Calculate the projected price/earnings ratio and market/book ratio. Explain whether these ratios indicate that investors will be expected to have a high or low opinion of the company. 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 the projected price/earnings ratio and market/book ratio. Explain whether these ratios indicate that investors will be expected to have a high or low opinion of the company. 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
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter7: Analysis Of Financial Statements
Section: Chapter Questions
Problem 2MC
Related questions
Question
- Calculate the projected price/earnings ratio and market/book ratio. Explain whether these ratios indicate that investors will be expected to have a high or low opinion of the company.
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: |
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 |
|||
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 | ||
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning