In the attached files are the questions to be answered and the information neede
ID: 2332866 • Letter: I
Question
In the attached files are the questions to be answered and the information needed to answer them. Answer all parts of the question completely.
Questions: 4-24, 4-26
4-24:
a) Compute times interest earned ratio for each year and discuss any trends for each.
b) Compute the current ratio for each year and discuss any trend in liquidity. Do you believe the company is sufficiently liquid? Explain. What additional information about the accounting numbers compromising this ratio might be useful in helping you assess liquidity?
c) Compute the total liabilities-to-equity ratio for each year and discuss trends for each.
d) What is your overall assessment of the company’s credit risk from the analyses in a, b, and c? Explain.
4-26:
a) Compute the return on equity (ROE), the times interest earned ratio and the total-liabilities-to-equity ratio for 2010 for the company’s two business segments and the company as a whole. (Use year-end equity for return on equity calculation).
b) What is your overall assessment of the company’s credit risk? Explain. What differences do you observe between the two business segments? Do these differences correspond to your prior expectations given each company’s business model?
c) Discuss the implications of the analysis of consolidated financial statements and the additional insight that can be gained from a more in-depth analysis of primary business segments.
2,384 22,012 21,820 Net cash flow from operating activities . Required a. Compute the current ratio for each year and discuss any trend in liquidity. What additional informa- tion about the numbers used to compute this ratio might be useful in helping you assess liquidity? Explain b. Compute times interest earned, total liabilities-to-equity, and net cash from operating activities to total liabilities ratios for each year and discuss any trends for each. Do you have any concerns about the extent of Verizon's financial leverage and the company's ability to meet interest obligations? Explain. Verizon's capital expenditures are expected to increase substantially as it seeks to respond to com petitive pressures to upgrade the quality of its communications infrastructure. Assess Verizon's liquidity and solvency in light of this strategic direction. c. EA-24 Compute and Interpret Coverage, Liquidity and Solvency Ratios (L03) Selected balance sheet and income statement information from CVS Caremark for 2 follows (S millions). CORPURATION (CvS) Total Current Assets Total Current Liabilities Total Pretax Income Interest ExpenseLiabilities Equity 2010. 2009. 2008. $17,706 17,537 16,526 $11,070 12,300 13,490 $5,629 5,913 5,537 $536 525 509 $24,469 25,873 26,386 $37,700 35,768 34,574 Required a. Compute times interest earned ratio for each year and discuss any trends for each. b. Compute the current ratio for each year and discuss any trend in liquidity. Do you believe the com- pany is sufficiently liquid? Explain. What additional information about the accounting numbers comprising this ratio might be useful in helping you assess liquidity? Explain Compute the total liabilities-to-equity ratio for each year and discuss any trends for each. What is your overall assessment of the company's credit risk from the analyses in (a). (b), and (c)? Explain c. d.Explanation / Answer
E3-25
Return on net operating assets = NOPAT / Average operating assets
a) Return on net operating assets for CVS caremark:
NOPAT = $3777
Average operating assets = 2010 operating assets + 2009 operating assets / 2
= $46360 + $45889 / 2 = $46125
Return on operating assets = $3777 / $46125 = 8.81%
Return on net operating assets for walgreen co
NOPAT = $2145
Average operating assets = 2010 operating assets + 2009 operating assets / 2
= $14921 + $14140 / 2 = $14530
Return on operating assets = $2145 / $14530 = 14.76%
b) Net operating profit margin (NOPM) = NOPAT / Sales
Net operating asset turnover (NOAT) = Sales / average total assets
For CVS caremark :
Net operating profit margin (NOPM) = $3777 / $96413 = 3.91%
Net operating asset turnover (NOAT) :
Average operating assets = $46125 (as calculated in (a) above)
Net operating asset turnover (NOAT) = $96413 / $46125 = 2.09
For Walgreen Co :
Net operating profit margin (NOPM) = $2145 / $67420 = 3.18%
Net operating asset turnover (NOAT):
Average operating assets = $14530 (as calculated in (a) above)
Net operating asset turnover (NOAT) = $67420 / $14530 = 4.64
c) Here we can see that Return on net operating assets (RNOA) is higher (14.76%) in case of Walgreen Co.
Net operating profit margin (NOPM) is almost same for both the companies but Net operating asset turnover (NOAT) is higher for Walgreen Co which indicates that Walgreen co is able to make effective use of its assets in generating the sales.This in turn caused its Return on net operating assets (RNOA) to be higher.
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