Purchase Solution

# Operating Income, Value, and Profits

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9.12 Operating income versus net income
Refer to the selected financial data ( five-year financial summary) on page 709 of the Campbell Soup Company annual report in the appendix.
Required: Compare the trend of the operating income ( earnings before interest and taxes) data with the trend of net income ( net earnings attributable to Campbell Soup Company) data from 2007 through 2011. Which series of data is more meaningful? Explain your answer.

9.14 Calculate basic EPS, and explain the EPS effect of convertible preferred Thrifty Co. reported net income of \$ 790,800 for its fiscal year ended January 31, 2014. At the beginning of that fiscal year, 100,000 shares of common stock were outstanding. On October 31, 2013, an additional 30,000 shares were issued. No other changes in common shares outstanding occurred during the year. Also during the year, the company paid the annual dividend on the 40,000 shares of 6%, \$ 50 par value preferred stock that were outstanding the entire year.

Required: a. Calculate basic earnings per share of common stock for the year ended January 31, 2014. b. If Thrifty Co.' s preferred stock were convertible into common stock, what addi-tional calculation would be required?

9.22 Use gross profit ratio to calculate inventory loss
On April 8, 2013, a flood destroyed the warehouse of Stuco Distributing Co. From the waterlogged records of the company, management was able to determine that the firm's gross profit ratio had averaged 40% for the past several years and that the inventory at the beginning of the year was \$ 314,200. It also was determined that during the year until the date of the flood, sales had totaled \$ 638,400 and purchases totaled \$ 355,140. Required: Calculate the amount of inventory loss from the flood.
Using cash flow information— The Coca- Cola Company Following are comparative statements of cash flows, as reported by The Coca- Cola Company in its 2011 annual report:
Operating Activities ( details omitted) Net cash provided by operating activities . . . . . . . . . . . . . . \$ 9,474 \$ 9,532 \$ 8,186 Investing Activities Purchases of short- term investments . . . . . . . . . . . . . . . . . . . ( 4,057) ( 4,579) ( 2,130) Proceeds from disposals of short- term investments . . . . . . . . 5,647 4,032 — Acquisitions and investments . . . . . . . . . . . . . . . . . . . . . . . . . ( 977) ( 2,511) ( 300) Purchases of other investments . . . . . . . . . . . . . . . . . . . . . . . ( 787) ( 132) ( 22) Proceeds from disposals of bottling companies and other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 972 240 Purchases of property, plant, and equipment . . . . . . . . . . . . . ( 2,920) ( 2,215) ( 1,993) Proceeds from disposals of property, plant, and equipment . . 101 134 104 Other investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 93) ( 106) ( 48) Net cash provided by ( used in) investing activities . . . . . . ( 2,524) ( 4,405) ( 4,149) Financing Activities Issuances of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,495 15,251 14,689 Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 22,530) ( 13,403) ( 12,326) Issuances of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,569 1,666 664 Purchases of stock for treasury . . . . . . . . . . . . . . . . . . . . . . . . ( 4,513) ( 2,961) ( 1,518) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 4,300) ( 4,068) ( 3,800) Other fi nancing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 50 ( 2) Net cash provided by ( used in) fi nancing activities . . . . . . ( 2,234) ( 3,465) ( 2,293) Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . ( 430) ( 166) 576 Cash and Cash Equivalents Net increase ( decrease) during the year . . . . . . . . . . . . . . . . . 4,286 1,496 2,320 Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . 8,517 7,021 4,701 Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 12,803 \$ 8,517 \$ 7,021 Required: a. Briefly review the consolidated statements of cash flows, and then provide an overall evaluation of the " big picture" during the three years presented for Coca- Cola . Have operating cash flows been sufficient to meet investing needs and to pay dividends? b. Were there significant changes to any of the specific line- item details that you think would require further explanation or analysis?

10.6 Interpret auditors' opinion To what extent is the auditors' opinion an indicator of a company's future financial success and future cash dividends to stockholders?

10.10 Calculate EPS and dividends per share before stock split For several years Orbon, Inc., has followed a policy of paying a cash dividend of \$ 0.75 per share and having a 10% stock dividend. In the 2014 annual report, Orbon reported restated earnings per share for 2012 of \$ 3.60. Required: a. Calculate the originally reported earnings per share for 2012. Round your answer to two decimal places. b. Calculate the restated cash dividend per share for 2012 reported in the 2014 annual report for comparative purposes. Round your answer to two decimal places.

10.12 Understanding note disclosures and financial summary data This problem is based on the 2011 annual report of Campbell Soup Company in the appendix. Find in the Selected Financial Data ( also known as the Five- Year Review), or calculate, the following data: a. Dividends per share declared in 2011. b. Capital expenditures in 2010.

##### Solution Summary

The expert examines operating income, values and profits. The basic earnings per share of common stocks for the year end are given.

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• BA, Ain Shams University, Cairo Egypt
• MBA, California State University, Sacramento
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