Accounting and finance fundamentals

Accounting Homework

a) TJX' current ratio = 1,743,105/1,306,846 = 1.33

b) OshKosh current ratio = 123,962/47,086

Although Oshkosh current assets and liabilities are relatively small compared to TJX, the company's current ratio is much higher. This means that it is in a better relative position to pay its bills

c) There are a few items that might be difficult to turn into cash. For example, deferred income taxes couldn't be converted into cash quickly. Also, it could take a while to sell inventory, collect A/R, or collect on short-term investments.

TJX

Cash

AR

sum

Liabilities

Current

OskK

STI

AR

sum liabilities current

e) The total assets of the company is approximately 2.7 million but the shareholders equity is about 1.2 million. However, the company also has about 1.3 million in current liabilities. Therefore, most of its liabilities are current and most of the financing came from equity financing.

f) TJX would be considered riskier because of its lower current ratio. In the estimate of the things that could easily be converted to cash, the company's current ratio was under 1. This would indicate that the company might have trouble paying its bills. However, the estimate was also very conservative in the items that could be converted to cash.

g) Cash is actual cash on hand. Cash equivalents are really easy to convert to cash -- like a checking account in which you can just make a cash withdrawal.

h) Yes, TJX could pay off its short-term debt because it is only a little over two hundred thousand and the company has enough cash. However, this would negatively impact its current ration because the company would have less current assets to pay its current liabilities; if it paid off the long-term ones.

i) Shareholders equity would go up. Cash would also go up for the amount that wasn't spent on new assets.

j) Land and buildings would increase, long-term debt would increase, the current liabilities would increase for the first payment, and cash would also increase for the amount that wasn't spent.

k) TJX holds little long-term debt and has used mostly equity financing. Using long-term debt to finance the new store would balance its liabilities more and likely improve its credit rating in the long-term.

3-3 Microsoft

a) Revenue $25,296 - $22,956 = 2340

b) % growth = 1- (25296/22956) = 10.2%

c) OI = 1- (11,720/11006) = 6.5%

The operating income was less than the % growth in sales. This is due to an increase in the cost of revenue and/or the expenses associated with operating income.

d) 2000 = (9421/22956) = 41%

2001 = (7721/25296) = 30.5%

e)

Microsoft

e) 2000

f) 2001

g) R&D

h) 3772

i) 4397

j) Sales

k) 3772

l) 4379

m) Admin

n) 1050

o) 857

p) sum

q) 10594

r) 11634

s) Sales

t) 22956

u) 25296

v) E/S

w) 46.15%

x) 45.99%

f)

Microsoft

2001

25296

growth

13%

2002

28584.48

Operating E

11950

13576

0.11977

2012 E

15205.12

2002 OE

13379.36

2001 OE

11720

% change

0.12402387

To make the calculations for this question, it was assumed that total sales and total operating expenses would grow at the same rates as in the previous year. Sales was projected to grow by 13% and operating expenses by roughly 12%. This made the OE/Sales grow at about 12.5%.

g) In 2001 the cost of revenue grew at a faster rate than the overall gross sales. This basically means that it was paying more to produce its goods and/or services. The company reasonably has figured out a way to reduce its cost of revenue associated with total sales over the previous years.