2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
A
Ch 10 Tool Kit
F
12/30/2001
2001
$26.00
50
40%
10.8%
$28
$20
Assets
Cash and equivalents
Short-term investments
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets
2002
$10
$0
$375
$615
$1,000
$1,000
$2,000
2001
$15
$65
$315
$415
$810
$870
$1,680
$60
$110
$140
$310
$754
$1,064
$40
$130
$766
$896
$2,000
$30
$60
$130
$220
$580
$800
$40
$130
$710
$840
$1,680
2002
$3,000.0
$2,616.2
$383.8
$100.0
$283.8
$88.0
$195.8
$78.3
$117.5
$4.0
$113.5
2001
$2,850.0
$2,497.0
$353.0
$90.0
$263.0
$60.0
$203.0
$81.2
$121.8
$4.0
$117.8
Income Statements
(in millions of dollars)
Net sales
Operating costs
Earnings before interest, taxes, & depr. (EBITDA)
Depreciation
Earnings before interest and taxes (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes (40%)
Net Income before preferred dividends
Preferred dividends
Net Income available to common stockholders
63
64
A
B
Common dividends
Addition to retained earnings
E
$57.5
$56.0
F
$53.0
$64.8
A
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
2002
$800.0
$1,800.0
$170.3
$213.5
$270.3
($174.7)
2001
$585.0
$1,455.0
$157.8
$207.8
$247.8
N/A
2002
$2.27
$1.15
$17.92
$4.27
($3.49)
2001
$2.36
$1.06
$16.80
$4.16
N/A
2002
2001
Industry
Average
3.23
1.24
3.68
1.80
4.2
2.1
4.88
45.6
3.00
1.50
6.87
40.34
3.28
1.70
9
36
3
1.8
53.20%
3.23
3.03
47.62%
4.38
3.53
40.00%
6
8
3.78%
14.19%
5.67%
12.67%
4.13%
15.65%
7.01%
14.02%
5.00%
17.20%
9.00%
15.00%
10.13
5.39
1.28
11.04
6.26
1.55
12.5
6.8
1.7
ROE =
12.67%
14.02%
15.00%
2002
2001
P.M.
3.78%
4.13%
5.00%
T.A.T.O.
1.50
1.70
1.80
X Equity Multiplier
2.23
2.00
1.67
Trend Analysis--Graphing
A picture is said to be worth a thousand words, and a graph provides a picture of a set of data. We illustrate graphing
techniques here with a trend analysis of MicroDrive's ROE. We also assume that the industry average ROE is a constant. In
a more realistic problem, we would have more years of data, and historical data on the industry average, but our
purpose here is just to illustrate the technique.
We will make a "scatter diagram," with years on the horizontal axis and ROE on the vertical axis. First, we need
the data arranged in the proper order, with years in the first column and ROE's in the second one. This is shown below:
ROE
Years
2001
2002
MicroDrive
14.02%
12.67%
Industry
15.00%
15.00%
The graph below shows that MicroDrive's ROE is below that of the average firm in its industry, and is trending down. This is
ROE
A
B
C
D
127 bad, and management should take corrective actions. We discuss this in Chapter 11.
128
129
130
MicroDrive's ROE Vs. Industry
131
132
133
16.00%
134
14.00%
135
136
12.00%
137
138
10.00%
MicroDrive
139
140
8.00%
Industry
141
6.00%
142
143
4.00%
144
145
2.00%
146
147
0.00%
148
2001
2002
149
Assets
Cash and equivalents
Short-term investments
Accounts receivable
Inventories
Total current assets
Net plant and equipment
Total assets
2001
$15
$65
$315
$415
$810
$870
$1,680
2002
$10
$0
$375
$615
$1,000
$1,000
$2,000
2001
0.9%
3.9%
18.8%
24.7%
48.2%
51.8%
100.0%
2002
0.5%
0.0%
18.8%
30.8%
50.0%
50.0%
100.0%
2002
Industry
1.0%
2.2%
17.8%
19.8%
40.8%
59.2%
100.0%
$30
$60
$130
$220
$580
$800
$40
$130
$710
$840
$1,680
$60
$110
$140
$310
$754
$1,064
$40
$130
$766
$896
$2,000
1.8%
3.6%
7.7%
13.1%
34.5%
47.6%
2.4%
7.7%
42.3%
50.0%
100.0%
3.0%
5.5%
7.0%
15.5%
37.7%
53.2%
2.0%
6.5%
38.3%
44.8%
100.0%
1.8%
4.4%
3.6%
9.8%
30.2%
40.0%
0.0%
8.5%
51.5%
60.0%
100.0%
Income Statements
(in millions of dollars)
Net sales
Operating costs
Earnings before interest, taxes, & depr. (EBITDA)
Depreciation
Earnings before interest and taxes (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes (40%)
Net Income before preferred dividends
Preferred dividends
Net Income available to common stockholders
2001
$2,850.0
$2,497.0
$353.0
$90.0
$263.0
$60.0
$203.0
$81.2
$121.8
$4.0
$117.8
2002
$3,000.0
$2,616.2
$383.8
$100.0
$283.8
$88.0
$195.8
$78.3
$117.5
$4.0
$113.5
2001
$15
$65
$315
$415
$810
$870
$1,680
2002
$10
$0
$375
$615
$1,000
$1,000
$2,000
$30
$60
$130
$220
$580
$800
$40
$130
$710
$840
$1,680
$60
$110
$140
$310
$754
$1,064
$40
$130
$766
$896
$2,000
Income Statements
(in millions of dollars)
Net sales
Operating costs
Earnings before interest, taxes, & depr. (EBITDA)
Depreciation
Earnings before interest and taxes (EBIT)
Less interest
Earnings before taxes (EBT)
Taxes (40%)
Net Income before preferred dividends
Preferred dividends
Net Income available to common stockholders
2001
$2,850.0
$2,497.0
$353.0
$90.0
$263.0
$60.0
$203.0
$81.2
$121.8
$4.0
$117.8
2002
$3,000.0
$2,616.2
$383.8
$100.0
$283.8
$88.0
$195.8
$78.3
$117.5
$4.0
$113.5
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
83.3%
7.7%
40.9%
30.0%
33.0%
0.0%
0.0%
7.9%
6.7%
19.0%