273 million approximately.
D) the long-term liabilities and long-term assets should be decreased by $1,273 million approximately.
E) None of the above.
5.Ouyang Inc reports 2012 revenue of $20 billion. During 2012, its A/R rose by $0.8 billion, A/P increased by $1.3 billion, inventories decreased by $0.2 billion and unearned revenue increased by $0.6 billion. Its ratio of revenue to cash collected from customers of 2012 is closest to:
A) 1.84
B) 1.63
C) 1.48
D) 1.24
E) 1.01
Part-3
Use the following information to answer questions 1 and 2.
In 2012, Ouyang Inc. held a 15% equity ownership interest in Huang Inc., which was classified as available-for-sale. During the year, the value of this investment decreased by $2 million. In 2013, Ouyang Inc. increased its ownership interest to 60%. Ouyang Inc. reported the following information.
EXHIBIT A: Ouyang Inc. (in millions)
Financial Information Year ending Dec 31, 2013 Year ending Dec 31, 2012
Sales 1,639 1,427
Operating income 283 217
Net income 87 73
2013 2012
Total assets 3,827 2,839
Shareholders' equity 729 689
EXHIBIT B: Huang Inc. (in millions)
Financial Information Year ending Dec 31, 2013 Year ending Dec 31, 2012
Sales 1,182 928
Operating income 72 68
Net income 53 47
Dividends paid 30 30
2013 2012
Total assets 989 827
Shareholders' equity 389 374
1.In 2012, the income of Ouyang Inc. includes a contribution from its investment in Huang Inc. that is closest to:
A) $10.5 million
B) $9.5 million
C) $ 6.5 million
D) $4.5 million
E) $2.5 million
2.At Dec 31, 2013, Ouyang's total shareholders' equity on its balance sheet would most likely be:
A) highest if Ouyang Inc. is deemed to have control of Huang Inc.;
B) highest if Ouyang Inc. has not increased its stake in Huang Inc.;
C) independent of the accounting method used for the investment in Huang Inc.;
D) lowest if Ouyang Inc. is deemed to have control of Huang Inc.;
E) highest if Ouyang Inc. is deemed to have no stake in Huang Inc.;
Assuming that Ouyang Inc. in 2012 held a 10 percent stake in Huang Inc. that was classified as held for trading securities. During the year, the value of this stake increased by $7 million. In 2013, Ouyang Inc. increased the ownership to 40%. Use the following financial information to answer questions 3-5.
EXHIBIT A: Ouyang Inc. (in millions)
Financial Information Year ending Dec 31, 2013 Year ending Dec 31, 2012
Sales 1,639 1,427
Operating income 283 217
Net income 87 73
2013 2012
Total assets 3,827 2,839
Shareholders' equity 729 689
EXHIBIT B: Huang Inc. (in millions)
Financial Information Year ending Dec 31, 2013 Year ending Dec 31, 2012
Sales 1,182 928
Operating income 72 68
Net income 53 47
Dividends paid 30 30
2013 2012
Total assets 989 827
Shareholders' equity 389 374
3. In 2012, the income of Ouyang Inc. includes a contribution from its investment in Huang Inc. that is closest to:
A) $13 million
B) $10 million
C) $ 5 million
D) $1 million
E) ($1 million).
4.If Ouyang Inc. is deemed to have significant influence over Huang Inc., its 2013 net income (in $ millions) would be closest to:
A) 108.2
B) 113.5
C) 124.5
D) 132.5
E) 138.7
5.If Ouyang Inc. is deemed to have control over Huang Inc., its 2013 consolidated sales (in millions) will be closest to:
A) 1,639
B) 1,875.4
C) 2,821
D) 3,827
E) 4,293
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