Analyzing Hasbro, Inc Financial Statements

Obtain Hasbro, Inc's (Ticket= HAS) financial statements for its fiscal year ending December 31, 2008. Note the date. Do not use any other financials other than these, otherwise you risk answering all of the questions incorrectly.

1) Revenue growth at HASBRO was adequate in 2008 because:

a) Movie tie in merchandise related to Star Wars and Indiana Jones made up for the drop off in the prior year's movie tie-in merchandise sales
b) Inventory rising from $259 million to $300 million
c) Receivables declining from $655 million to $612 million
d All of the above

2) The gross profit margin at Hasbro dropped from 58.9% to 57.9% in 2008 because of:

a) Inventory rising from $259 million to $300 million
b) A change in the sourcing of goods from suppliers and product mix changes
c) A shorter accounts payable payment period from 42 days to 39 days
d) all of the above

3) The operating margin at Hasbro fell from 13.5% to __% in 2008.

a) 12.3%
b) 15.1%
c) 13.5%
d) None of the above

4) Hasbro's royalty rate as a percent of sales rose and then fell slightly in 2008. Why?

a) Gross profit has declined year over year in this time frame
b) Sales of merchandise tied to royalty agreements increased
c) Inventory rose from $259 million to $300 million in 2008
d) Research and development expense dropped to 7.8% of revenues in 2008

5) The EBITDA margin:

a) Is a proxy for cash from operations and its direct comparison is to operating profit
b) Is unreliable as it is not a generally accepted accounting measure
c) Is not a good substitute for cash from operations because it does not reflect the change in working capital
d) Is a means of window dressing the operating margin (i.e. make it look better)

6) EBITDA consists of:

a) Operating profit less depreciation and amortization
b) Net income plus depreciation and amortization
c) Net income adding back interest, depreciation and amortization
d) Operating profit adding back depreciation and amortization

7) Depreciation and amortization are adjustments to calculate EBITDA because:

a) They allow the matching of fixed asset depletion expenses to revenues earned
b) Replacement of fixed assets should be reflected in the profit and loss statement
c) They are non-cash accounting charges which are entirely the result of accounting rules and don't represent cash flow items
d) None of the above

8) Net profit margins, compared to other margins (operating margin and gross profit margins, for example), are:

a) Are inferior to the operating margin in determining operating efficiency
b) The best indicator of a firm's operating efficiency
c) Are the bottom line and therefore the only way to measure a firm's operating efficiency because they take into account all expenses.

9) Hasbro's current ratio was flat between 2007 and 2008. This represents:

a) Good activity ratios and efficient management of working capital
b) Nothing can be interpreted from this
c) Weak activity ratios and inefficient management of working capital

10) Hasbro's collection period was ____, its inventory turnover ___ and its payables period ___.

a) Slower, quicker, slower
b) Quicker, slower, quicker
c) Quicker, quicker, slower
d) Slower, slower, quicker

11) The change in Hasbro's accounts receivable collection period represents

a) slower collections
b) more efficient inventory policy
c) less debt to fund working capital
d) a shortening of payables days
e) Quicker collections

12) How would you calculate Hasbro's level of purchases? Assume freight-in is negligible and that all inventory is purchased.

a) Beginning inventory plus ending inventory less cost of goods sold
b) Cost of goods sold plus ending inventory less beginning inventory
c) Beginning inventory plus cost of goods sold less ending inventory
d) Cost of goods sold plus beginning inventory plus ending inventory
e) None of the above

13) Hasbro's inventory turned ___ in 2008

a) 60 days
b) 57 days
c) 6.1 times
d) 5.6 times

14) Hasbro's cash collection cycle ___ from 2007 to 2008

a) improved
b) worsened
c) Was flat

15) Asset securitization has achieved the following for Hasbro:

a) Made it possible for it to turn receivables quickly into cash
b) Made it possible for it to take receivables off its books
c) Cost Hasbro $5.3 million annually in 2008
d) All of the above

16) Given Hasbro's cost of debt at 6.6% and a tax rate of 40%, its after-tax cost of debt is:

a) 6.6%
b) 2.4%
c) 4.0%
d) None of the above

17) An optimal level of debt is achieved:

a When a firm has adequate cash flows to support this level of debt
b) When a firm's weighted average cost of capital is at its minimum
c) When a firm's marginal return on investments is greater than its cost of debt
d) Never because debt is not a proper way to fund a firm's expansion and growth - equity is the best way to go

18) Given the above information plus a cost of equity of 13% and a debt to total capital ratio of 14% and equity to total capital ratio of 86%, Hasbro's weighted average cost of capital is:

a) 12.0%
b) 11.7%
c) 13.0 plus 6.6% = 19.6%
d) 13% plus 16% = 29%
e) None of the above

19) The Weighted Average Cost of Capital just calculated above is:

a) the cost of a firm's debt
b) Is the benchmark which a firm's investment returns have to exceed to create value for shareholders
c) Nice to know but totally useless
d) None of the above

20 and 21) Two part question: The good news is that you have just won $1.0 million. The bad news is that it is a dollar a year for a million years. If someone came to you and said they wanted to buy this cash flow stream from you, how much would you be willing to accept? Which of these amounts comes closest to the value of this stream of cash flows?

a) $1,000
b) $50
c) $20
d) $10
e) for something in the range of $10,000

Justify your answer to the above question in thirty words or less. What calculations and assumptions did you need to make to determine your answer?

22) The earnings per share of a firm is:

a) Useful in calculating the price earnings ratio
b) not a reflection of a firm's cash flows as earnings are an accounting measure, not a cash flow measure
c) a good benchmark for setting long term goals
d) is established by GAAP and is a good indicator of how well a firm's cash flows are doing

23) Hasbro's share repurchase program:

a) has had a positive impact on the firm's share price because it reduces the amount of shares outstanding
b) is an alternative to raising its dividend payout
c) Indicates to the investing world that the company has run out of investment ideas because it has to return cash to its shareholders
d) All of the above

24) Hasbro's times interest earned and fixed payment coverage ratios in 2008:

a) were both higher from the prior year
b) had a higher times interest earned ratio and a lower fixed payment coverage ratio versus the prior year
c) were both lower than the prior year
d) had a higher fixed payment coverage ratio and a lower times interest earned ratio versus the prior year

25 and 26) Two part question:

How would you go about determining Hasbro's Free Cash Flows? the definition of Free Cash Flows is this: "cash which is free for distribution to debt and to equity holders".

a) Net income plus non-cash expenses less working capital changes less cash flows for investing activities less cash from financing activities = FCF?
b) EBITDA less working capital less cash flows for investing activities = FCF?
c) Net income plus non-cash expenses (depreciation and amortization) less working capital less cash flows for investing activities = FCF?
d) Operating income impacted by income taxes to determine Net Operating Profit After Taxes. Net Operating Profit After Taxes less change in working capital less cash flows for investing activities = FCF?

Second part: Is Hasbro self-financing or not? Explain your conclusions in fifty words or less. Provide your calculation of FCF to back up this conclusion.

27) Hasbro is a creditworthy firm because:

a) It carries cash balances slightly less than the debt it owes
b) Its current ratio is 2.1 which is higher than industry averages
c) Its coverage and times interest earned ratio are better than industry averages
d) It has an investment grade bond rating

28) Leasing operations. Which of these statements is true?

a) The firm does not lease any equipment or facilities
b) Lease expense in 2008 amounted to $ 43.6 million
c) Operating leases are not on the balance sheet and are not legitimate liabilities.
d) a), b) are correct
e) b) and c) are correct

29) Off balance sheet liabilities such as legal contingencies and operating leases are:

a) Not legitimate liabilities and should be ignored because accounting rules don't require that they be reported
b) examples of how accounting does not capture all potential obligations a firm might face
c) Pose no risks to investors and to bond holders
d) None of the above

30) Based on what you know about this firm, would you buy Hasbro stock? In two hundred words or less, please explain why you think so. Please refer to the ratios you have calculated to substantiate your answer. No anecdotes please. Use facts to back up your assertions.