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CHAPTER 5
The Analysis of Financial Statements 255
5.12. Using the ratios and information given for Republic Airways Holdings Inc. & Subsidiar-
ies, an airline company, analyze the capital structure, long-term solvency, and profitability
of Republic Airways as of 2013.
Financial ratios
2013
2012
83.2
77.4
1.7
3.2
1.3
0.3
86.0
77.3
1.4
2.8
1.2
0.8
Leverage
Debt ratio (%)
Long-term debt to total capital (%)
Times interest earned (times)
Cash interest coverage (times)
Fixed charge coverage (times)
Cash flow adequacy (times)
Profitability
Operating profit margin (%)
Net profit margin (%)
Cash flow margin (%)
Return on assets (%)
Return on equity (%)
Cash return on assets (%)
Other Information
Cash flow from operations
(in millions of $)
Revenues (in millions of $)
14.2
2.0
17.9
0.8
4.8
7.4
12.2
3.7
16.0
1.4
10.0
6.0
240.6
1346.5
220.8
1377.4
5.13. Writing Skille Problem
Sage Inc.’s staff of accountants finished preparing the financial statements for 2016 and
will meet next week with the company’s CEO as well as the Director of Investor Relations
and representatives from the marketing and art departments to design the current year’s
annual report.
Required:
Write a paragraph in which you present the main idea(s) you think the company should
present to shareholders in the annual report.
5.14. Research Problem
Using the articles referenced in footnote 3 in this chapter regarding cash flow ratios,
create a list of cash flow ratios that you believe would be a good set of ratios to assess
the cash flows of a firm. Choose an industry and locate four companies in that industry.
Calculate the cash flow ratios for each company and then create an industry average of
all four companies. Comment on how well you think your industry average would work
as a guide when analyzing other firms in this industry.
5.15. Internet Problem
Choose an industry and find four companies in that industry. Using a financial Internet
database such as www.marketwatch.com, calculate or locate the four market ratios dis-
aucodis the obstou fou seal of the four own ico. Ilike an analizio omamine the
255
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Problem 5.12 Republic Air
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The problem is on page 255 in Understanding Financial Statements by Fraser and Ormiston,
11th edition. Make sure you are using the correct addition.
You are required to write an analysis using the information provided in the problem. The
analysis should be polished and professional. The maturity of the analysis will be a significant
portion of the grade on this assignment. Mere description of the information is not considered
a mature analysis. Instead, students need to look at the information and express realistically
plausible causal explanations for the information presented.
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AMAT Case 2.2 Part B_Prof
Answer
Applied Materials Case 2.2 Part B
Prof. Gabrini
Spring 2019
ACCT 3800
Analysis of Applied Materials Balance Sheet
Applied Materials, Inc.’s balance sheet depicts a mature and stable company.
Current assets have increased by over 10%, mostly due to increases in accounts receivable and
inventory, and make up over 46% of total assets. Cash and cash equivalents declined, but both
current and quick ratios appear stable and adequate to cover current liabilities. The cash
liquidity is less than 1 and declined slightly.
Overall total assets declined by half a percent due to the decline in noncurrent assets, mostly
other intangible assets and goodwill. Plant, property, and equipment may be aging as indicated
by the proportion of accumulated deprecation to historical cost of those assets (70%).
Current liabilities increased by nearly 8% while total liabilities increased by less than 2%. Long-
term liabilities are stable. The company’s capital structure is “safe” relying predominately on
contributed and earned capital as opposed to long-term debt. Equity is nearly 60% of total
liabilities and equity combined. The company’s retained earnings balance is 103% of total
liabilities and equity.
While Applied Materials appears to be a mature and stable company, it is likely management
must assess the age and condition of its fixed assets to determine whether investment in this
area is prudent for continued future health of the company. The company’s management
should continue to monitor cash flow liquidity to ensure adequate cash is on hand to satisfy
debts as they come due.
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Problem 5.12
Capital Structure
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Long-term Solvency
[Type your analysis here)
Profitability
[Type your analysis here)
Overall
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Wednesday, June 5, 2019
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