Read Chapter 1 of the textbook and use your own words to answer the following questions.

When you read Chapter 1: please focus only on the definition of the financial statement terms and the ratios. You do not need to worry about “The Unidentified Industries Game”.

1. Based on Chapter 1: Use your own words to explain the following items on the assets side of a company’s balance sheet:

1) Marketable Securities (also called “short-term investment”)

2) Account receivables

3) Current assets

4) Property, plant, and equipment (PP&E)

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2. Based on Chapter 1: Use your own words to explain the following items on the liabilities side of a company’s balance sheet:

1) Account payables

2) Accrued items

3) Current liabilities

4) The difference between preferred stock and common stock

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3. Based on Chapter 1: Use your own words to explain the following items on a company’s income statement:

1) Cost of goods sold (also called “COGS”)

2) Selling, general, and administrative expenses (also called “SG&A”)

3) EBIT, EBITDA, and their differences

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4. A company has the following items for the fiscal year 2022:

· Cash = 2 million

· Marketable securities = 6 million

· Account receivables (A/R) = 1 million

· Inventories = 6 million

· Total current liabilities = 8 million

Calculate the company’s Current Ratio and Quick Ratio

Type your answers below – please show your calculation process:

5. A company has the following items for the fiscal year 2022:

· Revenue =10 million

· Cost of goods sold = 3 million

· EBITDA = 4 million

· EBIT = 4.5 million

· Net income = 3 million (also called net profit)

Calculate the company’s EBITDA Margin and Net Profit Margin

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6. A company has the following items for the fiscal year 2022:

· Revenue =10 million

· EBIT = 4.5 million

· Net income = 3 million

· Total Equity = 30 million

· Total Assets = 40 million

Calculate the company’s ROA and ROE

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7. A company has the following items for the fiscal year 2022:

· Total Equity = 20 million

· Total Debt = 5 million

· Total Assets = 30 million

· EBIT = 4 million

· Interest expense = 1 million

Calculate the company’s ratios of Debt to Assets , Assets to Shareholders’ Equity and Interest Coverage Ratio

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8. Write the formula for the following ratios and what each ratio measures:

1) Asset turnover

2) Inventory Turnover and Days Inventory

3) Receivable Collection Period

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9. Write down the DuPont framework. How would you explain to your non-MBA non-Finance friends about the DuPont framework and why it is important?

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10. A company has the following items for the fiscal year 2022:

· Revenue = 10 million

· EBIT = 4 million

· Net income = 2 million

· Total Equity = 15 million

· Total Assets = 30 million

Calculate the company’s Net Profit Margin , Asset Turnover and ROE

Type your answers below – please show your calculation process:

Read Chapter 2 of the textbook and use your own words to answer the following questions.

When you read Chapter 2: You only need to read enough on pages 53-69 to finish my questions below. I will spend a lot of class time talking about cash!

11. Based on Chapter 2:

1) Use your own words to explain Operating Cash Flows (OCF).

2) If you are an CEO of a company, why would you care about its OCF?

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12. Read the section on the Cash Conversion Cycle (or “Cash Cycle”) and use your own words to answer the questions:

1) Explain cash conversion cycle and why it is important to companies?

2) Is it possible that a company has a negative cash cycle? Is it a good thing or a bad thing?

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13. A company has days of inventory 80 days, days receivable of 30 days, and days payable of 45 days. Calculate the company’s funding gap and interpret the number.

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14. Based on Chapter 2:

1) Use your own words to explain Free Cash Flows (FCF) and the difference between OCF and FCF

2) If you are an CEO of a company, why would you care about its FCF?

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Read Chapter 4 of the textbook and use your own words to answer the following questions.

When you read Chapter 4: You only need to read enough to finish my questions below.

15. Read the content on Capital Asset Pricing Model (CAPM): If risk free rate is 2%, market risk premium (also called the equity risk premium) is 5%, and a company has a beta of 1.5. What is the company’s cost of equity?

Type your answers below – please show your calculation process:

16. Read the content on Weighted Average Cost of Capital (WACC): Assume a company has 10 million of total assets: the market value of equity is 8 million and market value of debt is 2 million. The company has a 12% cost of equity and a 7% cost of debt. The company has a tax rate of 30%. What is the company’s weighted average cost of capital?

Type your answers below – please show your calculation process:

Read Chapter 5 of the textbook and use your own words to answer the following questions.

When you read Chapter 5: You only need to read enough to finish my questions below.

17. Use your own words to answer the following questions:

1) Write the formula for the P/E ratio and what it measures?

2) Should you invest in a company with high P/E or low P/E? Why?

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18. A company has the following items for the fiscal year 2022:

· Revenue = 10 million

· Net income = 4 million

· The company has 2 million shares of stock

· Stock price per share = $80

Calculate the company’s Earnings Per Share and P/E ratio

Type your answers below – please show your calculation process: