Book: Mayo, H.B. (2014). Investments: An introduction (11th Ed.). Mason, OH: South-Western Cengage Learning
There are a variety of ways to measure a corporation's financial performance and to analyze whether the stock of the corporation should be purchased.
On pages 305, 311-312 of Investments:
- Prepare written answers to Questions 5, 6, 9, 11 and Problems 2 and 4.
5. What are the advantages associated with dividend reinvestment plans? P.274
6. How do stock dividends differ from cash dividends? How do stock dividends differ from stock splits? P 269
9. If a preferred stock is in arrearage, what does that imply about the dividend payment? P.280
11. What does the statement of cash flows add to the analyst's knowledge of the firm? P.282 about financial statement- cashflow statement ex. Exhbit 8.6
2. A firm has the following items on its balance sheet:
Cash $ 20,000,000
Inventory 134,000,000
Notes payable to bank 31,500,000
Common stock ($ 10 par; 1,000,000 shares outstanding) 10,000,000
Retained earnings 98,500,000
Describe how each of these accounts would appear after the following:
a) A cash dividend of $ 1 per share will pay out $1 to every share holder. Cash is now $19,000,000 retained earnings is now $97,500,00
b) 10 percent stock dividend ( fair market value of stock is $ 13 per share) pay out 10% of 1,000,000 shares= # shares
FMV=$13
c) A 3- for- 1 stock split- par value and the number of shares outstanding
d) A 1- for- 2 reverse stock split
4.You have taken the following information from a firm's financial statements. As an investor in the firm's debt instruments, you are concerned with its liquidity.
20X2 20X1 20X0
Sales $ 1,700,000 $ 1,500,000 $ 1,000,000
Cash 18,000 7,000 5,000
Accounts receivable 152,000 130,000 125,000
Inventory 200,000 190,000 200,000
Current liabilities 225,000 210,000 175,000
Operating income 170,000 145,000 90,000
Interest expense 27,000 23,000 20,000
Taxes 53,000 45,00025,000
Net income 90,000 77,000 45,000
Debt 260,000 250,000200,000
Equity 330,000 300,000 200,000
Example of this type of problem on p.302-304 … ratio formulas are on page 302-304 first calculate the ratios- as many as possible and then draw conclusions ( see example of problem)
