1. Tutorials week 48 Amsterdam Business School
Accounting P 6011P0148 / PE 6011P0150
Tutorials week 48 Amsterdam Business School

2. So far…. Financial statements and relationship between them
Recording economic transactions (journal entry method)
Understanding account types
Getting familiar with economic transactions related to the balance sheet (assets, liabilities and owner’s equity)
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3. Today Understanding the structure of the income statement
Understanding the goal and structure of the cash flow statement
Prepare a cash flow statement with the direct and indirect method
Using indicators based on information from financial statements to analyze the performance of a company
Rounding up the financial accounting part of the course
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4. Contents CH9:P 9.20, P9.24, P9.26, CH3: P3.19, C3.24 CH11: P11.14
Summary
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5. P9.20 (page 348) We practice the structure of the income statement
We get familiar with the income related to various activities
We learn how the net income (which goes to retained earnings at the end of the year and also the first item in an indirect cash-flow statement) is calculated
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6. Selling, general, and administrative expenses 51,000 Accounts payable
Item
Value
Selling, general, and administrative expenses
51,000
Accounts payable
85,000
Research and development expenses
37,000
Loss from discontinued operations, next of tax savings od $5,000
17,000
Provision for income taxes
18,000
Net sales
489,000
Interest expense
64,000
Net cash provided by operations
148,000
Costs of goods sold
272,000
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9. Cash-flow statement Methods Direct (P9.26) Indirect (P9.23) Structure
The main structure (three parts) is the same for both methods, the approach to calculate those items are different
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10. How to prepare a cash-flow statement with the direct method?
Record all the economic transactions
Select those transactions which involve the “Cash” account
Identify where the transactions related to changes in “cash” go in the cash-flow statement
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11. Direct Method
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13. Indirect method (P9.24 page 349-50)
Item
Value
Depreciation and amortization expenses
520
Cash dividends declared and paid
660
Purchase of equipment
1,640
Net income
768
Beginning cash balance
240
Proceeds of common stocks issued
296
Proceeds of sale of building
424
Accounts receivable increase 32
Ending cash balance 80
Inventory decrease 76
Accounts payable increase 88
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14. Note that investing activities relate primarily to changes in non-operating asset accounts, and that financing activities relate primarily to changes in non-operating liability and stockholders’ equity accounts.
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15. Financial indicators C3.24
Practicing calculating
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20. ROI = (9.9% margin * 1.01 turnover) = 10.0%**
Note 1: You may have calculated margin and ROI based on “Net earnings attributable
to Campbell Soup Company” rather than “Net earnings,” as follows: Margin = ($818 net earnings attributable to Campbell Soup Company
/ $8,268 net sales) = 9.9%
Turnover = Net sales / Average total assets = $8,268 / (($8,323 + $8,113) / 2)
= $8,268 / $8,218 = 1.01
ROI = (9.9% margin * 1.01 turnover) = 10.0%**
Note 2: You may have calculated ROE based on “Net earnings attributable to Campbell
Soup Company” rather than “Net earnings” in the numerator. In that case, “Total
Campbell Soup Company Shareholders’ equity” rather than “Total equity” should be
used in the denominator as well:
ROE = Net earnings attributable to Campbell Soup Company / Average total Campbell Soup Company shareholders’ equity
= $818 / (($1,217 + $1,615) / 2) = $818/ $1,416 = 57.8%
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21. 3. Price/earnings ratio = ($41. 96 market value per common share / $2
3. Price/earnings ratio = ($41.96 market value per common share / $2.59 diluted earnings per common share outstanding) = 16.2
4. Dividend yield = ($1.248 dividends declared per share / $41.96 market value per common share) = 3.0%
5. Dividend payout ratio = ($1.248 dividends per common share / $2.59 diluted earnings per common share outstanding) = 48.2%
Note that diluted earnings per share is normally used in the P/E calculation
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22. b.
1. Working capital = ($2,100 current assets - $2,989 current liabilities)
= $(889) million
2. Current ratio = ($2,100 current assets / $2,989 current liabilities) = 0.70
3. Acid-test ratio = (($232 cash and cash equivalents + $670 accounts receivable) / $2,989 current liabilities) = $902 / $2,989 = 0.30
By excluding inventories and other non-liquid current assets , the acid-test ratio gives a conservative
Assessment of the firm’s bill-paying ability.
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23. 4. Inventory turnover = Cost of products sold / Average inventories
1. Average day's sales = ($8,268 annual net sales / 365 days) = $22.65 million
Number of days' sales in accounts receivable = ($670 accounts receivable / $ average day's sales) = 29.6 days
2. Average day's cost of products sold = ($5,370 annual cost of products sold / 365 days) = $ million
Number of days' sales in inventory = ($1,016 inventories / $ average day's cost of products sold) = 69.1 days
3. Accounts receivable turnover = Net sales / Average accounts receivable = $8,268 / (($635 + $670) / 2) = $8,268 / $652.5 = 12.7 times
4. Inventory turnover = Cost of products sold / Average inventories
= ($5,370 / (($925 + $1,016) /2) = $5,370 / $ = 5.5 times
5. Net property, plant, and equipment turnover = Net sales / Average plant assets, net of depreciation = $8,268 / (($2,260 + $2,318) / 2) = $8,268 / $2,289 = 3.6 times
Note: The result of c1. may be understated to some extent because it is based on the assumption that all of
Campbell’s $8,268 net sales resulted from credit sales.
To the extent that Campbell’s makes cash sales, the average days’ sales result in the denominator will decrease,
thus causing the number of days’ sales in accounts receivable to increase.)
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24. = (($6,510 total liabilities) / $1,603 total equity) = 406.1% d. e.
1. Debt ratio = (Total liabilities / Total liabilities and stockholders’ equity) = (($6,510 / $8,113 total liabilities and equity) = 80.2%
2. Debt/equity ratio = (Total liabilities / Total stockholders’ equity)
= (($6,510 total liabilities) / $1,603 total equity) = 406.1%
1. Net sales per employee = Net sales / Number* of employees for the year = $8,268 million / 19,400 employees = $426,186 per employee
2. Operating income per employee = Earnings before interest and taxes / Number* of employees for the year = $1,192 million / 19,400 employees = $61,443 per employee
* Normally, these ratios would be calculated based on the “Average number of employees for the
year,” but Campbell’s only discloses the number of employees at August 3, 2014.
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