12. Lauren Turk is reviewing Francesca Toy’s financial statements in order to estimate its sus- tainable growth rate. Using the information presented in Exhibit 14.25:
a. (1) identify and calculate the threecomponents of the DuPont formula.
(2) calculate the ROEfor 2011, using the three components of the DuPont formula.
(3) calculate the sustainable-growth rate for 2011.
b. 
.transtutors.com/qimg/336b49dc-e695-48f4-80ad-a9455d5419b7.png">Turk has calculated actual and sustainable growth for each of the past four years and finds in each year that its calculated sustainable-growth rate substantially exceeds its actual growth rate. Cite twocourses of action (other than ignoring the problem) that Turk should encourage Francesca Toy to take, assuming the calculated sustainable- growth rate continues to exceed the actual growth rate.
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Exhibit 14 .25 Francesca Toy, Inc.: Actual 2010 and Estimated 2011 Financial Statements for Fiscal Year Ending December 31 ($ Millions, except Per-Share Data) |
||||
|
2010 |
2011e |
Change |
(%) |
|
|
Income Statement |
||||
|
Revenue |
$4,750 |
$5,140 |
7.6 |
|
|
Cost of goods sold |
$2,400 |
$2,540 |
||
|
Selling, general, and administrative |
1,400 |
1,550 |
||
|
Depreciation |
180 |
210 |
||
|
Goodwill amortization |
10 |
10 |
||
|
Operating income |
$ 760 |
$ 830 |
8.4 |
|
|
Interest expense |
20 |
25 |
||
|
Income before taxes |
$ 740 |
$ 805 |
||
|
Income taxes |
265 |
295 |
||
|
Net income |
$ 475 |
$ 510 |
||
|
Earnings per share |
$ 1.79 |
$ 1.96 |
8.6 |
|
|
Average shares outstanding (millions) |
265 |
260 |
||
|
Balance Sheet |
||||
|
Cash |
$ 400 |
$ 400 |
||
|
Accounts receivable |
$ 680 |
$ 700 |
||
|
Inventories |
$ 570 |
$ 600 |
||
|
Net property, plant, and equipment |
$ 800 |
$ 870 |
||
|
Intangibles |
$ 500 |
$ 530 |
||
|
Total assets |
$2,950 |
$3,100 |
||
|
Current liabilities |
$ 550 |
$ 600 |
||
|
Long-term debt |
$ 300 |
$ 300 |
||
|
Total liabilities |
$ 850 |
$ 900 |
||
|
Stockholders’ equity |
$2,100 |
$2,200 |
||
|
Total liabilities and equity |
$2,950 |
$3,100 |
||
|
Book value per share |
$ 7.92 |
$ 8.46 |
||
|
Annual dividend per share |
$ 0.55 |
$ 0.60 |
