FREEDOM OF RELIGION

Limiting Congress to protect both church and state, and the individual’s right to believe

The First Amendment reads, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.” These are the “democratic freedoms,” the liberties that the founders believed to be so necessary to ensuring a free and unfettered people that they crammed them all into the very first of the amendments. For all that, none of these liberties has escaped controversy, and none has been interpreted by the Supreme Court to be absolute or unlimited.

Why Is Religious Freedom Valuable?

The briefest look around the world tells us what happens when politics and religion are allowed to mix. When it comes to conflicts over religion, over our fundamental beliefs about the world and the way life should be lived, the stakes are enormous. Passions run deep, and compromise is difficult. In the United States, where a majority of people are religious, religious battles tend to take place in the courts, under the guidelines set out by the First Amendment.

Although not all the founders endorsed religious freedom for everyone, some of them, notably Thomas Jefferson and James Madison, cherished the notion of a universal freedom of conscience—the right of all individuals to believe as they pleased. Jefferson wrote that the First Amendment built “a wall of separation between church and State.” 14  The founders based their view of religious freedom on two main arguments. First, history has shown, from the Holy Roman Empire to the Church of England, that when church and state are linked, all individual freedoms are in jeopardy. After all, if government is merely the arm of God, what power of government cannot be justified? Furthermore, religion can divide society into the factions that Madison saw as the primary threat to republican government and individual liberty. A second argument for practicing religious freedom is based on the effect that politics can have on religious concerns. Early champions of a separation between politics and religion worried that the spiritual purity and sanctity of religion would be ruined if it was mixed with the worldly realm of politics, with its emphasis on power and influence. 15

The Establishment Clause

The beginning of the First Amendment, forbidding Congress to make laws that would establish an official religion, is known as the  establishment clause . Americans have fought over the meaning of the establishment clause almost since its inception. Although founders like Jefferson and Madison were clear on their position that church and state should be separate realms, other early Americans were not.

establishment clause the First Amendment guarantee that the government will not create and support an official state church

A similar division continues today between the  separationists , who believe that a “wall” should exist between church and state, and the nonpreferentialists, or  accommodationists , who contend that the state should not be separate from religion but rather should accommodate it, without showing a preference for one religion over another. Accommodationists argue that the First Amendment should not prevent government aid to religious groups, prayer in school or in public ceremonies, public aid to parochial schools, the posting of religious documents such as the Ten Commandments in public places, or the teaching of the Bible’s story of creation along with evolution in public schools. Adherents of this position claim that a rigid interpretation of separation of church and state amounts to intolerance of their religious rights or, in the words of Supreme Court Justice Anthony Kennedy, to “unjustified hostility to religion.” 16  Presidents Ronald Reagan, George H. W. Bush, and George W. Bush, and many other Republicans, have shared this view, as have many powerful interest groups such as the Christian Coalition.

separationists supporters of a “wall of separation” between church and state

accommodationists supporters of government nonpreferential accommodation of religion

A lot is clearly at stake in the battle between the separationists and the accommodationists. On one side of the dispute is the separationists’ image of a society in which the rights of all citizens, including minorities, receive equal protection under the law. In this society, religions abound, but they remain private, not matters for public action or support. Very different is the view of the accommodationists, which emphasizes the sharing of community values, determined by the majority and built into the fabric of society and political life.

Today U.S. practice stands somewhere between these two views. Sessions of Congress open with prayers, for instance, but a schoolchild’s day does not. Although religion is not kept completely out of our public lives, the Court has generally leaned toward a separationist stance. 17

As the more conservative appointments of Republican presidents Richard Nixon and Reagan began to shape the Court, the Court’s rulings moved in a more accommodationist direction. In Lemon v. Kurtzman (1971), the Court added to the old test a third provision that a law not foster “an excessive government entanglement with religion.” 18  Under the new  Lemon  test , the justices had to decide how much entanglement there was between politics and religion, leaving much to their own discretion.

Lemon test the three-pronged rule used by the courts to determine whether the establishment clause is violated

As the current rule in deciding establishment cases, the Lemon test is not used consistently, primarily because the justices have not settled among themselves the underlying issue of whether religion and politics should be separate, or whether state support of religion is permissible. 19  The justices still lean in a separationist direction, but their rulings occasionally nod at accommodationism. Meanwhile, many states have taken matters into their own hands by blurring the line, allowing students to give “inspirational” messages at school events, for instance, or allowing schools to offer Bible classes or to teach evolution as a controversy rather than settled science. 20  These practices and laws are the new battlefield over religious establishment, and the Court will no doubt be called on to weigh in before long.

The Free Exercise Clause

Another fundamental question about religious freedom that divides the public and justices alike is what to do when religious beliefs and practices conflict with state goals. The second part of the First Amendment grant of religious freedom guarantees that Congress shall make no law prohibiting the free exercise of religion. The  free exercise clause , as it is called, has generated as much controversy as the establishment clause. When is the state justified in regulating religion? Although Americans have an absolute right to believe whatever they want, their freedom to act is subject to government regulation (see Snapshot of America: What Do We Believe?). 21  The state’s  police power  allows it to regulate behavior in order to protect its citizens and to provide social order and security. These two valued goods of religious freedom and social order are bound to conflict, and the Court has had an uneasy time trying to draw the line between them. Although it waffled a bit before doing so, the Court has said that schoolchildren cannot be required to salute the American flag if it violates their religious principles to do so (as it does for Jehovah’s Witnesses). 22

free exercise clause the First Amendment guarantee that citizens may freely engage in the religious activities of their choice

police power the ability of the government to protect its citizens and maintain social order

The Court has gone back and forth on other religious freedom issues as it has struggled to define what actions the state might legitimately seek to regulate. For a while the Court held that any incidental burden placed on religious freedom must be justified by a  compelling state interest , that is, the state must show that it is absolutely necessary for some fundamental state purpose that religious freedom be limited. 23  How the Court determines what is and what is not a compelling state interest is examined in  Chapter 5 .

compelling state interest a fundamental state purpose, which must be shown before the law can limit some freedoms or treat some groups of people differently

The Court rejected this compelling state interest test, however, in Employment Division, Department of Human Resources v. Smith (1990), when it held that if the infringement on religion is not intentional but is rather the by-product of a general law prohibiting socially harmful conduct, applied equally to all religions, then it is not unconstitutional.24 The Court found that the compelling state interest test, while necessary for cases dealing with matters of race and free speech, was inappropriate for religious freedom issues. Under the Smith ruling, a number of religious practices have been declared illegal by state laws on the grounds that the laws do not unfairly burden any particular religion.

Religious groups consider the Smith ruling a major blow to religious freedom because it places the burden of proof on the individual or church to show that its religious practices should not be punished, rather than on the state to show that the interference with religious practice is absolutely necessary. In response to the Smith decision, Congress in 1993 passed the Religious Freedom Restoration Act (RFRA). This act, supported by a coalition of ninety religious groups, restored the compelling state interest test for state action limiting religious practice and required that when the state did restrict religious practice, it be carried out in the least burdensome way. However, in the 1997 case of City of Boerne v. Flores, the Court held that the RFRA was an unconstitutional exercise of congressional power.25 Congress amended the act in 2003 to apply only to the federal government, and in 2006 the Supreme Court affirmed the amended federal RFRA when it ruled that the act protected a New Mexico church’s use of tea containing an illegal substance for sacramental purposes, reinstating the compelling state interest test.26

Supporters of greater freedom for religious institutions were heartened greatly in 2012, when the Supreme Court issued a unanimous ruling in Hosanna-Tabor Evangelical Lutheran Church and School v. Equal Employment Opportunity Commission, which the New York Times called perhaps “its most significant religious liberty decision in two decades.”27 In Hosanna-Tabor, the Court held that the hiring practices of religious groups could not be regulated by federal employment law (in this case, law that prohibited discrimination against an employee with a disability), because that would essentially give government the right to tell such groups whom they could hire. Still, the sweeping decision has not stopped critics of the Court’s earlier Boerne ruling from arguing that to protect religious freedom, the Constitution should be amended to make RFRA the law of the land.28

Concern over religious freedom among church members grew after the full implementation of the Patient Protection and Affordable Care Act (ACA) in 2014. The Obama administration interpreted the ACA requirements as meaning that employer-based health insurance should provide birth control coverage, but in 2012 the Supreme Court ruled, in Burwell v. Hobby Lobby, that corporations that are not publicly traded (so-called closely held corporations) did not have to provide such coverage if it violated the owners’ religious beliefs. This case not only upheld the right of employers not to provide contraception coverage if it conflicted with the employer’s religious beliefs but also affirmed that right for some kinds of corporations as well as for individuals.

Meanwhile, when the federal law appeared to be in jeopardy, many states passed their own RFRAs to protect religious practices at the state level, and they have been used to protect a variety of controversial practices on religious grounds, including the denial of services and rights to those in the LGBTQ community. Such laws proliferated again in 2015 and 2016 in the wake of the Supreme Court’s ruling that constitutionalized marriage equality. States such as Indiana, Mississippi, and North Carolina suffered serious blowback from companies that considered the intent of such laws to be discriminatory and chose to take their business elsewhere. (We will read more about this in Chapter 5.)

In Your Own Words

Describe how the First Amendment protects both church and state, as well as individuals’ religious freedom.

FREEDOM OF EXPRESSION

Checking government by protecting speech and the press

Among the most cherished of American values is the right to free speech. The First Amendment reads that “Congress shall make no law . . . abridging the freedoms of speech, or of the press” and, at least theoretically, most Americans agree.29 When it comes to actually practicing free speech, however, our national record is less impressive. In fact, time and again, Congress has made laws abridging  freedom of expression , often with the enthusiastic support of much of the American public. As a nation we have never had a great deal of difficulty restricting speech we don’t like, admire, or respect. The challenge of the First Amendment is to protect the speech we despise.

freedom of expression the right of the people to free speech

Why Is Freedom of Expression Valuable?

It is easier to appreciate what is at stake in the battles over when and what kind of speech should be protected if we think about just why we value free speech so much in the first place. Freedom of speech can help to empower citizens and limit government in four ways:

· Free speech is important because citizens are responsible for participating in their government’s decisions and they need information provided by an independent,  free press  to protect them from government manipulation. Mediated citizenship gives us many more channels through which to access information, but that means many more channels to monitor for truth and reliability. In an age in which the president of the United States feels free to label unflattering or critical news coverage “fake news,” the imperative to maintain a free press is more critical than ever.

· Free speech can limit government corruption. By being free to voice criticism of government, to investigate its actions, and to debate its decisions, both citizens and journalists are able to exercise an additional check on government that supplements our valued principle of checks and balances.

· Denying free speech sets a dangerous precedent. Censorship in a democracy usually allows the voice of the majority to prevail. One of the reasons to support minority rights as well as majority rule, however, is that we never know when we may fall into the minority on an issue.

· Free speech ensures the vigorous protection of the truth. According to the nineteenth-century English philosopher John Stuart Mill, by allowing the expression of all speech, we discover truths we had previously believed to be false and we develop strong defenses against known falsehoods like racist and sexist ideas.

free press a press that is able to report fully on government’s activities

If free speech is so valuable, why is it so controversial? Like freedom of religion, free speech requires tolerance of ideas and beliefs other than our own, even ideas and beliefs that we find personally repugnant. Those who are convinced that their views are absolutely and eternally true often see no real reason to practice toleration. Many people believe that, in a democracy, the majority should determine the prevailing views and the minority, having lost the vote, so to speak, should shut up. In addition, conflicting ideas about what constitutes the public interest can lead reasonable people to disagree about whether speech ought to be protected or restricted.30

Speech That Criticizes the Government

Sedition , speech that criticizes the government to incite rebellion, has long been a target of restrictive legislation, and most of the founders were quite content that it should be so. Of course, all of the founders had engaged daily in the practice of criticizing their government when they were inciting their countrymen to revolution against England, so they were well aware of the potential consequences of seditious activity. Now that the shoe was on the other foot and they were the government, many were far less willing to encourage dissent. Especially during wartime, it was felt, criticism of the government undermined authority and destroyed patriotism.

sedition speech that criticizes the government to promote rebellion

Early in our history it was easy enough for those in government to control the information that they felt threatened their power. It didn’t take long for American “revolutionaries” to pass the Alien and Sedition Acts of 1798, which outlawed “any false, scandalous writing against the government of the United States.” Throughout the 1800s and into the next century, all levels of government, with the support and encouragement of public opinion, squashed the views of radical political groups, labor activists, religious sects, and other minorities. By the end of World War I, thirty-two of forty-eight states had laws against sedition, which essentially prohibited the advocacy of the use of violence or force to bring about industrial or political change. In 1917 the U.S. Congress passed the Espionage Act, which made it a crime to “willfully obstruct the recruiting or enlistment service of the United States,” and a 1918 amendment to the act spelled out what that meant. It became a crime to engage in “any disloyal . . . scurrilous, or abusive language about the form of government of the United States, . . . or any language intended to bring the form of government of the United States . . . into contempt, scorn, contumely, or disrepute.”31 Such sweeping prohibitions made it possible to arrest people on the flimsiest of pretexts.

Those arrested and imprisoned under the new sedition laws looked to the Supreme Court to protect their freedom to criticize the government, but they were doomed to disappointment. The Court did not dispute the idea that speech criticizing the government could be punished. The question it dealt with was just how bad the speech had to be before it could be prohibited. The history of freedom of speech cases is a history of the Court devising tests for itself to determine whether certain speech should be protected or could be legitimately outlawed.

In two cases upholding the Espionage Act, Schenck v. United States (1919) and Abrams v. United States (1919), Justice Oliver Wendell Holmes began to articulate what he called the  clear and present danger test .32 This test, as Holmes conceived it, focused on the circumstances under which language was used. If there were no immediately threatening circumstances, the language in question would be protected, and Congress could not regulate it. But Holmes’s views did not represent the Court’s majority opinion, and the clear and present danger test was slow to catch on.

Introduction

The Big Calculating Tool ™ for your annual report
Calculating financial ratios is an important part of analyzing an annual report for a public company. Using this calculating tool can help you make the task much easier.
Analyzing trends is a vital aspect of interpreting the financial data in an annual report. Not only will the Big Calculating Tool crunch the numbers for you, it will also display the data with line and bar charts. You will quickly be able to see and identify the important financial trends.
The financial data is arranged from left to right with the most recent financial data appearing in the leftmost column. This is consistent with how financial data is reported on the financial statements of your annual report. Trend information and charts are arranged with the most recent data appearing in the rightmost column. This is consistent with the manner in which trend data and historical charts are generally displayed.
You won't waste time crunching numbers. You’ll have more time to get under the hood of your annual report and understand what is happening in your company.
You'll find an individual worksheet for each calculation along with a worksheet for the balance sheet, statement of operations and statement of cash flows.
Clicking on the hyperlinks in the Table of Calculations will take you right to the financial data, trend information and trend charts.
Copyright DA Bittar and Associates 2012, 2013

Instructions

How to Use the Big Calculating Tool
Follow these instructions and the Big Calculating Tool will crunch all of the numbers for you.
1) Enter your setup data in the yellow fields.
Enter your Company's official name here: XYZ Company Inc.
Current Year Previous Year Next Previous Year
Enter the fiscal years for the SEC Forms 10K here: 2014 2013 2011
2014 2013 2011
Enter the price per share of common stock here: $58.000 $58.000 $58.000
2) How to enter your Company's financial data into The Big Calculator
Balance Sheet
Substitute the values in the spreadsheet for the values from your Company's Balance Sheet. You may also change the account descriptions to match those used by your Company.
Statement of Operations
Substitute the values in the spreadsheet for the values from your Company's Statement of Operations. You may also change the account descriptions to match those used by your Company.
Statement of Cash Flows
Substitute the values in the spreadsheet for the values from your Company's Statement of Cash Flows. You may also change the account descriptions to match those used by your Company.

Table of Calculations

Table of Calculations
(Click on the 'Go Arrow' Buttons below to view the calculations)
Question 4.7 – First look at the company’s strength
Question 4.10 - Debt to equity and the competition
Question 4.15 - The big questions. Are they makin' money? Are they lookin' good?
Question 4.17 - How strong is your company's cash position?
Question 4.18 - How well can your company pay its bills?
Question 4.19 - How leveraged is your company?
Question 4.20 - How well does your company invest in its future?
Question 4.21 - Capital and Treasury Stock
Question 5.1 - Working Capital Balance
Question 5.2 - Acid Test or Quick Ratio
Question 5.3 - Current Ratio
Question 5.4 - Cash Ratio
Question 5.5 - Return on Sales Ratio
Question 5.6 - Return on Equity Ratio
Question 5.7 - Return on Assets Ratio
Question 5.8 - Asset Turnover Ratio
Question 5.9 - Gross Profit Margin Ratio
Question 5.10 - Inventory Turnover Ratio
Question 5.11 - Days in Inventory Ratio
Question 5.12 - Accounts Receivable Turnover Ratio
Question 5.13 - Average Collection Period
Question 5.14 - Accounts Payable Turnover Ratio
Question 5.15 - Net Working Capital Turnover Ratio
Question 5.16 - Debt to Equity Ratio
Question 5.17 - Debt to Asset Ratio
Question 5.18 - Gearing Ratio or Long Term Debt to Shareholders' Equity Ratio
Question 5.19 - Interest Coverage Ratio or Debt Service Ratio
Question 5.20 -Earnings per Share
Question 5.21 - Price/Earnings Ratio
Question 5.22 -Dividend per Share
Question 5.23 - Dividend Payout Ratio

Balance Sheet

XYZ Company Inc.
Balance Sheet
(enter in thousands)
2014 2013 2011
Assets
Current assets:
Cash 30,836 30,836 30,836
Short term investments 45,903 45,903 45,903
Accounts receivable 98,697 98,697 98,697
Inventories 11,776 11,776 11,776
Deferred tax assets 93,663 93,663 93,663
Pre-paid expenses
Other
Total current assets $280,875 $280,875 $280,875
Other assets
Long term marketable securities 3,694,064 3,694,064 3,694,064
Property, plant and equipment, net 52,980 52,980 52,980
Goodwill 31,721 31,721 31,721
Acquired intangible assets, net 32,798 32,798 32,798
Other 109,553 109,553 109,553
Other 154,136 154,136 154,136
Other 109,934 109,934 109,934
Total other assets $4,185,186 $4,185,186 $4,185,186
Total assets $4,466,061 $4,466,061 $4,466,061
Liabilities and owner's equity
Current liabilities:
Accounts payable 47,654 47,654 47,654
Accrued expenses 54,134 54,134 54,134
Accrued taxes 183,634 183,634 183,634
Deferred revenue 327,808 327,808 327,808
Other 7,720 7,720 7,720
Total current liabilities $620,950 $620,950 $620,950
Non current liabilities:
Deferred revenue - non current 2,350,971 2,350,971 2,350,971
Long term debt 65,000 65,000 65,000
Other 72,485 72,485 72,485
Other 161,185 161,185 161,185
Other 112,736 112,736 112,736
Other 42,526 42,526 42,526
Total non-current liabilities $2,804,903 $2,804,903 $2,804,903
Total Liabilities $3,425,853 $3,425,853 $3,425,853
Shareholder's equity:
Common stock, no par value 1,254 1,254 1,254
Treasury stock 1,970,820 1,970,820 1,970,820
Additional paid in capital (46,800) (46,800) (46,800)
Retained earnings (884,051) (884,051) (884,051)
Accumulated other income (1,015) (1,015) (1,015)
Other
Total owner's equity $1,040,208 $1,040,208 $1,040,208
Total liabilities and owner's equity $4,466,061 $4,466,061 $4,466,061
Balanced Balanced Balanced
- 0 - 0 - 0
Equity per share $0.01 $0.01 $0.01
Number of Shares (in thousands)
Number of Shares Common Stock 125,527,846 125,527,846 125,527,846
Number of Shares Preferred Stock 1,252,662 1,252,662 1,252,662
Number of Shares Treasury Stock 1,970,820 1,970,820 1,970,820

Stmt of Operations

XYZ Company Inc.
Consolidated Statement of Operations
(enter in thousands)
2014 2013 2011
Revenue
Net sales 2,291,757 2,291,757 2,291,757
Other net revenue 13,595 13,595 13,595
Other net revenue 152,566 152,566 152,566
Net revenue $2,457,918 $2,457,918 $2,457,918
Cost of Goods Sold $1,000 $1,000 $1,000
Gross Profit $2,456,918 $2,456,918 $2,456,918
Operating Expenses
Research and development 1,508,571 1,508,571 1,508,571
Selling, general and administrative 148,327 148,327 148,327
Other 274,858 274,858 274,858
Other 268,506 268,506 268,506
Other 16,892 16,892 16,892
Other (1,982) (1,982) (1,982)
Other 152,566 152,566 152,566
Other 0 0 0
Total Operating Expenses $2,367,738 $2,367,738 $2,367,738
Income From Operations $89,180 $89,180 $89,180
Non Operating Income
Item 1 56 56 56
Item 2 (18,863) (18,863) (18,863)
Item 3 1,432 1,432 1,432
Total Non-Operation Income ($17,375) ($17,375) ($17,375)
Interest expense and income
Interest expense ($124,873) ($124,873) ($124,873)
Interest Income $3,538 $3,538 $3,538
other
other
Total interest expense and income $ (121,335) $ (121,335) $ (121,335)
Income Before Income Taxes ($49,530) ($49,530) ($49,530)
Provision for income tax $2,340 $2,340 $2,340
Net Income (Loss) ($51,870) ($51,870) ($51,870)
Earnings Per Share: Basic $28.26 $28.26 $28.26
Dividends per Share: Basic $12.50 $12.50 $12.50

Stmt of Cash Flows

XYZ Company Inc.
Statement of Cash Flows
(Enter in thousands)
2014 2013 2011
Cash balance at the beginning of the period $81,827 $81,827 $81,827
Cash flows from operating activities
Net income (68,175) (68,175) (68,175)
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation, amortization and accretion 281,933 281,933 281,933
Share-based compensation expense 19,856 19,856 19,856
Deferred income tax expense 943 943 943
Changes in operating assets and liabilities:
Accounts receivable, net (5,367) (5,367) (5,367)
Inventories
Vendor non-trade receivables
Other current and non-current assets
Accounts payable 13,721 13,721 13,721
Other current and non-current liabilities (4,148) (4,148) (4,148)
Other 29,664 29,664 29,664
Other
Cash generated by operating activities $268,427 $268,427 $268,427
Cash flows from investing activities
Purchases of marketable securities 56,176 56,176 56,176
Proceeds from maturities of marketable securities 30,817 30,817 30,817
Proceeds from sales of marketable securities (160,131) (160,131) (160,131)
Payments made in connection with business acquisitions, net of cash acquired (32,724) (32,724) (32,724)
Payments for acquisition of property, plant and equipment 1,431 1,431 1,431
Payments for acquisition of intangible assets (88,682) (88,682) (88,682)
Other (10,786) (10,786) (10,786)
Cash used in investing activities ($203,899) ($203,899) ($203,899)
Cash flows from financing activities
Proceeds from issuance of common stock 482,669 482,669 482,669
Excess tax benefits from equity awards 308,212 308,212 308,212
Taxes paid related to net share settlement of equity awards 45,066 45,066 45,066
Cash paid for dividends (77,007) (77,007) (77,007)
Other (874,459) (874,459) (874,459)
Cash generated by financing activities ($115,519) ($115,519) ($115,519)
Other change in cash or cash equivalents
Increase/(decrease) in cash and cash equivalents ($50,991) ($50,991) ($50,991)
Cash balance at the end of the period $30,836 $30,836 $30,836

Q 4.7

Question 4.7 – First look at the company’s strength
Trend Analysis
2011 2013 2014 % Change 2013 to 2014
Return to Table of Calculations
Cash $30,836 $30,836 $30,836 0.00%
Accounts receivable $98,697 $98,697 $98,697 0.00%
Inventories $11,776 $11,776 $11,776 0.00%
Property, plant and equipment, net $52,980 $52,980 $52,980 0.00%
Accounts payable $47,654 $47,654 $47,654 0.00%
Accrued expenses $54,134 $54,134 $54,134 0.00%
Accrued taxes $183,634 $183,634 $183,634 0.00%
Long term debt $65,000 $65,000 $65,000 0.00%
Number of Shares Common Stock 125,527,846 125,527,846 125,527,846 0.00%
Number of Shares Treasury Stock 1,970,820 1,970,820 1,970,820 0.00%
Financial Data
2014 2013 2011
Cash $30,836 $30,836 $30,836
Accounts receivable $98,697 $98,697 $98,697
Inventories $11,776 $11,776 $11,776
Property, plant and equipment, net $52,980 $52,980 $52,980
Accounts payable $47,654 $47,654 $47,654
Accrued expenses $54,134 $54,134 $54,134
Accrued taxes $183,634 $183,634 $183,634
Long term debt $65,000 $65,000 $65,000
Number of Shares Common Stock 125,527,846 125,527,846 125,527,846
Number of Shares Treasury Stock 1,970,820 1,970,820 1,970,820

Q 4.7

2011
2013
2014
Balance Sheet Strength Trend

Q 4.10

Number of Shares Common Stock
Number of Shares Treasury Stock
Equities Trend

Q 4.15

Question 4.10 - Debt to equity and the competition
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Debt to Equity Ratio 0.062 0.062 0.062
Financial Data
2014 2013 2011
Long term debt 65,000 65,000 65,000
Total owner's equity 1,040,208 1,040,208 1,040,208
Debt to Equity Ratio 0.062 0.062 0.062
Debt to Equity Ratio = Long term debt ÷ Total owner's equity

Q 4.15

Debt to Equity Ratio
Debt to Equity Ratio Trend

Q 4.17

4.15 - The big questions. Are they makin' money? Are they lookin' good?
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Net revenue 2,457,918 2,457,918 2,457,918
Cost of Goods Sold 1,000 1,000 1,000
Gross Profit 2,456,918 2,456,918 2,456,918
Total Operating Expenses 2,367,738 2,367,738 2,367,738
Income From Operations 89,180 89,180 89,180
Total Non-Operation Income (17,375) (17,375) (17,375)
Provision for income tax 2,340 2,340 2,340
Net Income (Loss) (51,870) (51,870) (51,870)
Financial Data
2014 2013 2011
Net revenue 2,457,918 2,457,918 2,457,918
Cost of Goods Sold 1,000 1,000 1,000
Gross Profit 2,456,918 2,456,918 2,456,918
Total Operating Expenses 2,367,738 2,367,738 2,367,738
Income From Operations 89,180 89,180 89,180
Total Non-Operation Income (17,375) (17,375) (17,375)
Provision for income tax 2,340 2,340 2,340
Net Income (Loss) (51,870) (51,870) (51,870)

Q 4.17

2011
2013
2014
Operating Statement Trend

Q 4.18

Question 4.17 - How strong is your company's cash position?
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Cash generated by operating activities $268,427 $268,427 $268,427
Cash used in investing activities ($203,899) ($203,899) ($203,899)
Cash generated by financing activities ($115,519) ($115,519) ($115,519)
Increase/(decrease) in cash and cash equivalents ($50,991) ($50,991) ($50,991)
Cash balance at the beginning of the period $81,827 $81,827 $81,827
Cash balance at the end of the period $30,836 $30,836 $30,836
Financial Data
2014 2013 2011
Cash generated by operating activities $268,427 $268,427 $268,427
Cash used in investing activities ($203,899) ($203,899) ($203,899)
Cash generated by financing activities ($115,519) ($115,519) ($115,519)
Increase/(decrease) in cash and cash equivalents ($50,991) ($50,991) ($50,991)
Cash balance at the beginning of the period $81,827 $81,827 $81,827
Cash balance at the end of the period $30,836 $30,836 $30,836

Q 4.18

2011
2013
2014
Cash Position Trend

Q 4.19

Question 4.18 - How well can your company pay its bills
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Operating Cash Flow Ratio 0.432 0.432 0.432
Financial Data
2014 2013 2011
Cash generated by operating activities 268,427 268,427 268,427
Total current liabilities 620,950 620,950 620,950
Operating Cash Flow Ratio 0.432 0.432 0.432
Operating Cash Flow Ratio = Cash generated by operating activities ÷ Total current liabilities

Q 4.19

Operating Cash Flow Ratio
Operating Cash Flow Ratio Trend

Q 4.20

Question 4.19 - How leveraged is your company?
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Cash Interest Coverage Ratio (2.212) (2.212) (2.212)
Financial Data
2014 2013 2011
Cash generated by operating activities 268,427 268,427 268,427
Total interest expense and income (121,335) (121,335) (121,335)
Cash Interest Coverage Ratio (2.212) (2.212) (2.212)
Cash Interest Coverage Ratio = Cash generated by operating activities ÷ Total interest expense and income

Q 4.20

Cash Interest Coverage Ratio
Cash to Interest Coverage Ratio

Q 4.21

Question 4.20 - How well does your company invest in its future?
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Earnings to Equity Ratio 3410.296 3410.296 3410.296
Financial Data
2014 2013 2011
Earnings Per Share: Basic $28.26 $28.26 $28.26
Equity per share $0.01 $0.01 $0.01
Earnings to Equity Ratio 3410.296 3410.296 3410.296
Earnings to Equity Ratio = Earnings Per Share: Basic ÷ Equity per share

Q 4.21

Earnings to Equity Ratio
Earnings to Equity Ratio

Q 5.1

Question 4.21 - Capital and Treasury Stock
Trend Analysis
(in thousands)
Return to Table of Calculations
2011 2013 2014
Number of Shares Common Stock 125,527,846 125,527,846 125,527,846
Number of Shares Preferred Stock 1,252,662 1,252,662 1,252,662
Number of Shares Treasury Stock 1,970,820 1,970,820 1,970,820
Financial Data
2014 2013 2011
Number of Shares Common Stock 125,527,846 125,527,846 125,527,846
Number of Shares Preferred Stock 1,252,662 1,252,662 1,252,662
Number of Shares Treasury Stock 1,970,820 1,970,820 1,970,820

Q 5.1

Number of Shares Common Stock
Number of Shares Preferred Stock
Number of Shares Treasury Stock
Equities Trend

Q 5.2

Question 5.1 - Working Capital Balance
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Working Capital Balance (340,075) (340,075) (340,075)
Financial Data
2014 2013 2011
Total current assets 280,875 280,875 280,875
Total current liabilities 620,950 620,950 620,950
Working Capital Balance (340,075) (340,075) (340,075)
Working Capital Balance = Total current assets - Total current liabilities

Q 5.2

Working Capital Balance
Working Capital Balance

Q 5.3

Question 5.2 - Acid Test or Quick Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Acid Test Ratio 0.283 0.283 0.283
Financial Data
2014 2013 2011
Cash 30,836 30,836 30,836
Accounts receivable 98,697 98,697 98,697
Short term investments 45,903 45,903 45,903
Total 175,436 175,436 175,436
Total current liabilities 620,950 620,950 620,950
Acid Test Ratio 0.283 0.283 0.283
Acid Test Ratio = (Cash + Accounts receivable + Short term investments) ÷ Total current liabilities

Q 5.3

Acid Test Ratio
Acid Test Ratio Trend

Q 5.4

Question 5.3 - Current Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Current Ratio 0.452 0.452 0.452
Financial Data
2014 2013 2011
Total current assets 280,875 280,875 280,875
Total current liabilities 620,950 620,950 620,950
Current Ratio 0.452 0.452 0.452
Current Ratio = Total current assets ÷ Total current liabilities
÷

Q 5.4

Current Ratio
Current Ratio Trend

Q 5.5

Question 5.4 - Cash Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Cash Ratio 0.05 0.05 0.05
Financial Data
2014 2013 2011
Cash 30,836 30,836 30,836
Total current liabilities 620,950 620,950 620,950
Cash Ratio 0.05 0.05 0.05
Cash Ratio = Cash ÷ Total current liabilities
÷

Q 5.5

Cash Ratio
Cash Ratio Trend

Q 5.6

Question 5.5 - Return on Sales Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Return on Sales Ratio (0.023) (0.023) (0.023)
Financial Data
2014 2013 2011
Net Income (Loss) (51,870) (51,870) (51,870)
Net sales 2,291,757 2,291,757 2,291,757
Return on Sales Ratio (0.023) (0.023) (0.023)
Return on Sales Ratio = Net Income (Loss) ÷ Net sales
÷

Q 5.6

Return on Sales Ratio
Return on Sales Ratio Trend

Q 5.7

Question 5.6 - Return on Equity Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Return on Equity Ratio (0.05) (0.05) (0.05)
Financial Data
2014 2013 2011
Net Income (Loss) (51,870) (51,870) (51,870)
Total owner's equity 1,040,208 1,040,208 1,040,208
Return on Equity Ratio (0.05) (0.05) (0.05)
Return on Equity Ratio = Net Income (Loss) ÷ Total owner's equity
÷

Q 5.7

Return on Equity Ratio
Return on Equity Ratio Trend

Q 5.8

Question 5.7 - Return on Assets Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Return on Assets Ratio (0.012) (0.012) (0.012)
Financial Data
2014 2013 2011
Net Income (Loss) (51,870) (51,870) (51,870)
Total assets 4,466,061 4,466,061 4,466,061
Return on Assets Ratio (0.012) (0.012) (0.012)
Return on Assets Ratio = Net Income (Loss) ÷ Total assets
÷

Q 5.8

Return on Assets Ratio
Return on Assets Ratio Trend

Q 5.9

Question 5.8 - Asset Turnover Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Asset Turnover Ratio 0.513 0.513 0.513
Financial Data
2014 2013 2011
Net sales 2,291,757 2,291,757 2,291,757
Total assets 4,466,061 4,466,061 4,466,061
Asset Turnover Ratio 0.513 0.513 0.513
Asset Turnover Ratio = Net sales ÷ Total assets
÷

Q 5.9

Asset Turnover Ratio
Asset Turnover Ratio Trend

Q 5.10

Question 5.9 - Gross Profit Margin Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Gross Profit Margin Ratio 1.072 1.072 1.072
Financial Data
2014 2013 2011
Gross Profit 2,456,918 2,456,918 2,456,918
Net sales 2,291,757 2,291,757 2,291,757
Gross Profit Margin Ratio 1.072 1.072 1.072
Gross Profit Margin Ratio = Gross Profit ÷ Net sales
÷

Q 5.10

Gross Profit Margin Ratio
Gross Profit Margin Ratio Trend

Q 5.11

Question 5.10 - Inventory Turnover Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Inventory Turnover Ratio 0.085 0.085 0.085
Financial Data
2014 2013 2011
Cost of Goods Sold 1,000 1,000 1,000
Inventories 11,776 11,776 11,776
Inventory Turnover Ratio 0.085 0.085 0.085
Inventory Turnover Ratio = Cost of Goods Sold ÷ Inventories
÷

Q 5.11

Inventory Turnover Ratio
Inventory Turnover Ratio Trend

Q 5.12

Question 5.11 - Days In Inventory Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Days In Inventory Ratio 4,239.36 4,239.36 4,239.36
Financial Data
2014 2013 2011
360 360 360 360
Inventory Turnover Ratio 0.085 0.085 0.085
Days In Inventory Ratio 4,239.36 4,239.36 4,239.36
Days In Inventory Ratio = 360 ÷ Inventory Turnover Ratio
÷

Q 5.12

Days In Inventory Ratio
Days In Inventory Ratio Trend

Q 5.13

Question 5.12 - Accounts Receivable Turnover Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Accounts Receivable Turnover Ratio 23.22 23.22 23.22
Financial Data
2014 2013 2011
Net sales 2,291,757 2,291,757 2,291,757
Accounts receivable 98,697 98,697 98,697
Accounts Receivable Turnover Ratio 23.22 23.22 23.22
Accounts Receivable Turnover Ratio = Net sales ÷ Accounts receivable
÷

Q 5.13

Accounts Receivable Turnover Ratio
Accounts Receivable Turnover Ratio Trend

Q 5.14

Question 5.13 - Average Collection Period
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Average Number Days Collection Period 16 16 16
Financial Data
2014 2013 2011
360 360 360 360
Accounts Receivable Turnover Ratio 23.22 23.22 23.22
Average Number Days Collection Period 16 16 16
Average Number Days Collection Period = 360 ÷ Accounts Receivable Turnover Ratio
÷

Q 5.14

Average Number Days Collection Period
Average Collection Period Trend

Q 5.15

Question 5.14 - Accounts Payable Turnover Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Accounts Payable Turnover Ratio 0.021 0.021 0.021
Financial Data
2014 2013 2011
Cost of Goods Sold 1,000 1,000 1,000
Accounts payable 47,654 47,654 47,654
Accounts Payable Turnover Ratio 0.021 0.021 0.021
Accounts Payable Turnover Ratio = Cost of Goods Sold ÷ Accounts payable
÷

Q 5.15

Accounts Payable Turnover Ratio
Accounts Payable Turnover Ratio Trend

Q 5.16

Question 5.15 - Net Working Capital Turnover Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Net Working Capital Turnover Ratio (6.739) (6.739) (6.739)
Financial Data
2014 2013 2011
Total current assets 280,875 280,875 280,875
Total current liabilities 620,950 620,950 620,950
Working Capital (340,075) (340,075) (340,075)
Net sales 2,291,757 2,291,757 2,291,757
Working Capital (340,075) (340,075) (340,075)
Net Working Capital Turnover Ratio (6.739) (6.739) (6.739)
Working Capital = Total current assets - Total current liabilities
Net Working Capital Turnover Ratio = Net sales ÷ Working Capital
÷

Q 5.16

Net Working Capital Turnover Ratio
Net Working Capital Turnover Ratio Trend

Q 5.17

Question 5.16 - Debt to Equity Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Debt to Equity Ratio 3.293 3.293 3.293
Financial Data
2014 2013 2011
Total Liabilities 3,425,853 3,425,853 3,425,853
Total owner's equity 1,040,208 1,040,208 1,040,208
Debt to Equity Ratio 3.293 3.293 3.293
Debt to Equity Ratio = Total Liabilities ÷ Total owner's equity
÷

Q 5.17

Debt to Equity Ratio
Debt to Equity Ratio Trend

Q 5.18

Question 5.17 - Debt to Asset Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Debt to Asset Ratio 0.767 0.767 0.767
Financial Data
2014 2013 2011
Total Liabilities 3,425,853 3,425,853 3,425,853
Total assets 4,466,061 4,466,061 4,466,061
Debt to Asset Ratio 0.767 0.767 0.767
Debt to Asset Ratio = Total Liabilities ÷ Total assets
÷

Q 5.18

Debt to Asset Ratio
Debt to Asset Ratio Trend

Q 5.19

Question 5.18 - Gearing Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Gearing Ratio 2.696 2.696 2.696
Financial Data
2014 2013 2011
Total non-current liabilities 2,804,903 2,804,903 2,804,903
Total owner's equity 1,040,208 1,040,208 1,040,208
Gearing Ratio 2.696 2.696 2.696
Gearing Ratio = Total non-current liabilities ÷ Total owner's equity
÷

Q 5.19

Gearing Ratio
Gearing Ratio Trend

Q 5.20

Question 5.19 - Interest Coverage Ratio or Debt Service Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Interest Coverage Ratio 0.408 0.408 0.408
Financial Data
2014 2013 2011
Income Before Income Taxes ($49,530) ($49,530) ($49,530)
Total interest expense and income ($121,335) ($121,335) ($121,335)
Interest Coverage Ratio 0.408 0.408 0.408
Interest Coverage Ratio = Income Before Income Taxes ÷ Total interest expense and income
÷

Q 5.20

Interest Coverage Ratio
Interest Coverage Ratio Trend

Q 5.21

Question 5.20 - Earnings per Share
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Earnings Per Share: Basic $28.26 $28.26 $28.26
Financial Data
2014 2013 2011
Earnings Per Share: Basic $28.26 $28.26 $28.26

Q 5.21

Earnings Per Share: Basic
Earnings per Share Trend

Q 5.22

Question 5.21 - Price/Earnings Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Price/Earnings Ratio 2.052 2.052 2.052
Financial Data
2014 2013 2011
Stock Price $58.000 $58.000 $58.000
Earnings Per Share: Basic $28.26 $28.26 $28.26
Price/Earnings Ratio 2.052 2.052 2.052
Price/Earnings Ratio = Stock Price ÷ Earnings Per Share: Basic
÷
* Manually enter Stock Price on Instruction Sheet

Q 5.22

Price/Earnings Ratio
Price/Earnings Ratio Trend

Q 5.23

Question 5.22 - Dividend per Share
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Dividend per Share $12.50 $12.50 $12.50
Financial Data
2014 2013 2011
Dividend per Share* $12.50 $12.50 $12.50
*Manually enter Divdend per Share on Instruction sheet

Q 5.23

Dividend per Share
Dividend per Share Trend

Template

Question 5.23 - Dividend Payout Ratio
Trend Analysis
2011 2013 2014 Return to Table of Calculations
Dividend Payout Ratio 0.44 0.44 0.44
Financial Data
2014 2013 2011
Dividends per Share: Basic $12.50 $12.50 $12.50
Earnings Per Share: Basic $28.26 $28.26 $28.26
Dividend Payout Ratio 0.44 0.44 0.44
Dividend Payout Ratio = Dividends per Share: Basic ÷ Earnings Per Share: Basic
÷

Template

Dividend Payout Ratio
Dividend Payout Ratio Trend

Ver Changes

Trend Analysis
Next Previous Year Previous Year Current Year
Financial Data
Current Year Previous Year Next Previous Year
Version Changes
Ed 3 Build 3
11/24/12 Changes to Statement of Cash Flows
Added three rows. 1 row for new data entry field and 2 blank rows for spaces.
"Other change to cash or cash equivelants"
Value is added to the formula for 'Increase/(decrease) in cash and cash equivalents'
11/26/12 Changes to Page 4.17
Added percent of change from previous year to current year
Changed trend chart to exclude common stock and treasury stock
Added new trend chart to show only common stock and treasury stock

Corporate Annual Report Project

Read Chapter 1 from eText, “Getting Under the Hood of an Annual Report”

Select a U.S. publicly-traded company for the project from the list provided by your instructor

You have to pick one of the following and pull the 10-K

CVS

Darden

Ford

Proctor and Gamble

This week you will begin this project. It will be completed and handed in next week.

• Read pages 693-695 and familiarize yourself with the "Accounting Cycle

Review Problem A"

• Complete Requirements 1, 2, and 3

• Use the template provided below to complete the work.

Template for Accounting Review Problem

Corporate Annual Report

Corporate Annual Report Project

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