Analyzing Investing Activities
You will be exposed this week to a company’s use of assets to achieve its ends and learn how to measure the effective utilization of those assets. This is an area of performance that is highly focused on by management. To be an effective and successful manager, you must master these skills.
Businesses invest in assets for the purpose of producing income for the stakeholders and shareholders. Assets are the driving forces of profitability for a company. Assets produce revenues that compensate workers, repay lenders, reward owners, and fund growth. Current assets are resources, or claims to resources, readily convertible to cash.
Liquidity is the length of time until assets are converted to cash. It is an indicator of a company’s ability to meet financial obligations. The less liquid a company, the lower its financial flexibility to pursue promising investment opportunities, and the greater its risk of failure.
Solvency refers to the ability of a company to meets its long-term (and current) obligations. Operational capacity is the ability of a company to generate future profits.
After completing this unit, you should be able to:
Â· Define current assets and their relevance for analysis.
Â· Explain cash management and its implications for analysis.
Â· Explain the concept of long-lived assets and its implications for analysis.
Â· Analyze financial statements for unrecorded and contingent assets.
Course Outcome practiced in this unit:
Analyze cash flow measures for insight into all business activities.
Unit 4 Assignment: Campbell Soup
In this assignment, you will explore the asset structure of Campbell Soup and how it measures their use effectively. This will prepare you to view any company with the same scrutiny.
Unit 4 Assignment: Campbell Soup Case 4-4 In this Assignment, you will explore the asset structure of Campbell Soup and how it measures their use effectively. This will prepare you to view any company with the same scrutiny. Locate the Campbell Soup Case 4-4 on page 272 of your text. Be sure to submit thoughtful and substantial answers to the questions following each case. This is a challenging activity. You should prepare to spend substantial time working on your response.
1. The response successfully answers Assignment questions for this case. Working capital, inventory analysis, and fixed assets.
2. LIFO and FIFO Comparison
3. The response to the questions exhibits strong critical thinking and appropriate analysis. Inventory policy, and tax impact
4. Reported transactions impacting intangible assets.
Please be sure sentences are clear, concise, and direct; tone is appropriate. Grammatical skills are strong with almost no errors per page.
**** Campbell Soup
Refer to the financial statements of Campbell Soup Company in Appendix A. (Or see attached Word Doc)
Campbell Soup mainly uses the LIFO cost assumption in determining its cost of goods sold and inventory amounts. Compute both ending inventory and gross profit of Campbell Soup for Year 11 assuming the company uses FIFO inventory accounting.
CASE 4â€“4 Analysis of Investing Activities
Refer to the annual report of Campbell Soup Company in Appendix A.
a. Compute Campbell Soupâ€s working capital at the end of Year 11.
b. Campbell Soup reports net receivables totaling over $527 million. To whom has it extended credit and how much bad debt reserve is provided against these receivables? What percentage of total receivables is considered uncollectible?
c. What cost flow assumption does Campbell Soup use for inventories? What is its inventory write-down policy?
d. The inventory turnover ratio (cost of goods sold/average inventory) is a measure of inventory management efficiency and effectiveness. Compute the inventory turnover ratio for Campbell Soup and comment on ways that it might improve the ratio.
e. How much is the LIFO reserve for Campbell Soup? What are the total tax benefits realized by Campbell Soup as of the end of fiscal Year 11 because it chose the LIFO inventory cost flow assumption (assume a 35% tax rate)?
f. What would Campbell Soupâ€s pretax income have been in Year 11 if it had chosen FIFO?
g. What percentage of total assets is Campbell Soupâ€s investment in plant assets? What depreciation method does it use for fixed assets? What percentage of historical cost is the accumulated depreciation amount associated with these assets? What can the percentage depreciated calculation reveal to an analyst about fixed assets?
h. Campbell Soup reports intangible assets totaling about $436 million at the end of Year 11. What major transaction(s) gave rise to this amount?
CHECK (d) Inventory turnover, 5.37
(f) $672.4 mil.
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