Question :
106) Refer to the balance sheet above.
a. What Little Company’s : 1253049
106) Refer to the balance sheet above.
a. What is Little Company’s debt-to-equity ratio now?
b. If Little Company buys a $10,000 warehouse by paying $1,000 down and signing a ten-year mortgage note for the remainder, what will Little Company’s debt-to-equity ratio be?
c. If Little Company buys a $10,000 warehouse by paying cash for the full amount, what will Little Company’s debt-to-equity ratio be?
d. Is it ethical to structure business transactions so that the company’s ratios look as good as possible?
The following information has been adapted from the 2005 and 2006 annual reports of Microsoft Corporation’s worldwide operations, available online at http://www.microsoft.com/msft/reports/default.mspx:
Microsoft Corporation
Income Statements
For the Years Ended June 30
200620052004
Revenue$44,282$39,788$36,835
Operating expenses:
Cost of goods sold7,6506,0316,596
Research & development6,5846,0977,735
Sales & marketing9,8188,5638,195
General & administrative 3,758 4,536 5,275
Total operating expenses 27,810 25,227 27,801
Operating income16,47214,5619,034
Investment income 1,790 2,067 3,162
Income before income taxes18,26216,62812,196
Income tax expense 5,663 4,374 4,028
Net income$12,599 $12,254 $8,168
Additional information that might be useful:
Cash dividends declared per common share $0.35$3.40$0.16
Weighted average shares outstanding10,43810,83910,808
Market price per share$24.63$25.10
In 2005, Microsoft declared and paid a one-time cash dividend of $3.00 per share. At the same time, Microsoft announced plans to repurchase a large amount of its own stock.
Microsoft Corporation
Condensed Statement of Cash Flows
For the Year Ended June 30
200620052004
Net cash from operating activities$ 14,404$ 16,605$14,626
Net cash from (used in) investing8,00315,027(3,342)
Net cash used for financing (20,562) (41,078) (2,364)
Net change in cash$ 1,845$ (9,446)$ 8,920
Microsoft Corporation
Balance Sheets
June 30
200620052004
Assets
Current assets:
Cash$ 6,714$ 4,851$ 14,304
Short-term investments27,44732,90046,288
Accounts receivable9,3167,1805,890
Inventory1,478491421
Other current assets 4,055 3,315 3,663
Total current assets49,01048,73770,566
Property & equipment, net3,0442,3462,326
Long-term investments9,23211,00412,210
Goodwill3,8663,3093,115
Intangible assets, net539499569
Other long-term assets 3,906 4,920 5,582
Total assets$69,597$70,815$94,368
Liabilities & shareholders’ equity
Current liabilities:
Accounts payable$ 2,909$ 2,086$ 1,717
Wages payable1,9381,6621,339
Income taxes payable1,5572,0203,478
Short-term unearned revenue9,1387,5026,514
Other payables 6,900 3,607 1,921
Total current liabilities22,44216,87714,969
Long-term unearned revenue1,7641,6651,663
Other long-term liabilities 5,287 4,158 2,911
Total liabilities29,49322,70019,543
Shareholders’ equity:
Common stock & paid-in capital59,00560,41356,396
Retained earnings (deficit) (18,901) (12,298) 18,429
Total shareholders’ equity 40,104 48,115 74,825
Total liabilities & shareholders’ equity $69,597 $70,815$94,368
