HW IT

Questions (2 pts. each)

Answers

1

In 2014, 2015 and 2016, how did IPG Photonics (IPGP) generate most of its cash flow?

a) through operations (by doing what it is in the business of doing)

b) by selling off its buildings and equipment, which could indicate it was in financial trouble

c) by obtaining bank loans, which could indicate either it was a startup company, or it was in financial trouble

d) by issuing stock, which could indicate it was a startup company

2

Calculate the dollar amount of increase or decrease in IPGP’s working capital from the end of 2015 to the end of 2016.

Calculate the percent of increase or decrease in IPGP’s working capital from the end of 2015 to the end of 2016.

Remember to check the financial statements to see if the numbers are in thousands or millions (or neither). Include all the zeros in your answer.

$ __________________ (Increase or decrease?)

Round your answer to one decimal place.

______ % (Increase or decrease?)

3

At the end of the 2016 fiscal year, based on the liquidity measures of Working Capital, Current Ratio and Quick Ratio, how does IPGP’s ability to pay current liabilities and pay them on time compare to the same measures for its closest competitor, Coherent, Inc. and other companies in the same industry?

Remember, Coherent’s ratios (and industry averages) are on the right of the Ratios worksheet you completed in Step 2.

At the end of the 2016 fiscal year, IPGP was in a _________ (better or worse) position than its competitors to pay current liabilities and pay them on time.

Which company will probably have an easier time obtaining a short-term loan?

better

worse

IPGP

Coherent

4

Remember that “net” means something has been subtracted. What has been subtracted from IPGP’s Accounts Receivable on the balance sheet?

a) The cumulative amount of depreciation recorded in the past

b) The amount of refunds IPGP received from its vendors because of defective products IPGP returned

c) The amount of discounts IPGP received from vendors because of paying invoices early

d) The estimated amount of money IPGP will not be able to collect from customers who owe IPGP for products and services already delivered to those customers

e) The amount of inventory shrinkage

5

How many days, on average in 2016, did it take IPGP to collect payments from customers for products and services IPGP had sold to them?

Round your answer to one decimal place.

_______ days

6

Given the data you have, which of the following statements is (are) true regarding IPGP’s management of accounts receivable?

Hint: Remember to look on the Ratios worksheet at Coherent and the industry averages when asked about IPGP’s competition.

a) Comparing 2016 to 2015, the percent increase in IPGP’s Net Sales was larger than the percent increase in its Accounts Receivable.

b) If IPGP’s typical credit terms are 2/10, n/30, receivables need to be further analyzed to find out why they are taking longer to collect than they should be.

c) If IPGP’s credit terms are typically something such as 2/20, n/60, the company’s collection of receivables is on track.

d) In 2016, on average, IPGP collected its receivables more slowly than its competitors collected their receivables.

e) A, B, and C are true.

f) A, B, C, and D are true.

7

What method of inventory valuation does IPGP use for accounting purposes? (Refer to Note 1 in the Notes to the Financial Statements.)

a) FIFO

b) LIFO

c) Average Cost

8

How many days, on average, in 2016 did it take IPGP to sell its inventory?

Round your answer to one decimal place.

_______ days

9

Given the data you have, which of the following statements is (are) true regarding IPGP’s management of inventory?

a) The ratios indicate IPGP has been efficiently managing its inventory, as compared to competitors (Coherent and industry averages).

b) Comparing 2016 to 2015, the percent increase in IPGP’s Cost of Sales was larger than the percent increase in its Inventory.

c) It took IPGP more days to sell its inventory in 2016 than it took in 2015.

d) In 2016, IPGP took longer than competitors (Coherent and industry averages) to sell its inventory.

e) A, B, and C are true.

f) A, B, C, and D are true.

g) B, C and D are true.

h) C and D are true.

10

Looking at IPGP’s and Coherent, Inc.’s Statements of Cash Flows, which of the following statements is (are) true regarding the companies’ cash investment in property, plant, and equipment in 2014, 2015, and 2016?

a) IPGP brought in more money from selling property and equipment than it spent buying and/or improving property and equipment.

b) Each year, IPGP invested more cash in new property and equipment than that year’s depreciation and amortization on existing assets. (See the top section of the Statement of Cash Flows to find “Depreciation and Amortization” for each year.)

c) Each year, as compared to the previous year, IPGP steadily decreased the amount of money it invested in property, plant, and equipment.

d) Each year, IPGP invested more money in property, plant, and equipment than Coherent, Inc. invested in property and equipment.

e) A and C are true.

f) B and D are true.

11

Of the fixed assets IPGP owned at the end of 2016, which fixed asset category had IPGP spent the most money on?

(Hint: Remember, when you cannot see the detail you need in the financial statements, look in the Notes to the Financial Statements. You will find a breakdown of IPGP’s property, plant, and equipment in Note 4.)

a) Buildings

b) Machinery and equipment

c) Office furniture and fixtures

d) Construction in progress

12

As an IT manager, you know you will need to make equipment and software purchases. Which of the following statements is (are) true regarding IPGP’s ability to pay for, and attitude toward, purchasing new equipment?

a) IPGP appears to have excess cash and relatively few liabilities.

b) IPGP appears to be very profitable as compared to its competitors.

c) IPGP appears to be willing to invest in equipment.

d) All of the above are true.

13

What method of depreciation does IPGP use for book (financial accounting) purposes? (Remember, the Notes to the Financial Statements give you this type of information. Look for “Significant Accounting Policies”.)

a) Straight-line

b) Double declining balance

c) MACRS

14

In terms of total assets, which company (IPGP or Coherent) grew more in the 2016 fiscal year (as compared to 2015)?

a) IPGP grew more than Coherent, Inc. did.

b) Coherent, Inc. grew more than IPGP did.

15

Did IPGP purchase any companies (businesses) in 2016?

Remember, you can get clues in the Statement of Cash Flows. (Which section would you check?), and the Goodwill account on the balance sheet.

Yes

No

16

While reviewing the liability section of the balance sheet, you notice IPGP has Accrued Expenses. What kinds of things might be included in this line?

a) Items such as insurance plans and office supplies that IPGP had paid for but had not used up prior to the balance sheet date

b) Items such as depreciation on equipment that was purchased in the past but had not been fully depreciated as of the balance sheet date

c) Items such as employee wages that were earned but that IPGP had not paid for as of the balance sheet date

d) Items such as lawsuit expenses that might possibly occur, but for which the amount had not been determined as of the balance sheet date

17

Remember that many companies use the term "Long-Term Debt" or “Long-Term Obligations” when referring to bank loans. The current portion is shown under Current Liabilities, and the long-term portion is shown as part of long-term liabilities.

What is the total amount IPGP owed to banks (current portion plus long-term portion) at the end of 2016?

Include all the zeros in your answer.

$ _________________________

18

Considering the Debt Ratio and the Ratio of Liabilities to Stockholders’ Equity for 2016, has IPGP used more or less debt to finance its operations than its competitors have used? (Competitors include Coherent and the industry averages.)

a) IPGP has used a higher portion of debt than its competitors have.

b) IPGP has used a lower portion of debt than its competitors have.

19

Considering the Ratio of Liabilities to Stockholders' Equity, has IPGP used more debt (loans) or more equity (selling stock and/or using its own earnings) to finance its operations?

a) IPGP has used significantly more debt than equity to finance its operations.

b) IPGP has used significantly more equity than debt to finance its operations.

20

Comparing IPGP’s and Coherent’s Ratio of Fixed Assets to Long-Term Liabilities, are noteholders (creditors such as bankers) likely to feel more comfortable extending additional long-term loans to IPGP or to Coherent, Inc.?

a) Noteholders are likely to feel more comfortable extending additional long-term loans to IPGP than to Coherent, Inc.

b) Noteholders are likely to feel more comfortable extending additional long-term loans to Coherent, Inc than to IPGP.

21

Comparing IPGP’s Times Interest Earned ratio to Coherent’s and the industry averages, what can you say about IPGP’s creditors’ level of comfort with IPGP’s ability to make interest payments in the future?

a) IPGP’s creditors would assume IPGP would have absolutely no problem making its interest payments when they come due, even if IPGP experiences a slight decrease in earnings.

b) IPGP’s creditors would be nervous about IPGP’s ability to make its interest payments when they come due, especially if IPGP’s earnings decrease even slightly.

22

Which statement best describes the trend in IPGP’s revenues and the trend in its closest competitor, Coherent, Inc.’s, revenues over 2014, 2015, and 2016?

a) IPGP’s revenues (in dollars) steadily increased. Coherent’s revenues also steadily increased. In each of three years, IPGP’s revenues were greater than Coherent’s.

b) IPGP’s revenues (in dollars) steadily increased. Coherent’s revenues also steadily increased. In each of the past three years, IPGP’s revenues were less than Coherent’s.

c) IPGP’s revenues (in dollars) steadily increased. Coherent’s revenues decreased from 2014 to 2015, but increased in 2016. In each of the three years, IPGP’s revenues were greater than Coherent’s.

d) IPGP’s revenues (in dollars) steadily increased. Coherent’s revenues also steadily increased. In 2015, IPGP’s revenues surpassed Coherent’s revenues, and IPGP’s revenues were greater than Coherent’s again in 2016.

23

What was IPGP’s percent increase in revenues from 2015 to 2016?

Round your answer to one decimal place.

_____ %

24

Which statement is correct regarding the trend in IPGP’s net income and Coherent, Inc.’s, net income over 2014, 2015, and 2016?

a) IPGP’s net income steadily increased, both in dollars and as a percent of revenues.

b) Coherent’s net income steadily decreased, both in dollars and as a percent of revenues.

c) In each of the three years, IPGP’s net income was greater than Coherent’s net income, both in dollars and as a percent of revenues.

d) In each of the three years, IPGP’s net income in dollars was more than Coherent’s, but IPGP’s net income as a percent of revenues was less than Coherent’s.

25

In 2014, 2015, and 2016, what was IPGP’s most costly income statement item?

a) IPGP’s cost of the products and services it sold to customers

b) Sales and marketing expenses

c) Research and development expenses

d) General and administrative expenses

e) Interest expense

f) Income taxes

26

On average, for each dollar IPGP spent on the cost of products and services it sold in 2016, how many cents did it add on to establish its selling price? (In other words, in 2016, on average, for each dollar in cost, how many cents did IPGP mark up its products and services?)

For each dollar in cost, on average, how many cents did Coherent, Inc. mark up its products and services?

For each dollar in cost, on average, how many cents did all companies in the industry mark up their products and services?

NOTE: If you are having trouble with this question, look back at the Chapter 4 Analysis Questions. To see the correct answers to those questions, go to the CENGAGE gradebook and click on your score for each question.

Round each answer to the nearest one-tenth of one cent (one decimal place) – for example, 83.8 cents. If the markup is greater than $1.00, still write it in cents. For example, a markup of $1.346 would be 134.6 cents.

_______ cents

_______ cents

_______ cents

27

In 2016, on average, for each dollar of product and service sold, how many cents in profit did IPGP and Coherent make after accounting for their cost of the products and services sold?

Round each answer to the nearest one-tenth of one cent (one decimal place).

IPGP (year ended 12/31/2016): ______ cents

Coherent, Inc. (year ended 10/1/2016): ______ cents

28

How did IPGP’s 2016 Gross Profit Percent and Operating Profit Margin (also called Return on Sales) compare to 2015?

a) IPGP’s Gross Profit Percent and Operating Profit Margin were both better in 2016 than in 2015.

b) IPGP’s Gross Profit Percent and Operating Profit Margin were both worse in 2016 than in 2015.

c) IPGP’s Gross Profit Percent was better in 2016 than in 2015, but its Operating Profit Margin was worse in 2016 than in 2015.

d) IPGP’s Gross Profit Percent was worse in 2016 than in 2015, but its Operating Profit Margin was better in 2016 than in 2015.

29

How did IPGP’s 2016 and 2015 Gross Profit Percent and Operating Profit Margin compare to Coherent’s and the industry averages?

a) IPGP’s Gross Profit Percents and Operating Profit Margins were better than Coherent’s and the industry averages.

b) IPGP’s Gross Profit Percents and Operating Profit Margins were worse than Coherent’s and the industry averages.

c) IPGP’s Gross Profit Percents were better than Coherent’s and the industry averages, but IPGP’s Operating Profit Margins were worse than Coherent’s and the industry averages.

d) IPGP’s Gross Profit Percents were worse than Coherent’s and the industry averages, but IPGP’s Operating Profit Margins were better than Coherent’s and the industry averages.

30

For IPGP, which of the following types of expenses increased the most in 2016, as a percent increase from 2015?

a) Sales and marketing expenses

b) Research and development expenses

c) General and administrative expenses

31

In a high-tech industry, research and development of new products is essential. In 2016 and 2015, how did IPGP’s research and development costs compare to Coherent’s?

a) IPGP spent more on research and development than Coherent did, both in dollars and as a percent of revenues.

b) IPGP spent less on research and development than Coherent did, both in dollars and as a percent of revenues.

c) IPGP spent less dollars on research and development than Coherent did, but as a percent of revenues, IPGP spent more on research and development than Coherent did.

32

In order to be profitable, it is important for a company to keep its selling, general, and administrative expenses under control. In 2016 and 2015, how did IPGP’s selling, general, and administrative expenses compare to Coherent’s?

Notice, you will need to combine two lines for IPGP (Sales and marketing, and General and administrative). Coherent’s are all on one line.

a) IPGP spent significantly more on selling, general, and administrative expenses than IPGP did, both in dollars and as a percent of revenues.

b) IPGP spent significantly less on selling, general, and administrative expenses than Coherent did, both in dollars and as a percent of revenues.

c) IPGP spent less dollars on selling, general, and administrative expenses than Coherent did, but as a percent of revenues, IPGP spent more on selling, general, and administrative expenses than Coherent did.

33

Considering the Asset Turnover ratio, in 2016 was IPGP more or less effective than its competitors at using its long-term operating assets to generate sales?

a) In 2016, IPGP was more effective than both Coherent, Inc. and the industry averages at using long-term operating assets to generate sales.

b) In 2016, IPGP was less effective than both Coherent, Inc. and the industry averages at using long-term operating assets to generate sales.

34

Considering the Return on Total Assets, in 2016 was IPGP more or less effective than its competitors at using its total assets to generate profits?

a) In 2016, IPGP was more effective than both Coherent, Inc. and the industry averages at using total assets to generate profits.

b) In 2016, IPGP was less effective than both Coherent, Inc. and the industry averages at using total assets to generate profits.

c) In 2016, IPGP was less effective than Coherent, Inc. at using total assets to generate profits, but more effective than the industry averages.

35

What type(s) of stock has IPGP issued to stockholders?

a) Common stock

b) Preferred stock

c) Common and preferred stock

d) The financial statements do not show what kind of stock has been issued.

36

Considering the Return on Stockholders' Equity and Earnings Per Share, are IPGP's stockholders likely to be happy with IPGP’s ratios, compared to the competition (Coherent and the industry averages)?

a) Stockholders would be concerned about the decrease in the Return on Stockholders’ Equity, because it was caused by a decrease in net income in 2016. However, they would be happy that IPGP’s Earnings per Share continues to be higher than Coherent’s.

b) Stockholders probably are happy that IPGP’s Return on Stockholders’ Equity and Earnings per Share continue to be higher than competitors’, including Coherent.

c) Stockholders would not care about the Return on Stockholders’ Equity or the Earnings per Share, because investors tend to ignore both ratios.

37

Considering IPGP's most recent Price-Earnings (P/E) Ratio, do investors appear to expect IPGP's future earnings to be more or less favorable than its competitors' future earnings, on average?

a) It appears investors expect IPGP’s future earnings to be more favorable than Coherent’s future earnings and the industry on average, which is not surprising, given the most recent profitability ratios.

b) It appears investors expect IPGP’s future earnings to be less favorable than Coherent’s future earnings and the industry on average, which is a bit surprising, given the most recent profitability ratios.

c) It appears investors expect IPGP’s future earnings to be less favorable than Coherent’s future earnings, but slightly more favorable than the industry on average.

38

What was IPGP’s largest asset at the end of 2016 and the end of 2015?

a) Cash and cash equivalents

b) Receivables

c) Inventories

d) Prepaid expenses

e) Property, plant, and equipment

39

When companies have enough cash and enough retained earnings, typically, shareholders expect to receive a return on their investment in the form of dividends. They also expect dividends to be consistent or to increase from year to year. Which statement best reflects what IPGP’s shareholders most likely think about the dividends they received in 2016 and 2015?

a) IPGP’s shareholders probably were happy they received dividends in 2016 and 2015.

b) IPGP’s shareholders probably understand that the company could not pay dividends in 2016 or 2015 due to low cash balances in each of those years.

c) IPGP’s shareholders probably wonder why they did not receive dividends in 2016 or 2015, given that the company’s cash balances and retained earnings both increased in each of those years, and given that the company had so much cash in 2016 and 2015, it even purchased more short-term investments.

40

For this question and all remaining questions in this assignment, refer to the information you prepared for Step 3, related to the new inventory management system.

Assuming you had used the correct number for the company’s required rate of return (15%), and assuming there are no other investment proposals competing for the same money, would IPGP consider the new inventory management system to be a good capital investment opportunity?

Yes

No

41

In Year 1 of the project, how would the proposed inventory management system impact IPGP’s Current Ratio?

Would this make the Current Ratio better or worse?

Increase the ratio

Decrease the ratio

Better

Worse

42

In each of Years 2-4 of the project, how would the proposed inventory management system impact IPGP’s Current Ratio?

Would this make the Current Ratio better or worse?

Increase the ratio

Decrease the ratio

Better

Worse

43

In each of Years 1-4 of the project, how would the proposed inventory management system impact IPGP’s Inventory Turnover?

Would this make the Inventory Turnover better or worse?

Increase the turnover

Decrease the turnover

Better

Worse

44

Notice all five of the solvency measures in Step 2 would be affected each year of this project. Would the proposed project make the solvency measures better or worse?

Better

Worse

45

Almost all of the profitability measures we used in Step 2 would be affected each year of this project.

Would the proposed project make the Gross Profit Percent better or worse (even just a little)?

Better

Worse