GB20003: International Financial Statement Analysis Individual

case study (30%)

Instruction:

1. This case study is to be completed independently. Do not discuss your work with anyone
else. The work submitted must be at your understanding.
2. There are two (2) cases with four (4) pages and you are required to answer each cases to
the best of your ability.
3. You may consult books, notes, course text, any online tutorials and papers that do
not requires you to interact with another person. You may use the internet as a
research resource.

Case 1

The statement of cash flows for Yahoo! are as follows:

Yahoo! Inc.
Consolidated Statements of cash flow
Year ended December 31,
($ thousand) Year 8 Year 7 Year 6
($) ($) ($)
Cash flow from operating activities
Net income(loss) 25,588 (25,520) 6,472
Adjustment to reconcile net income (loss) to net
cash
provided by (used in) operating activities
Depreciation and amortization 10,215 2,737 639
Tax benefit from stock options 17,827 - -
Non-cash charges related to stock option grants 926 1,676 197
and warrant issuances
Minority interest in operation of consolidated (68) (727) (540)
subsidiaries
Purchased in process research and development 17,300 - -
Other on cash charge - 21,245 -
Changes in assets and liabilities
Account receivables, net (13,616) 5,963 4,269
Prepaid expenses 2,144 (6,110) (386)
Account payable 515 2,425 1,386
Accrued expenses and other current liabilities 16,688 7,404 4,393
deferred revenue 33,210 2,983 1,665
Due to related parties (451) 330 948
Net cash provided by (used in) operating system 110,278 480 (2,394)
 Cash flow from investing activities
Acquisition of property and equipment (11,911) (6,722) (3,442)
cash acquired in acquisitions 199 - -
Purchase of marketable securities (471,135) (58,753) (115,247)
Proceeds from sales and maturities of marketable 158,350 86,678 43,240
securities
Others investment (5,445) (1,649) (729)
Net cash provided by (used in) investing activities (329,942) 19,554 (76,178)

Cash flow from financing activities

Proceeds from issuance of common stock, net 280,679 7,516 42,484
Proceeds from issuance of convertible preferred - - 63,750
stock
Proceeds from minority investors 600 999 1,050
Other - 1,106 128
Net cash provided by financing activities 281,279 9,621 107,156
Effect of exchange rate changes on cash and 288 (380) (63)
cash equivalent
Net change in cash and cash equivalents 61,903 29,275 28,521
cash and cash equivalents at beginning of year 63,571 34,296 5,775
cash and cash equivalents at end of year 125,474 63,571 34,296

You are required:

a. Yahoo!’s operations did not produce significant cash flows during Year 6 and Year 7. How
does Yahoo! finance its growth in the absence of sufficient operating cash flows?
Answer: Yahoo has released stock which is common stock and preferred stock to
produce the cash flow required to fund its market operations and opportunities for
growth.

b. What appears to drive the operating cash flows of Yahoo!

Answer: Net profits, in which sales and investments tend to control Yahoo's net cash flow.
If net income increases, the operational cash flow rises, and the operating cash flow
reduces if net profit declines.

c. Yahoo! Engages in purchases and sales of marketable securities. Why do you believe
Yahoo! pursue this activity?
Answer: Yahoo has created substantial cash inverts through equity issuances. This
equity capital is required to fund expected growth in the coming years, before the
business needs the cash, it is invested in marketable securities in a effort to obtain a
rate of return greater than the "standard."

d. Yahoo! reports $33.21 million of deferred revenue. Based on your understanding of

Yahoo!’s operation, what do you believe this amount represents?
Answer: This amount represents cash earned prior to the receipt of sales where
the service or good has not yet delivered. Much of this accrued income is usually
related to collected prepaid advertisement sales which is also called prepaid
advertising revenue where we the Yahoo receive in advance.
Case 2
Refer to the following financial statements for Kodenko Inc:

Income Statement
For year ended December 31(in millions) 2019 2018 2017
(RM) (RM) (RM)
Net Sales 13,234 13,994 14,089
Cost of goods sold 8,670 8,375 8,086
Gross profit 4,564 5,619 6,003
Selling, general and administrative expenses 2,781 2,665 2,846
research and development costs 779 784 817
Restructuring costs9credit) and others 659 (44) 350
Earnings from operations 345 2,214 1,990
interest expense 219 178 142
Other income(charges) (18) 96 261
Earnings before income taxes 108 2,132 2,109
Provision for income taxes 32 725 717
Net earning 76 1,407 1,392

Statement of financial Position

At December 31(in millions, except share and per 2019 2018

share data) (RM) (RM)
Assets
Current assets
Cash and cash equivalents 448 246
Receivables, net 2,337 2,653
Inventories, net 1,137 1,718
Deferred income taxes 521 575
Other current assets 240 299
Total current assets 4,683 5,491
Property plant and equipment, net 5,659 5,919
Goodwill,net 948 947
Other long-term assets 2,072 1,855
Total assets 13,362 14,212
Liabilities and shareholders’ equity
Current liabilities
Account payable and other current liabilities 3,276 3,403
Short term borrowings 1,378 2,058
 Current portion of long-term debt 156 148
Accrued income taxes 544 606
Total current liabilities 5,354 6,215
Long term debts, net of current portion 1,666 1,166
Postemployment liabilities 2,728 2,722
Other long-term liabilities 720 681
Total liabilities 10,468 10,784
Shareholders’ equity
Common stock RM2,50 par value
950,000,000 shares authorized: issued 391,292,760 shares in 978 978
2019 and 2018; 290,929,701 and 290,484,266 shares
outstanding in 2019 and 2018
Additional paid in capital 849 871
Retained earning 7,431 7,869
Accumulated other comprehensive loss 597 482
8,661 9,236
Treasury stock, at cost; 100,363,059 shares in 2019 (5,767) (5,808)
and 100,808,494 shares in 2018
Total shareholders’ equity 2,894 3,428
Total liabilities and shareholders’ equity 13,362 14,212

Required:

Prepare forecasts of its income statement, statement of financial position and statement of cash
flows for 2020 under the following assumptions:

a. All financial ratio remains at 2019 level.

b. Kodenko will not record restructuring costs for 2020.
c. Taxes payable are at the 2019 level of RM544 million.
d. Depreciation expense charged to Selling, general and administrative is RM765million
and RM738million for 2018 and 2019 respectively.
e. Gross PPE is RM 12,982 million and RM12,963 million for 2019 and 2018 respectively.
f. Projected current maturities of long-term debt are RM13 million for 2020.
g. Capital expenditure for 2019 and 2018 are RM1,047 and RM783, respectively
 Kodenko
INCOME STATEMENT 2020 2019 2018
RM(Mil RM(Mil RM(Mil)
) )
Net Sales 12,515 13,234 13,994
Cost of goods 8,199 8,670 8,375
Gross Profit 4,316 4,564 5,619
Selling general & administrative expense (except depreciation) 1,761 1,862 1,776
Depreciation Expenses (d) 766 765 738
Research & Development Costs 737 779 784
Goodwill amortization 0 154 151
Restructuring costs (credits) (b) 0 659 (44)
Earnings from operations 1,052 345 2,214
Interest expense 208 219 178
Other expense (income) 18 18 (96)
Income before tax 827 108 2,132
Income tax expense 245 32 725
Net income 582 76 1,407
Outstanding Shares 290 290 290

RATIOS
Sales Growth -5.43% -5.43%
Gross Profit Margin 34.49% 34.49%
Selling General & Administrative Exp/Sales 14.07% 14.07%
Depreciation (dep exp/per year PPE gross) 5.90% 5.90%
R&D/sales 5.89% 5.89%
INT (int/pry r STD and LTD) 6.49% 6.49%
Tax (Inc Tax/ Pre-tax Inc) 29.63% 29.63%

BALANCE SHEET 2020 2019 2018

RM(Mil) RM(Mil) RM(Mil)
Cash 17 448 246
Receivables 2,210 2,337 2,653
Inventories 1,075 1,137 1,718
Other 761 761 874
Total current assets 4,064 4,683 5,491

Gross Property, plant, and equipment (e) 13,972 12,982 12,963

Accumulated depreciation 8,089 7,323 7,044
Net property & equipment 5,883 5,659 5,919
Other assets 3,020 3,020 2,802
Total assets 12,967 13,362 14,212

Accounts payable & accrued liabilities 3,098 3,276 3,403

Short-term debt 1,378 1,378 2,058
Current maturities of long-term debt (f) 13 156 148
Income taxes (c) 544 544 606
Total current liabilities 5,033 5,354 6,215

Long term debts 1,653 1,666 1,166

Post-employment liabilities 2,728 2,728 2,722
Other long-term liabilities 720 720 681
Total liabilities 10,134 10,468 10,784

Common stock 978 978 978

Capital surplus 849 849 871
Retained earnings 6,773 6,834 7,387
Treasury stock 5,767 5,767 5,808
Shareholder equity 2,833 2,894 3,428
Total liabilities & net worth 12,967 13,362 14,212

RATIOS
AR turn 5.66 5.66 5.27
INV turn 7.63 7.63 4.87
AP turn 2.65 2.65 2.46
FLEV 4.58 4.62 4.15
Dividend per share 2.22 2.22 1.88

Capital Expenditure (g) 990 1047 783

Capital expenditure per Sales 7.91% 7.91% 5.60%

STATEMENT OF CASH FLOWS 2020

RM (Million)
Net income 582
Depreciation 766
Accounts receivable 127
Inventories 62
Accounts payable (178)
Net cash flow from operations 1,359

Capital Expenditure (990)

Net cash flow from investing activities (990)

Long term debt (156)

Dividends (643)
Net cash flow from financing activities (799)

Net change in cash (431)

Beginning cash 448
Ending cash 17