Consolidated Balance Sheets - USD ($) May 31, 2017 May 31, 2016 $ in Millions Cu

Question

Consolidated Balance Sheets - USD ($) May 31, 2017 May 31, 2016 $ in Millions Current assets: Cash and equivalents Short-term investments Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant and equipment, net ldentifiable intangible assets, net Goodwill Deferred income taxes and other assets TOTAL ASSETS Current liabilities: Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long-term debt Deferred income taxes and other liabilities Commitments and contingencies Redeemable preferred stock Shareholders' equity: Capital in excess of stated value Accumulated other comprehensive (loss) income Retained earnings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,808 2,371 3,677 5,055 1,150 16,061 3,989 283 139 2,787 23,259 $ 3,138 2,319 3,241 4,838 1,489 15,025 3,520 281 131 2,422 21,379 325 2,048 3,011 84 5,474 3,471 1,907 2,191 3,037 85 5,358 1,993 1770 0 0 8,638 (213) 3,979 12,407 23,259 7,786 318 4,151 12,258 21,379

Explanation / Answer

Calulations of ratios :

1. Gross profit ration = Gross profit / Net sales

For 2016 = 14971 / 32376 = 45.93%

For 2017 = 15312 / 34350 = 44.58%

2. Profit margin ratio = Net income / Net sales

For 2016 = 3760 / 32376 = 11.61%

For 2017 = 4240 / 34350 = 12.35%

3. Return on asset ratio = Net income / Average Total Assets

For 2016 = 3760 / 21379 =  17.59%
For 2017 :-
Average total assets = opening assets + closing assets / 2
= 21379 + 23259 / 2 = 22319
Return on asset ration = 4240 / 22319 = 19%

4. Asset turnover ratio = Net sales / Average Total Assets

For 2016 = 32376 / 21379 = 1.514

For 2017 = 34350 / 22319 = 1.539

5. Basic earning per share = Earning available for equity shareholders / Weighted average number of equity shares

For 2016 :---

Earning available for equity shareholders = 3760
Total shareholder Equity = 12258
Assuming face value of $10
Weighted average number of equity shares = 1225.8 mn
EPS = 3760/1225.8 = 3.067

For 2017 :---

  Earning available for equity shareholders = 4240
Total shareholder Equity = 12407
Assuming face value of $10
Weighted average number of equity shares = 1240.7 mn
EPS = 4240/1240.7 = 3.417

Intracompany analysis on the bases of computed ratios :-

Gross profit ratio :-
2016 = 45.93%
2017 = 44.58%

Gross profit ratio is used to measure the efficiency of the business to cover all expenses and provide for profit.  Higher ratio is considered better.
As compared to 2016, GPR is decline which is not favorable.

Profit margin Ratio :-
2016 = 11.61%
2017 = 12.35%

Profit margin ratio measure the amount of profit produced on certain level of sales.
In conmparison with 2016, profit margin is increasing which mean that company is building some efficiency due to which company is able to produce more profit on a certain level of sales.

Return on asset ratio:-
2016 = 17.59%
2017 = 19%

Return on assets is used to measure how much profit after tax is generated for $1 investment in the assets of the company. It mean the company's net earning attributable to the total resources.
As compared to 2016, in 2017 company is able to generate some amount of profit in relation to the investment in the assets, which is favorable to the company.

Asset turnover ratio:-
2016 = 1.514
2017 = 1.539

This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently.
Compared with 2016, in 2017 ratio is increasing which shows a favourable trend in efficient utilisation of assets of the company.

Basic earning per share:-
2016 = 3.067
2017 = 3.417

EPS indicate the earning available to a shareholder on single equity investment in the company. EPS is used to measure the wealth of the shareholders. Better EPS increases the reputation of the company and wins the confidence of the shareholders of the company.
Compared with 2016, in 2017 EPS is better.

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