Unit 02 · Homework

Homework — Diagnosing a Business with Ratios

Diagnosing a Business with Ratios · Ghana · GH₵

One required question per video, turned in to the TAs. The optional extras are on the practice problems page.

Homework for Week 2. Each set belongs to the video of the same number. One question in each set is required; answer it and turn it in to the TAs. The rest are optional practice, and worked answers to those are published alongside the set. A full set takes about twenty minutes. Work them before the case session.

Homework · 2.1

1. A firm reports revenue of GH₵50M and GH₵65M in consecutive years, with cost of goods sold of GH₵32.5M and GH₵45.5M. Common-size both years and state in one sentence what changed.

Homework · 2.2

1. A firm has net income of GH₵4.5M, sales of GH₵90M, total assets of GH₵60M, and equity of GH₵25M. Compute all three DuPont components and verify that their product equals ROE computed directly.

Homework · 2.3

1. Two firms both report 12% operating margins. Firm A reports a 9% net margin; Firm B reports a 4% net margin. Both face the same tax rate. What explains the difference, and which firm carries more risk? Explain.

Homework · 2.4

1. A firm has revenue of GH₵46M, cost of goods sold of GH₵32M, receivables of GH₵6.3M, inventory of GH₵5.8M, and payables of GH₵4.1M. Compute DSO, DIO, and DPO.

Homework · 2.5

1. A firm with revenue of GH₵120M and cost of goods sold of GH₵84M has receivables of GH₵22M, inventory of GH₵14M, and payables of GH₵11M. Compute the CCC. Then compute the cash released if DSO fell to 45 days with everything else unchanged.

Homework · 2.6

1. A firm's debt-to-equity ratio rises from 0.6 to 1.4 over three years while its operating margin is unchanged. Its ROE rises from 12% to 17%. Has management created value for the owners? Briefly argue both sides.