Demonstration Problems

Solution to demonstration problems


a. 

Kellogg Company
Common-size comparative income statements
For the year ended 2003 December 31, and 2002

 

Per cent

 

2003

2002

Net revenues

100.00 %

100.00%

Cost of goods sold

47.84

47.61

Gross margin

52.16

52.39

Operating expenses

36.69

37.02

Nonoperating expense (interest)

1.98

1.70

Income before income taxes

13.49 %*

13.67 %

Income taxes

4.03

2.84

Net earnings

9.46 %*

10.83%

*Difference due to rounding.


b.

Kellogg company
Comparative balance sheets
2003 December 31, and 2002
(USD millions)

 

 

Increase or Decrease

 

2003

2002

2003 amount

2002 per cent

Assets

Cash and temporary investments;

$204.4

$150.6

$53.8

0.3572

Accounts receivable, net

685.3

678.5

6.8

1

Inventories

443.8

503.8

(60)

(11.91)

Other current assets

273.3

236.3

37

15.66

Property, net

2526.9

2640.9

(114)

(4.32)

Other assets

762.9

589.6

164

27.4

Total assets

$4,896.3

$4,808.7

$87.6

0.0182

Liabilities and stockholders' equity

Current liabilities

$2,492.6

$1,587.8

$904.8

0.5698

Long-term liabilities

1506.2

2407.7

(901.5)

(37.44)

Common stock

103.8

103.8

0

0

Capital in excess of par value

102

104.5

(2.5)

(2.39)

Retained earnings

1501

1317.2

183.8

13.95

Treasury stock

(374

(380.9

6.9

(1.81)

Currency translation adjustment

(435.3)

(331.4)

(103.9)

31.35

Total liabilities and stockholders' equity

$4,896.3

$4,808.7

$87.6

0.0182

 

Solution to demonstration problem B

  1. Current ratio:
    \frac{\text { Currentassets }}{\text { Current liabilities }}=\frac{\text { USD 13,022,000,000 }}{\text { USD 6,268,000,000 }}=2.08: 1
  2. Acid-test ratio:
  3. \frac{\text { Quick assets }}{\text { Current liabilities }}=\frac{\text { USD } 9,119,000,000}{\text { USD } 6,268,000,000}=1.45: 1
  4. Accounts receivable turnover:

\dfrac{\text { Net sales }}{\text { Average net accounts receivable }}=\dfrac{\operatorname{USD} 18,701,000,000}{\operatorname{USD} 2,457,000,000}=\text{7.61 time}

  1. Inventory turnover:
    \frac{\text { Net sales }}{\text { Average total assets }}=\frac{ USD 18,701,000,000}{ USD 29,003,000,000}=.64 \text { time }
  2. Total assets turnover:
    \frac{\text { Stockholders 'equity }}{\text { Total assets }}=\frac{\text { USD } 4,140,000,000}{\text { USD } 29,475,000,000}=14.05 \text { per cent }
  3. Equity ratio:
    \dfrac{\text { Income before interest also taxes }}{\text { Interest expense }}=\dfrac{\text{USD 647,000,000}}{\text{USD 1,031,000,000}}=.63 \text { time}
  4. Times interest earned ratio:
    \frac{\text { Income before interest also taxes }}{\text { Interest expense }}=\frac{\operatorname{USD} 647,000,000}{\operatorname{USD} 1,031,000,000}=.63 \text { time }