BUSI 4351 Prince Mohammad Bin Fahd University Financial Ratios Analysis Case Study Mini Case # 1: The income statement and balance sheet for Starbucks and

BUSI 4351 Prince Mohammad Bin Fahd University Financial Ratios Analysis Case Study Mini Case # 1:

The income statement and balance sheet for Starbucks and McDonald Companies.

Mini Case # 2:

Your first investment

Mini Case # 3:

Working as an analyst for an investment company

Please see the details in the attached file. Finance Assignment
BUSI 4351 Internship (all sections)
Summer, 2020
Dr. Mohamed Khaled Al-Jafari
Answer one mini case only:
Mini Case # 1:
You are given the following income statement and balance sheet for Starbucks and
McDonald Companies.
Income Statement
PERIOD ENDING
Total Revenue
Cost of Revenue
Gross Profit
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Net Income
Balance Sheet
PERIOD ENDING
Cash & Cash Equivalents
Accounts receivable
Inventories
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant & Equipment
Good will
Other Assets
Total assets
Liabilities
StarBucks (SBUX)
Mc Donalds (MCD)
27-Sep-09
$9,774,600.00
$4,324,900.00
$5,449,700.00
$4,887,700.00
$562,000.00
31-Dec-08
$22,744,700.00
$13,952,900.00
$8,791,800.00
$1,950,800.00
$6,841,000.00
$36,300.00
$598,300.00
$39,100.00
$559,200.00
$168,400.00
$390,800.00
-$354,000.00
$6,487,000.00
$0.00
$6,487,000.00
$1,936,000.00
$4,551,000.00
StarBucks (SBUX)
Mc Donalds (MCD)
27-Sep-09
$599,800.00
$557,600.00
$664,900.00
$213,500.00
$2,035,800.00
$423,500.00
$2,536,400.00
$0.00
$581,100.00
$5,576,800.00
31-Dec-08
$1,796,000.00
$1,060,400.00
$106,200.00
$453,700.00
$3,416,300.00
$1,212,700.00
$21,531,500.00
$2,425,200.00
$1,639,200.00
$30,224,900.00
1
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Other Long Term Liabilities
Deferred long term liability charges
Total Liabilities
Total Stockholder Equity
Total Liabilities & Owner’s Equity
$1,192,100.00
$200.00
$388,700.00
$1,581,000.00
$549,300.00
$400,800.00
$0.00
$2,531,100.00
$3,045,700.00
$5,576,800.00
$2,970,600.00
$18,100.00
$0.00
$2,988,700.00
$10,560,300.00
$1,363,100.00
$1,278,900.00
$16,191,000.00
$14,033,900.00
$30,224,900.00
Required:
1- Calculate for both companies: current ratio, acid test ratio, average collection period, account
receivable turnover, inventory turnover, total asset turnover, fixed asset turnover, debt ratio,
times interest earned, gross profit margin, operating profit margin, operating return on assets
and return on equity.
2- Analyze your results for both companies in terms of liquidity, asset management efficiency,
financial leverage and profitability.
3- What conclusion can you draw if you were given the following two market ratios?
SBUX
17.67
6.14
PE ratio
Market to Book Ratio
MCD
15.74
6.12
4- What are the disadvantages of using ratio analysis?
Mini Case # 2:
You have finally saved $10,000 and are ready to make your first investment. You have
the following three alternatives for investing that money:
?
?
?
Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and coupon interest
rate of 8.75%, are selling for $1,314 and mature in 12 years.
Southwest Bancorp preferred stock is paying dividend of $2.50 and selling for $25.50.
Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32
dividend, and the firm’s earning per share have increased from $1.49 to 3.06 in the
past five years. The firm expects to grow at the same rate for the foreseeable future.
Your required rates of return for these investments are 6% for bonds, 7% for the
preferred stock, and 20% for the common stock.
2
Required:
1. Calculate the value of each investment based on your required rate of return.
2. Which investment would you select? Why?
3. Assume Emerson Electric’s managers expect an earnings downturn and a resulting
decrease in growth of 3%. How does this affect your answers to parts 1 and 2?
4. What required rates of return would make you indifferent to all three options.
Mini Case # 3
You have been working for a year as an analyst for an investment company that specializes in
serving very wealthy clients. These clients often purchase shares in closely held investment funds
with very limited numbers of stockholders. In fall of 2008, the market for certain types of
securities based on real estate loans simply collapsed as the subprime mortgage scandal
unfolded. Your firm, however, sees this market collapse as an opportunity to put together a fund
that purchases some of these mortgage-backed securities, which investors have shunned, at
bargain prices and holding them until the underlying mortgages are repaid or the market for
these securities recovers.
The investment company has begun putting together sales information concerning the new fund
and has made the following predictions regarding its possible performance over the coming year
as function of how well the economy does:
State of the Economy
Probability
Fund Return
Rapid expansion
10%
50%
Modest growth
50%
35%
No growth
40%
5%
Recession
5%
-100%
Your boss has asked you to perform a preliminary analysis of the new fund’s performance
potential for the coming year. Specifically, he has asked you to address the following issues:
Required:
1. What is the expected rate of return and standard deviation for the fund, given the
estimates of fund performance in different states of the economy?
2. What is the reward-to-risk ratio for the fund based on the fund’s standard deviation as
a measure of risk?
3
3. What is the expected rate of return for the fund based on the capital asset pricing model
(CAPM)?
4. In addition to the information provided, you have observed that the risk-free rate of
interest for the coming year is 4.5%, the market risk premium is 5.5%, and the beta for
the new investment is 3.55. based on your analysis, do you think that the proposed fund
offers a fair return, given its risk? Explain.
END
Notes:
1. All students regardless of their majors should be able to solve the questions as all took
the required course of FINA 3311, financial management principles.
2. You can use any introductory financial management principles textbook to help you
answering the questions of the mini cases. In addition, topics involved are explained
thoroughly in the internet.
3. Your assignment must be typed neatly with a cover page included, and must be
submitted on the blackboard according to the due date.
4. If you have any question, kindly e-mail at: mjafari@pmu.edu.sa
GOOD LUCK
4
Finance Assignment
BUSI 4351 Internship (all sections)
Summer, 2020
Dr. Mohamed Khaled Al-Jafari
Answer one mini case only:
Mini Case # 1:
You are given the following income statement and balance sheet for Starbucks and
McDonald Companies.
Income Statement
PERIOD ENDING
Total Revenue
Cost of Revenue
Gross Profit
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Net Income
Balance Sheet
PERIOD ENDING
Cash & Cash Equivalents
Accounts receivable
Inventories
Other Current Assets
Total Current Assets
Long Term Investments
Property Plant & Equipment
Good will
Other Assets
Total assets
Liabilities
StarBucks (SBUX)
Mc Donalds (MCD)
27-Sep-09
$9,774,600.00
$4,324,900.00
$5,449,700.00
$4,887,700.00
$562,000.00
31-Dec-08
$22,744,700.00
$13,952,900.00
$8,791,800.00
$1,950,800.00
$6,841,000.00
$36,300.00
$598,300.00
$39,100.00
$559,200.00
$168,400.00
$390,800.00
-$354,000.00
$6,487,000.00
$0.00
$6,487,000.00
$1,936,000.00
$4,551,000.00
StarBucks (SBUX)
Mc Donalds (MCD)
27-Sep-09
$599,800.00
$557,600.00
$664,900.00
$213,500.00
$2,035,800.00
$423,500.00
$2,536,400.00
$0.00
$581,100.00
$5,576,800.00
31-Dec-08
$1,796,000.00
$1,060,400.00
$106,200.00
$453,700.00
$3,416,300.00
$1,212,700.00
$21,531,500.00
$2,425,200.00
$1,639,200.00
$30,224,900.00
1
Accounts Payable
Short/Current Long Term Debt
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Other Long Term Liabilities
Deferred long term liability charges
Total Liabilities
Total Stockholder Equity
Total Liabilities & Owner’s Equity
$1,192,100.00
$200.00
$388,700.00
$1,581,000.00
$549,300.00
$400,800.00
$0.00
$2,531,100.00
$3,045,700.00
$5,576,800.00
$2,970,600.00
$18,100.00
$0.00
$2,988,700.00
$10,560,300.00
$1,363,100.00
$1,278,900.00
$16,191,000.00
$14,033,900.00
$30,224,900.00
Required:
1- Calculate for both companies: current ratio, acid test ratio, average collection period, account
receivable turnover, inventory turnover, total asset turnover, fixed asset turnover, debt ratio,
times interest earned, gross profit margin, operating profit margin, operating return on assets
and return on equity.
2- Analyze your results for both companies in terms of liquidity, asset management efficiency,
financial leverage and profitability.
3- What conclusion can you draw if you were given the following two market ratios?
SBUX
17.67
6.14
PE ratio
Market to Book Ratio
MCD
15.74
6.12
4- What are the disadvantages of using ratio analysis?
Mini Case # 2:
You have finally saved $10,000 and are ready to make your first investment. You have
the following three alternatives for investing that money:
?
?
?
Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and coupon interest
rate of 8.75%, are selling for $1,314 and mature in 12 years.
Southwest Bancorp preferred stock is paying dividend of $2.50 and selling for $25.50.
Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32
dividend, and the firm’s earning per share have increased from $1.49 to 3.06 in the
past five years. The firm expects to grow at the same rate for the foreseeable future.
Your required rates of return for these investments are 6% for bonds, 7% for the
preferred stock, and 20% for the common stock.
2
Required:
1. Calculate the value of each investment based on your required rate of return.
2. Which investment would you select? Why?
3. Assume Emerson Electric’s managers expect an earnings downturn and a resulting
decrease in growth of 3%. How does this affect your answers to parts 1 and 2?
4. What required rates of return would make you indifferent to all three options.
Mini Case # 3
You have been working for a year as an analyst for an investment company that specializes in
serving very wealthy clients. These clients often purchase shares in closely held investment funds
with very limited numbers of stockholders. In fall of 2008, the market for certain types of
securities based on real estate loans simply collapsed as the subprime mortgage scandal
unfolded. Your firm, however, sees this market collapse as an opportunity to put together a fund
that purchases some of these mortgage-backed securities, which investors have shunned, at
bargain prices and holding them until the underlying mortgages are repaid or the market for
these securities recovers.
The investment company has begun putting together sales information concerning the new fund
and has made the following predictions regarding its possible performance over the coming year
as function of how well the economy does:
State of the Economy
Probability
Fund Return
Rapid expansion
10%
50%
Modest growth
50%
35%
No growth
40%
5%
Recession
5%
-100%
Your boss has asked you to perform a preliminary analysis of the new fund’s performance
potential for the coming year. Specifically, he has asked you to address the following issues:
Required:
1. What is the expected rate of return and standard deviation for the fund, given the
estimates of fund performance in different states of the economy?
2. What is the reward-to-risk ratio for the fund based on the fund’s standard deviation as
a measure of risk?
3
3. What is the expected rate of return for the fund based on the capital asset pricing model
(CAPM)?
4. In addition to the information provided, you have observed that the risk-free rate of
interest for the coming year is 4.5%, the market risk premium is 5.5%, and the beta for
the new investment is 3.55. based on your analysis, do you think that the proposed fund
offers a fair return, given its risk? Explain.
END
Notes:
1. All students regardless of their majors should be able to solve the questions as all took
the required course of FINA 3311, financial management principles.
2. You can use any introductory financial management principles textbook to help you
answering the questions of the mini cases. In addition, topics involved are explained
thoroughly in the internet.
3. Your assignment must be typed neatly with a cover page included, and must be
submitted on the blackboard according to the due date.
4. If you have any question, kindly e-mail at: mjafari@pmu.edu.sa
GOOD LUCK
4

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