Here are comparative balance sheets and an income statement:
Cash 730 450
Accounts Receivable 1700 1600
Inventory 800 750 Income Statement
for 2023 Equipment (net) 2000 2100
Total Assets 5230 4900 Sales 7100
Accounts Payable 740 710 Depreciation 1100
Long Term Debt 1900 1900 Selling and Admin 881
Capital Stock 1200 1200 Pretax Income 429
Retained Earning 1390 1090 Taxes 30% 129
SE 2590 2290 Income 300
1. Compute the following figures
a. Accounts Receivable Turnover
b. Days in Accounts Receivable
c. Inventory Turnover
d. Days in Inventory
f. Accounts Payable Turnover
g. Days in Accounts Payable
h. Operating Cycle
i. Cash conversion days
j. Earnings Before Interest and Taxes
k. Return on Assets
l. Profit Margin
m. Asset Turnover
n. Return on Common Equity
2. Use the valuation model of Equation 7.6 to value the company above as of December 31, 2023. You’ll
need the (1) discount rate, (2) the forecasted earnings, and (3) a convenient method of finding the
present value of an annuity that stretches permanently into the future. The discount rate is 10 percent.
The forecasted earnings for 2024 is $320.
The Abnormal Earnings, Equation 7.7, that you identify for 2024 is the Abnormal Earnings that the
company will experience each year, permanently, in the future. The company does not pay dividends.
Suppose the Abnormal Earnings you arrive at for 2024 is $100. It’s not, but suppose it is. (3) The present
value of the permanent annuity of $100 of Abnormal Earnings is easily computed at the discount rate of
10 percent as $100/0.10 = $1,000. The present value of a permanent annuity of $100 at 10% is $1,000.
Here is ROKU’s report of how they account for revenue.
The Company sells the majority of its devices in the U.S. through retailers and distributors as well as through the
Companys website. Devices revenue primarily consists of hardware, embedded software, and unspecified upgrades
and updates on a when and if-available basis. The hardware and embedded software are considered as one
performance obligation and revenue is recognized at a point in time when the control transfers to the customer.
Unspecified upgrades and updates are available to customers on a when-and-if available basis. The Company
records the allocated value of the unspecified upgrades and updates as deferred revenue and recognizes it
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