Upon graduating from college in 2017, Karen Peterson entered the financial management-training program of a large financial consulting firm.
The training program consisted of a one-year assignment in three different departments. In the Investment and Financial Analysis department, Peterson was asked to answer the questions related to the Company. Using the financial statement and data below answer the following questions:
Financial Statement Data and Stock Price Data for Flextronics |
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(All data as of fiscal year end; $ in millions) |
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Income Statement |
2012 |
2013 |
2014 |
2015 |
2016 |
Revenue |
404.3 |
363.8 |
424.6 |
510.7 |
604.1 |
Cost of Goods Sold |
-188.3 |
-173.8 |
-206.2 |
-246.8 |
-293.4 |
Gross profit |
216 |
190 |
218.4 |
263.9 |
310.7 |
Sales and Marketing |
-66.7 |
-66.4 |
-82.8 |
-102.1 |
-120.8 |
Administration |
-60.6 |
-59.1 |
-59.4 |
-66.4 |
-78.5 |
Depreciation & Amortization |
-27.3 |
-27 |
-34.3 |
-38.4 |
-38.6 |
EBIT |
61.4 |
37.5 |
41.9 |
57 |
72.8 |
Interest Income (Expense) |
-33.7 |
-32.9 |
-32.2 |
-37.4 |
-39.4 |
Pretax Income |
27.7 |
4.6 |
9.7 |
19.6 |
33.4 |
Income Tax |
-9.7 |
-1.6 |
-3.4 |
-6.9 |
-11.7 |
Net Income |
18 |
3 |
6.3 |
12.7 |
21.7 |
Shares outstanding (millions) |
55 |
55 |
55 |
55 |
55 |
Earnings per share |
$0.33 |
$0.05 |
$0.11 |
$0.23 |
$0.39 |
Balance Sheet |
2012 |
2013 |
2014 |
2015 |
2016 |
Assets |
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Cash |
48.8 |
68.9 |
86.3 |
77.5 |
85 |
Accounts Receivable |
88.6 |
69.8 |
69.8 |
76.9 |
86.1 |
Inventory |
33.7 |
30.9 |
28.4 |
31.7 |
35.3 |
Total Current Assets |
171.1 |
169.6 |
184.5 |
186.1 |
206.4 |
Net Property, Plant & Equip. |
245.3 |
243.3 |
309 |
345.6 |
347 |
Goodwill & Intangibles |
361.7 |
361.7 |
361.7 |
361.7 |
361.7 |
778.1 |
774.6 |
855.2 |
893.4 |
915.1 |
|
Liabilities & Stockholders' Equity |
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Accounts Payable |
18.7 |
17.9 |
22 |
26.8 |
31.7 |
Accrued Compensation |
6.7 |
6.4 |
7 |
8.1 |
9.7 |
Current Liabilities |
25.4 |
24.3 |
29 |
34.9 |
41.4 |
Long-term Debt |
500 |
500 |
575 |
600 |
600 |
Total Liabilities |
525.4 |
524.3 |
604 |
634.9 |
641.4 |
Stockholders’ Equity |
252.7 |
250.3 |
251.2 |
258.5 |
273.7 |
Total Liabilities & Stockholders' Equity |
778.1 |
774.6 |
855.2 |
893.4 |
915.1 |
Statement of Cash Flows |
2012 |
2013 |
2014 |
2015 |
2016 |
Net Income |
18 |
3 |
6.3 |
12.7 |
21.7 |
Depreciation & Amortization |
27.3 |
27 |
34.3 |
38.4 |
38.6 |
Chg. In Accounts Receivable |
3.9 |
18.8 |
0 |
-7.1 |
-9.2 |
Chg. In Inventory |
-2.9 |
2.8 |
2.5 |
-3.3 |
-3.6 |
Chg. In Payables & Accrued Comp |
2.2 |
-1.1 |
4.7 |
5.9 |
6.5 |
Cash from Operations |
48.5 |
50.5 |
47.8 |
46.6 |
54 |
Capital Expenditures |
-25 |
-25 |
-100 |
-75 |
-40 |
Cash from Investing Activities |
-25 |
-25 |
-100 |
-75 |
-40 |
Dividends Paid |
-5.4 |
-5.4 |
-5.4 |
-5.4 |
-6.5 |
Sale (or purchase) of stock |
0 |
0 |
0 |
0 |
0 |
Debt Issuance (Pay Down) |
0 |
0 |
75 |
25 |
0 |
Cash from Financing Activities |
-5.4 |
-5.4 |
69.6 |
19.6 |
-6.5 |
Change in Cash |
18.1 |
20.1 |
17.4 |
-8.8 |
7.5 |
Flextronics Stock Price |
$7.92 |
$3.30 |
$5.25 |
$8.71 |
$10.89 |
4 By what percentage did net income grow each year?
5 Why might the growth rates of net income and revenues differ?
6 Suppose Flextronics had purchased additional equipment for $12 million at the end of 2013, and this equipment was depreciated by $4 million per year in 2014, 2015, and 2016. Given Flextronics's tax rate of 35%, what impact would this additional purchase have had on Flextronics's net income in years 2013-2016?
A) Following is the working for Growth in income during the year
B) Why might the growth rates of net income and revenues differ?
Growth rate of net income is dependent on expenses incurred alongwith i.e. revenue - direct and indirect expenses. SInce the revenue's growth rate is not same as that of expenses, as can be evidently seen, there is difference in growth rates of revenue and net income.
C) Suppose Flextronics had purchased additional equipment for $12 million at the end of 2013, and this equipment was depreciated by $4 million per year in 2014, 2015, and 2016. Given Flextronics's tax rate of 35%, what impact would this additional purchase have had on Flextronics's net income in years 2013-2016?
Depreciation impacting Net income will be net of tax i.e. 4 x (1 - .35) = 3
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