1-20
FINANCIAL STATEMENT ANALYSIS
ANSWER KEY
6.
Suppose that a company has
N
ET
S
ALES
of $332 million,
I
NTEREST
E
XPENSES
of
$16 million,
D
EPRECIATION
of $6 million, $225 million expenses for
L
ABOR AND
M
ATERIALS
, and
A
DMINISTRATIVE
E
XPENSES
of $42 million. What is the
EBIT
for
that company?
c) $59 million
EBIT = N
ET
S
ALES
- O
PERATING
C
OSTS
(in millions)
Net Sales
$332
Less:
L
ABOR AND
M
ATERIALS
$225
D
EPRECIATION
6
A
DMINISTRATIVE
42
EBIT
$ 59
I
NTEREST
E
XPENSE
is not an O
PERATING
C
OST
7.
Use the information in question 6, and apply a tax rate of 40%. What is the
N
ET
I
NCOME
available for distribution to the shareholders of this company?
b) $25.8 million
Start with EBIT and deduct I
NTEREST
and T
AXES
(in millions)
EBIT
$59.0
Less:
I
NTEREST
$16.0
T
AXES
(@40%)
17.2 (59.0 - 16.0) x 0.40
N
ET
I
NCOME
$25.8
8.
XYZ Corporation purchases a widget maker for $750,000. The piece of equipment
has an estimated useful life of ten years. Using a straight-line depreciation method, the
annual amount the company can deduct as an
O
PERATING
C
OST
is:
d) $75,000 per year
($750,000
÷
10 years)