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Finance P9-13 Leverage Net EPS P/E  Other

Finance P9-13

Leverage

net EPS

P/E

% Earnings Retained

Div Payout

Div Yield

BV/share

Materiality of options

There was no book value data provide for 2008 & 2007. No data was provided on options expense, so materiality of options could not be calculated. From the perspective of an investor, this company appears to have fairly low leverage, trades at a low multiple, has a very stable business value and pays out most of its earnings as dividends, so you are buying the NPV of future dividends and should have relatively little expectation of capital gains. Like a lot of companies, it took a hit in 2009 and has been building up to normal operating levels ever since.

Case 9-4.

Case 9-4

2010

2009

Leverage

P/E

% Earnings Retained

Dividend yield

Common Stock Auth

Common Stock Issued

7585764

7582347

Treasury Stock

2525174

2482233

Common Stock out

5060590

5100114

BV/Share

$23.73

$22.43

The ratios calculated show how the amount of stock that exists on the market can differ according to different variables- what has been authorized, what has been issued, and even what stock has been bought back and is in Treasury. Otherwise, this company has a low dividend yield.

On the 2009 and 2010 income statements there are two special items: Gain on sale of assets and litigation settlement. These should not be included in the ongoing operations portion of the income statement prior to the operating profit line. Instead, they should be on the income statement below operating profit, so that the operating profit in these two years can be more accurately compared. They wouldn't be removed...

The statement of cash flows shows the cash flows for Zaro company for 2011. Looks like the indirect method.
b.

Problem 10-9

Current Ratio

6

Acid Test Ratio

3.7

OCF/Current Mats

2.55

Cash Ratio

0.9

x Int earned

5.25

Debt ratio

48.62%

ROA

7.59%

ROE

14.87%

e. The liquidity for Zaro is exception. A 0.9 cash ratio is very good. The current ratio is very high. The very low level of current liabilities is the reason for the strength of the company's liquidity.

f. With a debt ratio of less than half, Zaro is in a pretty good debt position. Almost all of its debt is bonds, which it seems quite able to pay, given a 5.25 times interest earned.

g. The profitability of this company cannot be evaluated in isolation. Zaro is profitable, and it has fairly slim margins, but that is quite normal in some industries, and many times companies can carry very slim…

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