HW2

Questions (2 pts. each)

Answers

1

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

a)IPGP generated most of its cash flow through operations.

b) IPGP generated most of its cash flow by obtaining bank loans.

c) IPGP generated most of its cash flow by issuing stock.

2

At the end of the 2016 fiscal year, based on the Current Ratio and Quick Ratio, which company (IPGP or its closest competitor, Coherent, Inc.) was in a better position to pay current liabilities and pay them on time? Another way to ask this question: Which company will probably have an easier time obtaining a short-term bank loan?

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

a)IPGP was in a better position than Coherent, Inc. to pay current liabilities and pay them on time.

b) Coherent, Inc. was in a better position than IPGP to pay current liabilities and pay them on time.

3

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

a)LIFO

b) FIFO

c) Average Cost

4

NOTE: Before answering this question and the next several questions, be sure to study the “Chapter 9 Notes from your Instructor” documents in the Canvas module.

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

HINT: The Inventory Turnover statistic is not the answer to this question. Think of "turnover" as how many times per year something is happening, so Inventory Turnover is the number of times per year, on average, IPGP sells its entire inventory.

Round your answer to one decimal place.

___178____ days

Explanation: The answer is same as days sales in inventory

5

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

a) The ratios indicate IPGP hasbeen efficiently managing its inventory, as compared to competitors in the same industry.

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

c) The average number of days it took IPGP to purchase, stock, and sell its inventory increased from 2015 to 2016.

d) IPGP took significantly longer than competitors(Coherent and the industry averages) to purchase, stock, and 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.

6

Remember that “net” means something has been subtracted. What did IPGP subtract from Accounts Receivable?

a) The cumulative amount of depreciation recorded in the past

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

c) The amount of products customers have returned for refunds

d) The amount of discounts IPGP’s customers have been granted because of paying their invoices early

e) Sales Returns and Allowances and Sales Discounts

7

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

Round your answer to one decimal place.

___55.6____ days

It is the same as days sales in receivables

8

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 itsAccounts 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.

9

In 2016, on average, how many days did it take IPGP to pay its vendors (suppliers)?

Round your answer to one decimal place.

_21.9______ days

Answer is same as days payables outstanding

10

How does the amount of time IPGP took to collect from its customers compare to the amount of time it took to pay its own Accounts Payable to its vendors?

a) IPGP collected from customers much more quickly than it paid its own bills.

b) IPGP paid its own bills much more quickly than it collected from customers.

c) IPGP took about the same amount of time to collect from customers as it took to pay its vendors.

11

DidIPGP pay its own Accounts Payable more quickly or less quickly than its competitors paid their vendors? (Competitors include Coherent, Inc. and the industry averages.)

a) IPGP paid its vendors more quickly than its competitors paid their vendors.

b) IPGP paid its vendors less quickly than its competitors paid their vendors.

c) IPGP and its competitors took about the same amount of time to pay their vendors.

12

What reason(s) might IPGP have for maintaining a low Days Payables Outstanding?

13

If typical credit terms for suppliers to the Semiconductor and Other Electronic Components industry are 2/10, n/30, do IPGP’s vendors (suppliers) have any need for concern about being paid on time?

a) Yes, IPGP’s vendors should be concerned about being paid on time. The company’s Current Ratio and Quick Ratio are too high, and Days’ Sales in Receivables is well above 30 days.

b) Yes, IPGP’s vendors should be concerned about being paid on time. The company’s Current Ratio and Quick Ratio are too low, and Days Payables Outstanding is below 30 days.

c) IPGP’s vendors have no need to worry about being paid on time. The company’s Current Ratio and Quick Ratio are well above industry averages, and Day’s Sales in Receivables is well above 30 days.

d) IPGP’s vendors have no need to worry about being paid on time. The company’s Current Ratio and Quick Ratio are well above industry averages, and Days Payables Outstanding is below 30 days.

14

Considering the Cash Conversion Cyclesin2015 and 2016, which of the following statements is (are) true?

a) In 2016, as compared to 2015, IPGP increased the number of days between paying for products and collecting from customers.

b) Because of the increase in IPGP’s cash conversion cycle from 2015 to 2016, in general, IPGP increased the amount of working capital neededto run its business.

c) In 2016, as compared to 2015, IPGP improved its overall working capital management.

d) Overall, IPGP’s competitors managedtheir working capital more efficiently than IPGP managed its working capital.

e) When comparing IPGP to its competitors, inventory management seems to be the area that could create the most improvement in IPGP’s working capital management.

f) B and C are true.

g) A, B, D, and E are true.

h) A, B, C, D, and E are true.

15

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

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

____181,888,000 (Increase)__ (Increase or decrease)

16

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 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 the amount of depreciation for existing property and equipment. (See the top section of the Statement of Cash Flows to see depreciation for each year.)

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

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

e) A and C are true.

f) B and D are true.

17

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

18

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 an excess of 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.

19

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

20

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

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

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

21

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

c) Items such as depreciation on equipment that was purchased in the past but had not been fully depreciated 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

22

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.

$ 40,823,000

_________________________

23

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.

24

Considering the Ratio of Liabilities to Total Assets and the Ratio of Liabilities to Stockholders’ Equity, for 2016, had IPGP used more or less debt to finance its operations than its competitor’s hadused? (Competitors include Coherent and the industry averages.)

a)IPGP hadused a higher portion of debt than its competitors had.

b) IPGP hadused a lower portion of debt than its competitors had.

25

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.

26

Which statement best describes the trend in IPGP’s revenues and 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 wereless 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.

27

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

Round your answer to one decimal place.

11.6_____ %

28

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 wasmore than Coherent’s, but IPGP’s net income as a percent of revenues was less than Coherent’s.

29

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

(Hint: Look at the income statements.)

a) IPGP’s cost of products and services provided to customers

b) Sales and marketing expenses

c) Research and development expenses

d) General and administrative expenses

e) Interest expense

f) Income taxes

30

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 every dollar in cost, how many cents did IPGP mark up its products and services?)

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

For every 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 and the next two questions, 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.

______121.7_ cents

_____80.1__ cents

______75.8_ cents

The answers are the same as the average markup percent

31

In 2016, on average, for every 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): _54.9_ cents

Coherent, Inc. (year ended 10/1/2016): ___44.5_ cents

Answers are the same as the gross profit margin

32

In 2016, on average, for every dollar of product and service sold, how many cents in profit did IPGPand Coherent, Inc. make after accounting for all expenses (product costs, selling and administrative expenses, interest, taxes, and other)?

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

IPGP (year ended 12/31/2016): __25.9____ cents

Coherent, Inc. (year ended 10/1/2016): _14.9_____ cents

Answers are equal to the net profit margins

33

How did IPGP’sGross Profit Margin, Operating Profit Margin, and Net Profit Margin for 2016compare to 2015?

a) IPGP’s Gross Profit Margin, Operating Profit Margin, and Net Profit Margin were all better in 2016 than in 2015.

b) IPGP’s Gross Profit Margin, Operating Profit Margin, and Net Profit Margin were all worse in 2016 than in 2015.

c) Two of IPGP’s ratios were better in 2016 than in 2015; one ratio was worse in 2016.

d) One of IPGP’s ratios was better in 2016 than in 2015; the other two ratios were worse in 2016.

That is gross profit margin

34

How did IPGP’sGross Profit Margin, Operating Profit Margin, and Net Profit Margin for 2016compare toCoherent’s and the industry averages?

a) IPGP’s 2016 Gross Profit Margin, Operating Profit Margin, and Net Profit Margin were all better than Coherent’s and the industry averages.

b) IPGP’s 2016 Gross Profit Margin, Operating Profit Margin, and Net Profit Margin were all worse than Coherent’s and the industry averages.

c) Two of IPGP’s 2016 ratios were better than Coherent’s and the industry averages; one ratio was worse.

d) One of IPGP’s 2016 ratios was better than Coherent’s and the industry averages; the other two ratios were worse.

35

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

36

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 Coherentdid, both in dollars and as a percent of revenues.

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

37

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 didIPGP’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 Coherentdid, but as a percent of revenues, IPGP spent more on selling, general, and administrative expenses than Coherent did.

38

Based on the Fixed Asset Turnover ratio, in 2016, was IPGP more or less effective than in 2015 at using fixed assets to generate sales?

a) In 2016, IPGP was more effective than in 2015 at generating sales from the use of its fixed assets.

b) In 2016, IPGP was less effective than in 2015 at generating sales from the use of its fixed assets.

39

Considering the Ratio of Net Sales to Assets, in 2016 was IPGP more or less effective than its competitors at using its total assets to generate sales?

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

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

40

Considering the Rate Earned on Total Assets (also called Return on Assets, or ROA), in 2016wasIPGP more or less effective than its competitors at using its total assets to generate profits?

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

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

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

41

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.

42

Considering the Rate Earned 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 Rate Earned 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 Rate Earned on Stockholders’ Equity and Earnings per Share continue to be higher than competitors’, including Coherent, which is IPGP’s closest competitor.

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

43

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.

b) It appears investors expect IPGP’s future earnings to be less favorable than Coherent’s future earnings and the industry on average.

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.

44

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

45

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 lowcash 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.