Case #4
Question 1
- Current Ratio
Current assets/Current liabilities
33,485 / 33,404 = 1.002
- Inventory Turnover
COGs/Average Inventory
Average Inventory= (10,037+8,704) / 2 = 9,370.5
Therefore, 79,801 / 9,370.5 = 8.52
- Profit Margin on Sales
Net Income/Net Sales
11,936 / 147,069 = 0.081
- Debt to Assets Ratio
Total Liabilities/Total Assets
76,142 / 165,795 = 0.459
- Book Value per Share
Common Stockholder’s Equity/Outstanding Shares
89,653 / 17,891,000 = 0.00501
Question 2
- Current Ratio
Current assets/Current liabilities
3,067/3,060 = 1.002
- Inventory Turnover
COGs/Average Inventory
There is no provision of US$ for inventory in 2006. As a result, there is the usage of the closing inventory in 2007 as the average inventory.
Therefore, 7,310 / 919 = 7.95
- Profit Margin on Sales
Net Income/Net Sales
1,093 / 13,472 = 0.081
- Debt to Assets Ratio
Total Liabilities/Total Assets
6,975 / 15,187 = 0.459
- Book Value per Share
Common Stockholder’s Equity/Outstanding Shares
8,212/17,891,000 = 0.000459
-There does not seem to be an implication in the financial statement analysis given that the Current Ratio, Profit Margin on Sales and Debt to Assets Ratio reflect the same figures as question 1. The difference in the Inventory Turnover is present since question 2 uses the closing inventory figure in 2007 as the average inventory since the inventory figure for 2006 under US$ is not provided. Book Value per Share on the other hand shows a difference since one is expressed in pesos and the other in US$.
Question 3
- Current Ratio
Current assets/Current liabilities
17,007 / 18,579 = 0.915
- Inventory Turnover
COGs/Average Inventory
Average Inventory= (6,465 + 5,473) / 2 = 5,969
Therefore, 48,788 / 5,969 = 8.17
- Profit Margin on Sales
Net Income/Net Sales
8,557 / 82,887 = 0.103
- Debt to Assets Ratio
Total Liabilities/Total Assets
41,471 / 124,775 = 0.332
- Book Value per Share
Common Stockholder’s Equity/Outstanding Shares
82,606 / 17,891,000 = 0.00468
-The differences exist since there are varied differences that exist while preparing financial statements under US GAAP and Mexican FRS. There are some regulations involved that tend to differ.
Question 4
- Current Ratio
(0.915 – 1.002) / 1.002 = -0.0868
-0.0868 x 100 = -8.68
=-8.68%
- Inventory Turnover
(8.17 – 8.52) / 8.52 = -0.0411
-0.0411 x 100 = -4.11
=-4.11%
- Profit Margin on Sales
(0.103 – 0.081) / 0.081 = 0.2716
0.2716 x 100 = 27.16
=27.16%
- Debt to Asset Ratio
(0.332 – 0.459) / 0.459 = -0.2767
-0.2767 x 100 = -27.67
=-27.67%
- Book Value per Share
(0.00468 – 0.00501) / 0.00501 = -0.0659
-0.0659 x 100 = -6.59
= -6.59%
-Profit Margin on Sales has the biggest difference
-Debt to Assets Ratio has the smallest difference
-The difference that might have had the biggest impact on the financial statement differences is classification differences. A good example is where under Mexican FRS, advances to suppliers are usually recorded as inventories while they are classified as prepaid expenses under US GAAP.
-The financial statements will yield different financial ratios while conducting the analysis hence making it difficult on choosing which to apply. This is something that might present difficulties for potential shareholders while trying to make an investment decision.
-No, it is not unique to FEMSA. This is because GAAP requires adjustments for the reconciliation of deferred income taxes.
Question 5
-The reports are prepared using the Mexican GAAP.
-The financial statements are reported using Mexican Pesos.
-I would prefer the use of the Mexican GAAP. This is because the US GAAP does not incorporate the reversal of the adjustments to the financial statements for the effects of inflation as it is required under Mexican GAAP.
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