Read Chapter 1 of the textbook and use your own words to answer the following questions.

When you read Chapter 1: please focus only on the definition of the financial statement terms and the ratios. You do not need to worry about “The Unidentified Industries Game”.

 

1. Based on Chapter 1: Use your own words to explain the following items on the assets side of a company’s balance sheet:

1) Marketable Securities (also called “short-term investment”)

2) Account receivables

3) Current assets

4) Property, plant, and equipment (PP&E)

Type your answers below:

 

 

2. Based on Chapter 1: Use your own words to explain the following items on the liabilities side of a company’s balance sheet:

1) Account payables

2) Accrued items

3) Current liabilities

4) The difference between preferred stock and common stock

Type your answers below:

 

 

3. Based on Chapter 1: Use your own words to explain the following items on a company’s income statement:

1) Cost of goods sold (also called “COGS”)

2) Selling, general, and administrative expenses (also called “SG&A”)

3) EBIT, EBITDA, and their differences

Type your answers below:

 

 

4. A company has the following items for the fiscal year 2022:

· Cash = 2 million

· Marketable securities = 6 million

· Account receivables (A/R) = 1 million

· Inventories = 6 million

· Total current liabilities = 8 million

Calculate the company’s Current Ratio and Quick Ratio

Type your answers below – please show your calculation process:

 

 

5. A company has the following items for the fiscal year 2022:

· Revenue =10 million

· Cost of goods sold = 3 million

· EBITDA = 4 million

· EBIT = 4.5 million

· Net income = 3 million (also called net profit)

Calculate the company’s EBITDA Margin and Net Profit Margin

Type your answers below – please show your calculation process:

 

 

6. A company has the following items for the fiscal year 2022:

· Revenue =10 million

· EBIT = 4.5 million

· Net income = 3 million

· Total Equity = 30 million

· Total Assets = 40 million

Calculate the company’s ROA and ROE

Type your answers below – please show your calculation process:

 

 

7. A company has the following items for the fiscal year 2022:

· Total Equity = 20 million

· Total Debt = 5 million

· Total Assets = 30 million

· EBIT = 4 million

· Interest expense = 1 million

Calculate the company’s ratios of Debt to Assets , Assets to Shareholders’ Equity and Interest Coverage Ratio

Type your answers below – please show your calculation process:

 

 

8. Write the formula for the following ratios and what each ratio measures:

1) Asset turnover

2) Inventory Turnover and Days Inventory

3) Receivable Collection Period

Type your answers below:

 

 

9. Write down the DuPont framework. How would you explain to your non-MBA non-Finance friends about the DuPont framework and why it is important?

Type your answers below:

 

 

10. A company has the following items for the fiscal year 2022:

· Revenue = 10 million

· EBIT = 4 million

· Net income = 2 million

· Total Equity = 15 million

· Total Assets = 30 million

Calculate the company’s Net Profit Margin , Asset Turnover and ROE

Type your answers below – please show your calculation process:

 

 

Read Chapter 2 of the textbook and use your own words to answer the following questions.

When you read Chapter 2: You only need to read enough on pages 53-69 to finish my questions below. I will spend a lot of class time talking about cash!

 

11. Based on Chapter 2:

1) Use your own words to explain Operating Cash Flows (OCF).

2) If you are an CEO of a company, why would you care about its OCF?

Type your answers below:

 

 

12. Read the section on the Cash Conversion Cycle (or “Cash Cycle”) and use your own words to answer the questions:

1) Explain cash conversion cycle and why it is important to companies?

2) Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing?

Type your answers below:

 

 

13. A company has days of inventory 80 days, days receivable of 30 days, and days payable of 45 days. Calculate the company’s funding gap and interpret the number.

Type your answers below – please show your calculation process:

 

 

14. Based on Chapter 2:

1) Use your own words to explain Free Cash Flows (FCF) and the difference between OCF and FCF

2) If you are an CEO of a company, why would you care about its FCF?

Type your answers below:

 

 

 

Read Chapter 4 of the textbook and use your own words to answer the following questions.

When you read Chapter 4: You only need to read enough to finish my questions below.

15. Read the content on Capital Asset Pricing Model (CAPM): If risk free rate is 2%, market risk premium (also called the equity risk premium) is 5%, and a company has a beta of 1.5. What is the company’s cost of equity?

Type your answers below – please show your calculation process:

 

 

16. Read the content on Weighted Average Cost of Capital (WACC): Assume a company has 10 million of total assets: the market value of equity is 8 million and market value of debt is 2 million. The company has a 12% cost of equity and a 7% cost of debt. The company has a tax rate of 30%. What is the company’s weighted average cost of capital?

Type your answers below – please show your calculation process:

 

 

Read Chapter 5 of the textbook and use your own words to answer the following questions.

When you read Chapter 5: You only need to read enough to finish my questions below.

17. Use your own words to answer the following questions:

1) Write the formula for the P/E ratio and what it measures?

2) Should you invest in a company with high P/E or low P/E? Why?

Type your answers below:

 

 

18. A company has the following items for the fiscal year 2022:

· Revenue = 10 million

· Net income = 4 million

· The company has 2 million shares of stock

· Stock price per share = $80

Calculate the company’s Earnings Per Share and P/E ratio

Type your answers below – please show your calculation process:

 

 

 

 

 

 

 

 

 

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