Using Financial Reports: Analyzing Fixed Asset Turnover Ratio and Cash Flows
Cain Company operates in both the beverage and entertainment industries. In June 2006, Cain purchased Good Time, Inc., which produces and distributes motion picture, television, and home video products and recorded music; publishes books; and operates theme parks and retail stores. The purchase resulted in $2.7 billion in goodwill. Since 2006, Cain has undertaken a number of business acquisitions and divestitures (sales of businesses) as the company expands into the entertainment industry. Selected data from a recent annual report are as follows (amounts are in U.S. dollars in millions):
Property, Plant, Equipment, and Intangibles | Current | Prior |
From the Consolidated Balance Sheet | Year | Year |
Film costs, net of amortization | $1,272 | $ 991 |
Artists’ contracts, advances, and other entertainment assets | 761 | 645 |
Property, plant, and equipment, net | 2,733 | 2,559 |
Excess of cost over fair value of assets acquired | 3,076 | 3,355 |
From the Consolidated Statement of Income |
|
|
Total revenues | $9,714 | $10,644 |
From the Consolidated Statement of Cash Flows |
|
|
Income from continuing operations | $ 880 | $ 445 |
Adjustments: |
|
|
Depreciation | 289 | 265 |
Amortization | 208 | 190 |
Other adjustments (summarized) | (1,618) | (256) |
Net cash provided by continuing operations | (241) | 644 |
From the Notes to the Financial Statements |
|
|
Accumulated depreciation on property, plant, and equipment | $1,178 | $ 1,023 |
Required:
1. Compute the cost of the property, plant, and equipment at the end of the current year. Explain your answer.
2. What was the approximate age of the property, plant, and equipment at the end of the current year?
3. Compute the fixed asset turnover ratio for the current year. Explain your results.
4. What is “excess of cost over fair value of assets acquired”?
5. On the consolidated statement of cash flows. why are the depreciation and amortization amounts added to income from continuing operations?
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