Academic Master

Business and Finance

Callaway Golf Company

Exercise 2-7

  1. EARNINGS PER SHARE

Workings

EPS= (net income- preferred dividend) / number of outstanding shares

2017

EPS = 60,500,000/ 64,507,000

EPS= $0.94

2016

EPS = 49, 400,000/66,282,000

EPS=$0.75

Problem 2-7A

  1. WORKING CAPITAL

Workings

Working capital = Current assets- current liabilities

Target

WC= $16,100- 10,300

=$5,800

Wal-Mart

WC= 48,600-56,300

= ($7,700)

  1. CURRENT RATIO

Current ratio = current assets/ current liabilities

Target

Current ratio= 16,100/10,300

=1.56

Wal-Mart

Current ratio= 48,600/56,300

=0.86

  1. DEBT TO ASSETS RATIO

= total debt (Liability)/ total assets

Target

=45,900/30,700 *100%

=150 %

Wal-Mart

=159,000/99,200* 100%

=160 %

  1. FREE CASH FLOW

= cash from operations- capital expenditure

Target

= 4,470- 3,310

=$1,160

Wal-Mart

=23,600-11,700

=$11,900

  1. Earnings per share

EPS= (net income- preferred dividend) / number of outstanding shares

Target

=3,278,000/ 780,000

=$4.20

Wal-Mart

= 18,450,000/ 3,800,000

= $4.86

(f)

Liquidity

Liquidity ratios measure a company ability to offset its short term obligation and how quickly it converts its assets to cash

A common ratio of liquidity is the current asset ratio. Target has a better current ratio of 1.56 compared to Wal-Mart current ratio of 0.86.

Target has a better liquidity

Solvency

Solvency ratio measure a company’s ability to meet its long-term obligations. A common solvency ratio is debt to asset ratio. Wal-Mart has a better debt to asset ratio of 1.60 compared to Target debt ratio of 1.50.

Wal-Mart has a better solvency

Problem 2-4 A

Blue Spruce

NET INCOME

= 2,268,000-1,480,500-356,580-11,340-107,100- 45,360

= $267,120

Flounder Corp

=781,200-428,400-123,480-4,788-45,360-18,900

=$160,272

EARNINGS PER SHARE

EPS= (net income- preferred dividend) / number of outstanding shares

Blue Spruce

EPS= 267,120/ 80,000

=$3.40

Flounder Corp

EPS= 160,272/50,000

=$ 3.21

(b)

WORKING CAPITAL

Working capital = Current assets- current liabilities

Blue Spruce

=476,100-83,570

=$39,530

Flounder Corp

=200, 236-42,482

=$157,754

CURRENT RATIOS

= current assets/ current liabilities

Blue Spruce

=476,100/83,570

=5.70

Flounder Corp

=200,236/ 42,482

=4.71

(c)

DEBT TO ASSET RATIO

=total debt (Liability)/ total assets

Blue Spruce

=220,280/1146420 *100%

=19%

Flounder Corp

=93,744/376,293* 100%

=25%

FREE CASH FLOW

=cash from operations- capital expenditure

Blue Spruce

=173,880-113,400

= $60,480

Flounder Corp

=45,360-25,200

= $20,160

Exercise 2-13

(a) Historical cost concept

(b) Business entity concept

(c) Consistency principle

Exercise 2-11

  1. CURRENT RATIO

=current assets/ current liabilities

2017

=897,600/408,000

=2.2

2016

=942,500/362,500

=2.6

  1. Earnings per share

EPS= (net income- preferred dividend) / number of outstanding shares

2017

170,000/202,000

=$0.84

2016

392,800/212,400

=$1.85

  1. DEBT TO ASSET RATIO

= total debt (Liability)/ total assets

2017

=558,500/1,957,600*100%

=29%

2016

=514,800/1,820,500

=28%

(d) FREE CASH FLOW

= cash from operations- capital expenditure

2017

=286,000-253,000

=$33,000

2016

=467,700-265,200

=$202,500

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