Formulating Financial Statements from Raw Data
Following is selected financial information from General Mills, Inc., for its fiscal year ended May 30, 2004 ($ millions):
| Revenue | $ 11,070 |
| Cash from operating activities | 1,461 |
| Cash, beginning year | 703 |
| Stockholders’ equity | 5,547 |
| Noncash assets | 17,697 |
| Cash from financing activities* | (943) |
| Cost of goods sold | 6,584 |
| Total expenses (other than cost of goods sold) | 3,431 |
| Cash, ending year | 751 |
| Total liabilities | 12,901 |
| Cash from investing activities | (470) |
*Cash from financing activities includes the effects of foreign exchange rate fluctuations.
(a) Prepare the income statement, the balance sheet, and the statement of cash flows for General Mills for the fiscal year ended May 2004.
(b) Does the negative amount for cash from financing activities concern us? Explain.
- A negative amount for cash from financing activities implies that the company is unable to pay its debts as they come due and should be interpreted negatively.
- A negative amount for cash from financing activities is the result of additional borrowings. Because the additional funds are invested in earnings-generating assets, this should be viewed positively.
- A negative amount for cash from financing activities implies that the market value of the company’s long-term debt has declined and this change should be viewed negatively.
- A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.
Correct answer:
A negative amount for cash from financing activities reflects the reduction of long-term debt, which is a positive sign of the company’s ability to retire debt obligations.
Formulating Financial Statements from Raw Data
Following is selected financial information from General Mills, Inc., for its fiscal year ended May 30, 2004 ($ millions):
| Revenue | $ 11,070 |
| Cash from operating activities | 1,461 |
| Cash, beginning year | 703 |
| Stockholders’ equity | 5,547 |
| Noncash assets | 17,697 |
| Cash from financing activities* | (943) |
| Cost of goods sold | 6,584 |
| Total expenses (other than cost of goods sold) | 3,431 |
| Cash, ending year | 751 |
| Total liabilities | 12,901 |
| Cash from investing activities | (470) |
*Cash from financing activities includes the effects of foreign exchange rate fluctuations.
c) Using the statements prepared for part a. compute the following ratios
(for this part only, use the year-end balance instead of the average for assets and stockholders’ equity):
Round answers to two decimal places (example for percentage answers: 0.12345 = 12.35%).
Solution-c
Profit margin ==$237 / $4,511
Profit margin = 5.25%
Asset turnover =$4,511 / $2,987
Asset turnover = 1.51
Return on assets=$237 / $2,987
Return on assets = 7.93% (5.25% ×1.51)
Return on equity =$237 / $1,818
Return on equity = 13.04%