Chapter 2 Introduction to Financial Statement Analysis

Use the table for the question(s) below.

Consider the following balance sheet:

Luther Corporation

Consolidated Balance Sheet

December 31, 2009 and 2008 (in $ millions)

Assets

2009

2008

Liabilities and Stockholders’ Equity

2009

2008

Current Assets

Current Liabilities

Cash

63.6

58.5

Accounts payable

87.6

73.5

Accounts receivable

55.5

39.6

Notes payable/

short-term debt

10.5

9.6

Inventories

45.9

42.9

Current maturities of long-term debt

39.9

36.9

Other current assets

6.0

3.0

Other current liabilities

6.0

12.0

Total current assets

171.0

144.0

Total current liabilities

144.0

132.0

Long-Term Assets

Long-Term Liabilities

Land

66.6

62.1

Long-term debt

239.7

168.9

Buildings

109.5

91.5

Capital lease obligations

Equipment

119.1

99.6

Total Debt

239.7

168.9

Less accumulated

depreciation

(56.1)

(52.5)

Deferred taxes

22.8

22.2

Net property, plant, and equipment

239.1

200.7

Other long-term liabilities

Goodwill

60.0

Total long-term liabilities

262.5

191.1

Other long-term assets

63.0

42.0

Total liabilities

406.5

323.1

Total long-term assets

362.1

242.7

Stockholders’ Equity

126.6

63.6

Total Assets

533.1

386.7

Total liabilities and Stockholders’ Equity

533.1

386.7

16) What is Luther’s net working capital in 2008?

A) $12 million

B) $27 million

C) $39 million

D) $63.6 million

17) If in 2009 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther’s Market-to-book ratio would be closest to:

A) 0.39

B) 0.76

C) 1.29

D) 2.57

18) If in 2009 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Luther’s Enterprise Value?

A) -$63.3 million

B) $353.1 million

C) $389.7 million

D) $516.9 million

19) If on December 31, 2008 Luther has 8 million shares outstanding trading at $15 per share, then what is Luther’s market-to-book ratio?

20) If on December 31, 2008 Luther has 8 million shares outstanding trading at $15 per share, then what is Luther’s enterprise value?

2.3 The Income Statement

1) Which of the following statements regarding the income statement is INCORRECT?

A) The income statement shows the earnings and expenses at a given point in time.

B) The income statement shows the flow of earnings and expenses generated by the firm between two dates.

C) The last or “bottom” line of the income statement shows the firm’s net income.

D) The first line of an income statement lists the revenues from the sales of products or services.

2) Gross profit is calculated as:

A) Total sales – cost of sales – selling, general and administrative expenses – depreciation and amortization

B) Total sales – cost of sales – selling, general and administrative expenses

C) Total sales – cost of sales

D) None of the above