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1、CHAPTER19:FINANCIALSTATEMENTANALYSIS1.ROE=Netprofits/Equity=Netprofits/Sales´Sales/Assets´Assets/Equity=Netprofitmargin´Assetturnover´Leverageratio=5.5%´2.0´2.2=24.2%2.ROA=ROS´ATOTheonlywaythatCrustyPiecanhaveanROShigherthantheindustryaverageandanROAequaltot
2、heindustryaverageisforitsATOtobelowerthantheindustryaverage.3.ABC’sAssetturnovermustbeabovetheindustryaverage.4.ROE=(1–Taxrate)´[ROA+(ROA–Interestrate)Debt/Equity]ROEA>ROEBFirmsAandBhavethesameROA.AssumingthesametaxrateandassumingthatROA>interestrate,thenFir
3、mAmusthaveeitheralowerinterestrateorahigherdebtratio.5.SmileWhitehashigherqualityofearningsforthefollowingreasons:·SmileWhiteamortizesitsgoodwilloverashorterperiodthandoesQuickBrush.SmileWhitethereforepresentsmoreconservativeearningsbecauseithasgreatergoodwi
4、llamortizationexpense.·SmileWhitedepreciatesitsproperty,plantandequipmentusinganaccelerateddepreciationmethod.Thisresultsinrecognitionofdepreciationexpensesoonerandalsoimpliesthatitsincomeismoreconservativelystated.·SmileWhite’sbaddebtallowanceisgreaterasape
5、rcentofreceivables.SmileWhiteisrecognizinggreaterbad-debtexpensethanQuickBrush.Ifactualcollectionexperiencewillbecomparable,thenSmileWhitehasthemoreconservativerecognitionpolicy.19-106.a.=Netprofitmargin´Totalassetturnover´Assets/equityb.c.g=ROE´plowback=23.
6、2%´7.a.PalombaPizzaStoresStatementofCashFlowsFortheyearendedDecember31,1999CashFlowsfromOperatingActivitiesCashCollectionsfromCustomers$250,000CashPaymentstoSuppliers(85,000)CashPaymentsforSalaries(45,000)CashPaymentsforInterest(10,000)NetCashProvidedbyOpera
7、tingActivities$110,000CashFlowsfromInvestingActivitiesSaleofEquipment38,000PurchaseofEquipment(30,000)PurchaseofLand(14,000)NetCashUsedinInvestingActivities(6,000)CashFlowsfromFinancingActivitiesRetirementofCommonStock(25,000)PaymentofDividends(35,000)NetCas
8、hUsedinFinancingActivities(60,000)NetIncreaseinCash44,000CashatBeginningofYear50,000CashatEndofYear$94,00019-10b.Thecashflowfromoperations(CFO)focusesonmeasuringthecashflowgeneratedbyoperationsa
