Question
Prepare an Excel spreadsheet for the items listed below for the two companies for 4 years.
Make sure you clearly indicate denominations when appropriate.
Income Statement Analysis Items used by Buffett:
1. Gross Profit Margin –
Income Statement
($ in millions)
Revenue $XX
Cost of Goods Sold $XX
Gross Profit $XX
• Consistency
• Higher than other firms in the industry. Why?
• 5 year analysis
• > 40% - competitive advantage
• < 20% - no competitive advantage
2. Selling, General and Administrative Expenses - % of gross profit
• Consistency? Why?
• < 30% - fantastic
• 30 to 80% - possible competitive advantage
3. Research and Development Expenses - % of gross profit
• low or no R & D expense? Why?
• compare to industry? Why?
Balance Sheet Analysis Items used by Buffett:
1. Cash and Marketable Securities –
Balance Sheet/Assets
($ in millions)
Cash & Short-Term Investments - $XX
Total Inventory $XX
Total Receivables, Net $XX
Prepaid Expenses $XX
Other Current Assets, Total $XX
Total Current Assets $XX
• large amounts generated by operations
• 4 year analysis
2. Inventory
• calculate % increase in inventory = ((current year-previous year)/previous year)
• calculate % increase in net earnings = ((current year-previous year)/previous year)
• is there a corresponding rise in net earnings? Why?
• long-term consistency? Why?
3. Net Receivable - % of gross sales
Balance Sheet/Assets
($ in millions)
Cash & Short-Term Investments - $XX
Total Inventory $XX
Total Receivables, Net $XX
Prepaid Expenses $XX
Other Current Assets, Total $XX
Total Current Assets $XX
• consistent? Why?
• lower than competitors? Why?
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AnalysisIt can be seen that the gross margin of Toyota has been close to 20% which means that it does not have competitive advantage.
On the other hand, Tesla had gross amrgin of 56% for 2015 which means that it has some competitive advantage. Over the period, its gross margin has been higher than 20%.
The Selling, general & administrative expenses have been higher for Tesla than Toyota over the period.
Tesla has been investing in research, while Toyota is not. This is a strength for Tesla.
The interest expenses have been consistently lower for Toyota which is a source of strength for Toyota...
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