Professional Documents
Culture Documents
Financial Performance
• One of the most fundamental facts about
businesses is that the operating performance of
the firm shapes its financial structure.
• It is also true that the financial situation of the
firm can also determine its operating
performance.
• The financial statements are therefore important
diagnostic tools for the informed manager.
– To keep the discussion grounded, we will use the
1997-98 financial statement for the Timberland
Company as illustrations.
The Timberland Company, Balance Sheets ($ millions)
12/31/1997 12/31/1998 Change
Assets
Cash and marketable securities 98.8 151.9 53.1
Accounts receivable 75.8 79.0 3.2
Inventories 142.6 131.2 (11.4)
Prepaid expenses and other current assets 24.9 25.4 0.5
Total current assets 342.1 387.5
Property, plant, and equipment 116.5 131.2 14.7
Less accumulated depreciation and amortization (63.6) (74.3) (10.7)
Net property, plant, and equipment 52.9 56.9 4.0
Intangible assets 20.9 19.2 (1.7)
Other assets 4.2 5.8 1.6
Total assets $420.1 $469.4
EBIT $96.5
Times interest earned 10.2 times
Interest Expense $9.5
EBIT $96.5
Times burden covered 10.2 times
Princial repayment $9.5 $0.0 /(1 27.8 / 87.0)
Interest
1 Tax rate
Liquidity Ratios