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Gain Profit from Restaurant Business by icm12814

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									                      CHAPTER 3 PROBLEMS
              UNDERSTANDING FINANCIAL STATEMENTS
                        AND CASH FLOW

3-1.
REVIEW OF FINANCIAL STATEMENTS

DATA
Inventory                                    6,500
General and admin. Expenses                    850
Common Stock                                45,000
Cash                                        16,550
Operating expenses                           1,350
Notes payable                                  600
Interest expense                               900
Depreciation expense                           500
Net Sales                                   12,800
Accounts receivable                          9,600
Accounts payable                             4,800
Long-Term Debt                              55,000
Cost of Goods sold                           5,750
Buildings and Equipment                    122,000
Accumulated Depreciation                    34,000
Taxes                                        1,440
Retained earnings                                 ?

Solution
Income Statement:
Net Sales
Cost of Goods sold
Gross Profit
General & Admin expenses
Depreciation expense
Operating expenses
Operating income
Interest expense
Net Income before taxes
Taxes (40%)
Net Income
Balance Sheet:
Cash
Accounts receivable
Inventory
  Total current assets
Buildings and equipment
Accumulated Depreciation
  Net buildings and equipment
Total assets

Accounts payable
Notes payable
Total current liabilities
Long-term debt
 Total Liabilities
Common Stock
Retained earnings
 Total equity
Total liabilities and equity

3-2.
REVIEW OF FINANCIAL STATEMENTS

DATA
Depreciation                      66,000
Cash                             225,000
Long-Term Debt                   334,000
Net Sales                        573,000
Accounts payable                 102,000
General and admin. Expenses       79,000
Buildings and Equipment          895,000
Notes payable                     75,000
Accounts receivable              153,000
Interest expense                   4,750
Accrued expenses                   7,900
Common Stock                     289,000
Cost of Goods sold               297,000
Inventory                         99,300
Taxes                             50,500
Accumulated Depreciation         263,000
Prepaid expenses                  14,500
Taxes payable                     53,000
Retained earnings                                       262,900

Solution
Income Statement:
Net Sales
Cost of Goods sold
Gross Profit
General & Admin expenses
Depreciation expense
Operating expenses
Operating income
Interest expense
Net Income before taxes
Taxes (40%)
Net Income

Balance Sheet:
Cash
Accounts receivable
Inventory
Prepaid expenses
  Total current assets
Buildings and equipment
Accumulated Depreciation
  Net buildings and equipment
Total assets

Accounts payable
Taxes payable
Notes payable
Accrued expenses
Total current liabilities
Long-term debt
 Total Liabilities
Common Stock
Retained earnings
 Total equity
Total liabilities and equity

Problems 3-3 and 3-4 do not have numerical solutions.

3-5.
MEASURING CASH FLOWS

DATA
Assets:                                  1999        2000
Cash                                         $200        $150
Accounts Receivable                           450         425
Inventory                                     550         625
 Current assets                             1,200       1,200
Plant and equipment                         2,200       2,600
 Less: accumulated depreciation            (1,000)     (1,200)
 Net plant and equipment                    1,200       1,400
   Total assets                            $2,400      $2,600

Liabilities and Equity:                  1999        2000
Accounts payable                            $200        $150
Notes payable--current (9%)                     0         150
  Current liabilities                         200         300
Bonds                                         600         600
Owners’ equity
  Common stock                               300         300
  Paid-in capital                            600         600
  Retained earnings                          700         800
   Total owners’ equity                    1,600       1,700
Total liabilities and owners’ equity      $2,400      $2,600

Income Statement:                        1999        2000
Sales                                      $1,200      $1,450
Cost of goods sold                            700         850
  Gross profit                                500         600
Operating expenses                             30          40
Depreciation                                  220         200
Net operating income                          250         360
Interest expense                               50          64
Net income before taxes                       200         296
Taxes (40%)                                    80         118
Net income                                   $120        $178

Solution
Free Cash Flows-Operating Perspective:
Operating income
Depreciation
Cash taxes
AT cash flows from operations
Change in current assets
Change in NIBCLs
Change in net operating wk cp.
Change in fixed & other assets
 Firm's Free Cash Flows

Free Cash Flows-Financing Perspective:
Interest received by Investors
Repayment of Bonds
Changa in debt principal
Repurchase of Common Stock
Dividend
  Investor's Free Cash Flows

3-6.
MEASURING CASH FLOWS

DATA
Balance Sheet:                           1999        2000
Cash                                      $75,000     $82,500
Receivables                               102,000      90,000
Inventory                                 168,000     165,000
Prepaid expenses                           12,000      13,500
Total current assets                      357,000     351,000
Gross fixed assets                        325,500     468,000
Accumulated depreciation                  (94,500)   (129,000)
Patents                                    61,500      52,500
Total assets                             $649,500    $742,500

Accounts payable                         $124,500    $112,500
Taxes payable                              97,500     105,000
Total current liabilities                 222,000     217,500
Mortgages payable                         150,000           0
Preferred stock                                 0     225,000
APIC--preferred                                 0       6,000
Common stock                              225,000     225,000
Retained earnings                          52,500      69,000
Total liabilities and equity             $649,500    $742,500

Additional Information
1. Depreciaiton expense equals the change in accumulted depreciation.
2. Dividends paid                                                   18,000
3. Expenses included amortization of patents of:                      9,000

Sales (all credit)                                               $187,500
Cost of goods sold                                                111,000
Gross profit                                                       76,500
Operating expenses                                                 32,000
Provision for taxes                                                10,000
Net income                                                        $34,500
Depreciation expense (included in COGS)                            34,500

Solution
Free Cash Flows (Operations):
step 1: after-tax cash flows from operations
Operating income (EBIT)
Depreciation
Amortization
EBITDA
Tax expense
Less the change in taxes payable
Cash taxes
After-tax cash flows from operations

Step 2: change in net operating working capital
Change in current assets
Change in cash
Change in receivables
Change in inventories
Change in prepaid expenses
  Change in current assets

Change in non-interest bearing current debt
Plus change in accounts payable

Change in net operating working capital

Step 3: change in fixed assets and other assets
Change in long-term assets

Net cash used for investments
Free Cash Flows (Operating)

Free Cash Flows (Financing):
Decrease in long-term debt
Common stock dividends
Increase in preferred stock

Free Cash Flows (Financing)

3-7.
MEASURING CASH FLOWS

DATA
T.P. Jarmon Company, Balance Sheet
At 12/31/99 and 12/31/00
Assets:                                 1999       2000
Cash                                     $15,000    $14,000
Marketable securities                      6,000      6,200
Accounts Receivable                       42,000     33,000
Inventory                                 51,000     84,000
Prepaid Rent                               1,200      1,100
   Total current assets                  115,200    138,300
Net plant and equipment                  286,000    270,000
   Total assets                         $401,200   $408,300

Liabilities and Equity                  1999       2000
Accounts Payable                         $48,000    $57,000
Notes Payable                             15,000     13,000
Accruals                                   6,000      5,000
   Total current liabilities              69,000     75,000
Long-term debt                           160,000    150,000
Common stockholders' equity              172,200    183,300
   Total liabilities and equity         $401,200   $408,300

T.P. Jarmon Company, Income Statement
For the Year Ended 12/31/2000:
Sales (all credit)                                 $600,000
Less: cost of goods sold                            460,000
Gross profits                                       140,000
Less: operating and interest expenses
   General and administrative             30,000
   Interest                                            10,000
   Depreciation                                        30,000
   Total                                                         70,000
Earnings before taxes                                            70,000
Less: taxes                                                      27,100
Net income available to common stockholders                      42,900
Less: cash dividends                                             31,800
Change in retained earnings                                     $11,100


Solution
Free Cash Flows (Operating)
After-tax cash flows from operations
Operating income (EBIT)
Depreciation
EBITDA
Tax expense
Change in income tax payable
Cash taxes
After-tax cash flows from operations

Change in net operating working capital
Change in cash
Change in accounts receivable
Change in marketable securities
Change in inventories
Change in prepaid rent
 Change in current assets

Plus change in accounts payable
Plus change in accruals
  Change in non-interest bearing current debt

Change in net operating working capital
  Current assets - non-interest bearing current debt

  Net cash used for investments


Free Cash Flows (Operating)

Free Cash Flows (Financing)
Interest paid to investors
Less change in interest payable
   Interest received by investors
Plus decrease in long-term debt
Plus decrease in short-term debt
Common stock dividends
Free Cash Flows (Financing)

3-8.
MEASURING CASH FLOWS

Abrams Manufacturing Co., Balance Sheet
At 12/31/99 and 12/31/00                        1999        2000
Cash                                             $89,000    $100,000
Accounts receivable                               64,000      70,000
Inventory                                        112,000     100,000
Prepaid expenses                                  10,000      10,000
Total current assets                             275,000     280,000
Plant and equipment                              238,000     311,000
Accumulated depreciation                         (40,000)    (66,000)
 Total assets                                   $473,000    $525,000

Accounts payable                                 $85,000     $90,000
Accrued liabilities                               68,000      63,000
Total current debt                               153,000     153,000
Mortgage payable                                  70,000           0
Preferred Stock                                        0     120,000
Common stock                                     205,000     205,000
Retained earnings                                 45,000      47,000
Total debt and equity                           $473,000    $525,000

Income Statement:                                           2000
Sales (all credit)                                          $184,000
Cost of goods sold                                            60,000
Gross profit                                                 124,000
Selling, general, and administrative expenses                 44,000
Depreciation expense                                          26,000
Operating income                                              54,000
Interest expense                                               4,000
Earnings before taxes                                         50,000
Taxes                                                         16,000
Preferred stock dividends                                     10,000
Net Income                                                          $24,000

Additional Information
1. The only entry in the accumulated depreciation account is for year 2000 depreciation.
2. Common stock dividends equal:                     22,000

Solution
Abrams Mfg. Company Operating Cash Flows
For the Year Ended December 31, 2000:
Step 1: Compute after-tax cash flows from operations
Operating income (EBIT)
Depreciation
EBITDA
Tax expense
Less the change in income tax payable
Cash taxes
After-tax cash flows from operations

Step 2: Compute the change in net operating working capital:

Change in current assets:
Change in cash
Change in accounts receivable
Change in prepaid expenses
Change in inventories
Change in current assets
Change in non-interest bearing operating current debt:
Change in accounts payable
Change in accounts payable
Change in non-interest bearing current debt
Change in net operating working capital
(current assets - non-interest bearing current debt)

Step 3: Compute the change in fixed assets and other assets:

Change in long-term assets:
Purchase of fixed assets
Net cash used for investments

Operating cash flows (sum of above three steps)

Abrams Mfg. Company Financing Cash Flows:
For the Year Ending December 31, 2000
Interest paid to—received by--investors
Less change in interest payable
Interest received by investors
Change in short term debt
Repayment of long-term debt
Change in common stock
Change in preferred stock
Preferred stock dividends
Common stock dividends
Net cash flows to investors (financing cash flows)


COMPREHENSIVE PROBLEM

DATA
Income Statements                                    PepsiCo      Coca-Cola
For Year Ending 12/31/1997                            1997          1997
Sales                                                  $20,917       $18,868
   Cost of goods sold                                     7,618        5,631
Gross profit                                            13,299        13,237
   Selling, general, and administrative
expenses                                                 9,241         7,792
   Impairment of long-lived assets                         290             0
   Depreciation and amortization                         1,106           384
Operating profit                                         2,662         5,061
   Interest expense                                        478           258
   Non-operating income/expense                            125             0
   Extraordinary items                                     651         1,252
Pretax income                                            2,960         6,055
   Provision for income taxes                              818         1,926
Net income                                              $2,142        $4,129

Annual Balance Sheet ($ millions)                                 PepsiCo
At 12/31/1996 and 12/31/1997                          1997         1996        Change
Assets:
Cash & equivalents                                      $2,883          $786     $2,097
Accounts receivables                                     2,150         2,516       (366)
Inventories                                                732         1,038       (306)
Other current assets                                       486           799       (313)
  Total current assets                                   6,251         5,139
Gross plant, property & equipment                            0             0            0
Accumulated depreciation                                  0              0         0
Net plant, property & equipment                       6,261         10,191    (3,930)
Investments                                           1,201          1,375      (174)
Intangibles                                           5,855          7,136    (1,281)
Other assets                                            533            671      (138)
  Total assets                                      $20,101        $24,512

Liabilities:
Long term debt due in one year                           $0             $0       $0
Notes payable                                             0              0        0
Accounts payable                                      1,047          1,565     (518)
Taxes payable                                           640            487      153
Accrued expenses                                      1,125          1,420     (295)
Short-term borrowings                                     0             26      (26)
Other current liabilities                             1,445          1,641     (196)
  Total current liabilities                           4,257          5,139
Long term debt                                        4,946          8,439    (3,493)
Deferred taxes                                        1,697          1,778       (81)
Other liabilities                                     2,265          2,533      (268)
  Total Liabilities                                  13,165         17,889
Common stock                                             29             29         0
Capital surplus                                       1,314          1,201       113
Retained earnings                                    11,239          8,851     2,388
Curency translation                                    (660)          (435)     (225)
Less: treasury stock                                 (4,986)        (3,023)   (1,963)
  Common equity                                       6,936          6,623
  Total liabilities and equity                      $20,101        $24,512
Other Information found in Notes:
  Gain from Sale of Restaurant                                        992
  Dividend Payments                                                   746
  Currency translation gain (loss)

Solution
A)                                                PepsisCo     Coca-Cola
Gross profits/sales
Operating profits/sales
Net Income/sales

B)
 Free cash flows from an operating perspective:
 Step 1: Compute after-tax cash flows from
operations                                               PepsiCo                Coca-Cola
Operating income
Depreciation and impairment of assets
EBITDA
Provision for income taxes

Less change in tax payable and deferred taxes
Cash taxes
After-tax cash flows from operations
Extraordinary items
Gain from spinoff of restaurant business
Currency translation
Step 2: Change in net operating working
capital
Change in current assets:
Change in cash
Change in accounts receivables
Change in inventories
Change in prepaid rent
  Change in current assets

Change in non-interest bearing operating
current debt:
Change in accounts payables
Change in accrued expenses
Change in non-int. oprating current debt:
Change in net operating working capital

Step 3: Change in long-term assets
Purchase of fixed assets
Change in investments
Change in intangibles
Change in other assets
Net cash used for investments

Operating free cash flows

Free cash flows from a financing perspective:
Interest expense
Less Change in interest payable
Interest received by investors
Interest paid to company (interest income)
Decrease (increase) in long-term debt and
other long-term liabilities
Decrease (increase) in interest-bearing short-
term debt
Common stock dividends
Change in common stock
Change in treasury stock

Financing free cash flows
          Coca-Cola Co
1997          1997       Change

 $1,843        $1,658        $185
  1,639         1,641          (2)
    959           952           7
  1,528         1,659        (131)
  5,969         5,910
  5,771         5,581         190
              2,028      2,031       (3)
              3,743      3,550      193
              4,437      3,432    1,005
                727        753      (26)
              2,064      2,516     (452)
            $16,940    $16,161


              $397          $9     $388
              2,677      3,388     (711)
              2,279      2,055      224
              1,056      1,037       19
                  0          0        0
                  0          0        0
                970        917       53
              7,379      7,406
                801      1,116     (315)
                448        301      147
              1,001      1,182     (181)
              9,629     10,005
                861        858         3
              1,477        997       480
             16,555     14,621     1,934
                  0          0         0
            (11,582)   (10,320)   (1,262)
              7,311      6,156
            $16,940    $16,161


                         1,381
                          (814)




Coca-Cola

								
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