Question No. 9 a,b,c(P181) I have solution I need just interpretation (using Excel)

Question No. 9 a,b,c(P181)

I have solution

I need just interpretation (using Excel)

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9.
Seasonal business.
a.
Working capital requirement (WCR) = Accounts receivable + Inventories + Prepaid expenses
– Accounts payable – Accrued expenses
June 30, 2009
WCR = $1,953 + $1,986 + $80 – $1,450 – $98 =
$2,471
December 31, 2009
WCR = $2,616 + $2,694 + $42 – $1,950 – $114 =
$3,288
June 30, 2010
WCR = $2,100 + $2,085 + $25 – $1,650 – $138 =
$2,422
Managerial balance sheets
in thousands
June 30,
2009
December 31,
2009
June 30,
2010
Invested capital
Cash
$
160
$
60
$
70
Working capital requirement (WCR)
2,471
3,288
2,422
Net fixed assets
733
818
830
Total invested capital
$3,364
$4,166
$3,322
Capital employed
Short-term debt
$
50
$
880
$
50
Long-term financing
3,314
3,286
3,272
Long-term debt
$
800
$
750
$
700
Owners’ equity
2,514
2,536
2,572
Total capital employed
$3,364
$4,166
$3,322
b.
Operating margin
= EBIT/Sales
Invested capital turnover
= Sales/Invested capital
Return on invested capital
= EBIT/Invested capital
Financial multiplier
= (EBT/EBIT) × (Invested capital/Owners’ equity)
Tax effect
= EAT/EBT
Return on equity
= EAT/Owners’ equity
6 Months to 6/30/2009
5-1

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Operating margin
= $117/$10,655 =
1.1%
(rounded)
Invested capital turnover
= $10,655/$3,364 =
3.17
(rounded)
Return on invested capital
= $117/$3,364 =
3.48%
Financial multiplier
= ($55/$117) × ($3,364/$2,514) = 0.47 × 1.34 =
0.63
(rounded)
Tax effect
= $32/$55 =
0.58
Return on equity
= $32/$2,514 =
1.3%
6 Months to 12/31/2009
Operating margin
= $200/$13,851 =
1.4%
Invested capital turnover
= $13,851/$4,166 =
3.32
Return on invested capital
= $200/$4,166 =
4.80%
Financial multiplier
= ($110/$200) × ($4,166/$2,536) = 0.55 × 1.64 =
0.90
Tax effect
= $66/$110 =
0.60
(rounded)
Return on equity
= $66/$2,536 =
2.6%
6 Months to 6/30/2010
Operating margin
= $133/$11,720 =
1.1%
Invested capital turnover
= $11,720/$3,322 =
3.53
(rounded)
Return on invested capital
= $133/$3,322 =
4.00%
Financial multiplier
= ($63/$133) × ($3,322/$2,572) = 0.47 × 1.29 =
0.61
(rounded)
Tax effect
= $37/$63 =
0.59
Return on equity
= $37/$2,572 =
1.4%
c.
Return on equity is higher in the second part of the year than in the first half (2.6 percent versus
1.3/1.4 percent) for the following reasons:
1. Operating margin is higher in the second half of the year as a result of higher sales and
operational leverage (fixed costs effect).
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