Question

Upon graduating from college in 2017, Karen Peterson entered the financial management-training program of a large...

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

(All data as of fiscal year end; $ in millions)

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

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

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?

Homework Answers

Answer #1

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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