Accounting Financial Analysis Report: DuPont Decomposition, Cash Flow Statement, Inventory Turnover, Default Rate, and FCFU

Accounting financial analysis
report
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Question 1
1. Decreasing the useful life estimate on a firm’s PPE has no effect on a company’s free
cash flow measure
Ans. True, because decreasing the useful life estimate on a firm’s PPE has impact on company’s
cash flow measure.
2. A decrease in average day’s payables outstanding provides information on how quickly a
firm collects cash from sales to customers.
Ans. False, because decreasing in average day payables outstanding does not provides
information on how quickly a firm collects cash from sales to customers. Average day
receivables outstanding show that information about cash from sales to customers.
3. Holding ROA constant, higher financial leverage leads to higher ROE, creating more
value for shareholders.
Ans. False, ROA show overall profitability of invested assets and it is also known as Return on
Investment. Holding ROA does not create more value for shareholders.
4. Everything else equal, the volatility of ROE is higher in companies with higher financial
leverages.
Ans. True, when companies with higher financial leverages the ROE is also become higher.
5. The results from using discounted FCFU method to estimate firms’ intrinsic equity
values are sensitive to assumptions about firms’ future dividend polices.
Ans. True, when the results from using discounted FCFU method to estimate firms’ intrinsic
equity values are sensitive to assumptions about firms’ future dividend polices
6. Firm ABC’s balance sheet reported a more current assets than its current liabilities on fiscal
year end of 12/31/2017. Had firm ABC delayed payments to suppliers (i.e., pay less to suppliers
than it actually did) during 2017, what effects would it have on its
Ans. (a) Decrease (b) Decrease (c) Decrease
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If the current asset is more than the current liabilities than the current ratio is decreases whereas
when the company made delayed payments to suppliers the payable turnover is also decreases
and it will also not impact on cash cycle days of the company.
7. Everything else equal, selling a recognized intangible asset, such as a patent, for a gain
(compared to not selling the intangible asset) would have what effects on the following
metrics:
Ans. (a) Decrease (b) Decrease (c) Increase
When the company sells recognized intangible assets then debt to asset ratio is decreases and
cash (used in) from operations is also decreases. Cash (used in) from investments is increases
because company sells its assets and earns cash.
8. Everything else constant, compared to the point of sale method of revenue recognition
(the one used by Patten Corp.), installment method of revenue recognition would have
what effects on the following metrics:
Ans. (a) Unclear (b) Decrease (c) No effect (d) No effect
In the company, when everything is constant but the sale method of revenue recognition
installment method of revenue recognition would have no impact on revenue growth rate but
accounts payable turnover ratio decreases. There is no impact on gross margin percentage and
also no impact on cash from operations.
Question 2
Cash Flow Statement A: Mature/decline phase
Reasons:
1. As compare to other year, in 2016 the cash and cash equivalents end of period was less than
other year because available cash to the company in 2016 was less than as compare to the other
years.
2. The cash flow statement of a company in a mature/decline phase due shortage of cash in hand
or cash at bank.
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3. Another reason is that in 2016, the company used cash in investing and financing activities
which impact on cash availability.
4. The company’s cash flow statement in the position of mature/decline due to inefficient cash
management.
5. Another reason is that, the company utilizes cash in purchasing or acquiring the assets and
repayment of debts and dividends to the outsider parties.
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