Hasbro: Calculate various ratios and then analyze results.

Revenue growth at HASBRO was strong in 2007 because of:

a) Movie tie in merchandise related to Transformers and Spider Man 3
b) Inventory declining from $203 million to $179 million
c) Receivables Increasing from $556 million to $655 million
d All of the above

The gross profit margin at Hasbro rose from 58.6% to 58.9% in 2007 because of:

a) Inventory declining from $203 million to $179 million
b) Better sourcing of goods from low cost production suppliers and product mix changes
c) Negotiation of longer payment periods from 44 days to 53 days
d) all of the above

The operating margin at Hasbro rose from 11.9% to __% in 2007.

a) 12.2%
b) 15.1%
c) 13.5%
d) None of the above

Hasbro's royalty rate as a percent of sales fell in 2006 and then rose again in 2007. Why?

a) Gross profit has improved year over year in this time frame
b) Revenues from Star Wars merchandise dropped off in 2006 but was replaced by strong revenues from Transformers and Spider Man movie tie-in merchandise
c) Inventory declined from $203 million to $179 milion in 2007
d) Research and development expense dropped to 4.4% in 2007

The EBITDA margin:

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

EBITDA consists of:

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

Depreciation and amortization are adjustments to calculate EBITDA because:

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

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

a) The best indicator of a firm's operating efficiency
b) Are inferior to the operating margin in determining 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.

Hasbro's current ratio rose from 1.9 in 2006 to 2.1 in 2007 and represents:

a) Strong management of working capital
b) Inefficient management of working capital
c) Nothing can be interpreted from this

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

a) shortened, decreased and lengthened
b) increased, declined and lengthened
c) Increased, improved and shortened
d) decreased, rose and shortened

The change in Hasbro's accounts receivable collection period represents

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

How would you calculate Hasbro's level of purchases in 2007? 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

Hasbro's inventory turned ___ in 2007

a) 60 days
b) 57 days
c) 6.4 times
d) 6.1 times

Hasbro's cash collection cycle went from ___ to ____ between 2006 and 2007.

a) 69 to 77 days
b) 77 to 69 days
c) 64 to 75 days
d) 75 to 64 days

Asset securitization has achieved the following for Hasbro:

a) Made it possible for it to take receivables off its books
b) Made it possible for it to turn receivables quickly into cash
c) Cost Hasbro $8.0 million annually in 2007
d) All of the above

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) 4.0%
c) 2.4%
d) None of the above

An optimal level of debt is achieved:

a) When a firm's marginal return on investments is greater than its cost of debt
b) When a firm's weighted average cost of capital is at its minimum
c) When a firm has adequate cash flows to support this level 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

Given the above information plus a cost of equity of 13% and a debt to total capital ratio of 16%, Hasbro's weighted average cost of capital is:

a) 12.0%
b) 11.5%
c) 13.0 plus 6.6% = 19.6%
d) None of the above

The Weighted Average Cost of Capital just calculated above is:

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

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. What assumptions did you need to make to determine your answer?

The earnings per share of a firm is:

a) is established by GAAP and is a good indicator of how well a firm's cash flows are doing
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) Useful in calculating the price earnings ratio

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) Indicates to the investing world that the company has run out of investment ideas because it has to return cash to its shareholders
c) is an alternative to raising its dividend payout
d) All of the above

Hasbro's times interest earned and fixed payment coverage ratios in 2007:

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

Two part question:

Examining Hasbro's cash flow statement and profit and loss statement, how much free cash flow did Hasbro make in 2007? Explain your analysis.

Second part: Is Hasbro self-financing or not? Explain your conclusions.

Hasbro is a creditworthy firm because:

a) It carries cash balances approximately equal to the debt it owes
b) Its current ratio is 2.1 which is higher than industry averages
c) It's times interest earned ratio is higher than industry averages
d) It has an investment grade bond rating

Leasing operations. Which of these statements is true?

a) The firm does not lease any equipment or facilities
b) Lease expense in 2007 amounted to $36.9 million
c) Minimal rental expense in 2008 is $27.2 million
d) a), b) are correct
e) b) and c) are correct

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

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

Based on what you know about this firm, would you buy Hasbro stock? 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.