Visit us at www
.mhhe.com/bkm
670
P A R T V
Security
Analysis
a. Identify and calculate the components of the DuPont formula.
b. Calculate the ROE for 2014 using the components of the DuPont formula.
c. Calculate the sustainable growth rate for 2014 from the firm’s ROE and plowback ratios.
3. This problem should be solved using the following data:
Cash payments for interest
$(12)
Retirement of common stock
(32)
Cash payments to merchandise suppliers
(85)
Purchase of land
(8)
Sale
of equipment
30
Payments of dividends
(37)
Cash payment for salaries
(35)
Cash collection from customers
260
Purchase of equipment
(40)
a. What are cash flows from operating activities?
b. Using the data above, calculate cash flows from investing activities.
c. Using the data above, calculate cash flows from financing activities.
4. Janet Ludlow is a recently hired analyst. After describing the electric toothbrush industry, her
first report focuses on two companies, QuickBrush Company and SmileWhite Corporation, and
concludes:
QuickBrush is a more profitable company than SmileWhite, as indicated by the
40% sales growth and substantially higher margins it has produced over the last
few years. SmileWhite’s sales and earnings are growing at a 10% rate and pro-
duce much lower margins. We do not think SmileWhite is capable of growing
faster than its recent growth rate of 10% whereas QuickBrush can sustain a 30%
long-term growth rate.
a. Criticize Ludlow’s analysis and conclusion that QuickBrush is more profitable, as defined by
return on equity (ROE), than SmileWhite and that it has a higher sustainable growth rate. Use
only the information provided in Tables 19A and 19B . Support your criticism by calculating
and analyzing:
•
The fi ve components that determine ROE.
•
The two ratios that determine sustainable growth: ROE and plowback.
b. Explain how QuickBrush has produced an average annual earnings per share (EPS) growth
rate of 40% over the last 2 years with an ROE that has been declining. Use only the informa-
tion provided in Table 19A .
Use the following in answering CFA Problems 5–8: Eastover Company (EO) is a large, diversified
forest products company. Approximately 75% of its sales are from paper and forest products, with
the remainder from financial services and real estate. The company owns 5.6 million acres of timber-
land, which is carried at very low historical cost on the balance sheet.
Peggy Mulroney, CFA, is an analyst at the investment counseling firm of Centurion Investments.
She is assigned the task of assessing the outlook for Eastover, which is being considered for pur-
chase, and comparing it to another forest products company in Centurion’s portfolios, Southampton
Corporation (SHC). SHC is a major producer of lumber products in the United States. Building
products, primarily lumber and plywood, account for 89% of SHC’s sales, with pulp accounting for
the remainder. SHC owns 1.4 million acres of timberland, which is also carried at historical cost on
the balance sheet. In SHC’s case, however, that cost is not as far below current market as Eastover’s.
Mulroney began her examination of Eastover and Southampton by looking at the five compo-
nents of return on equity (ROE) for each company. For her analysis, Mulroney elected to define
equity as total shareholders’ equity, including preferred stock. She also elected to use year-end data
rather than averages for the balance sheet items.
bod61671_ch19_635-677.indd 670
bod61671_ch19_635-677.indd 670
7/17/13 4:13 PM
7/17/13 4:13 PM
Final PDF to printer
Visit us at www
.mhhe.com/bkm
C H A P T E R
1 9
Financial
Statement
Analysis
671
5.
a. On the basis of the data shown in Tables 19C and 19D , calculate each of the five ROE compo-
nents for Eastover and Southampton in 2013. Using the five components, calculate ROE for
both companies in 2013.
b. Referring to the components calculated in part ( a ), explain the difference in ROE for Eastover
and Southampton in 2013.
c. Using 2013 data, calculate the sustainable growth rate for both Eastover and Southampton.
Discuss the appropriateness of using these calculations as a basis for estimating future growth.
Do'stlaringiz bilan baham: 
