Preferred Shares and GP Margin

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fbc203

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Hello All,

This is my first post on this forum. I mainly signed up for this thing to have a 2 giant itches scratched from Saturday. I will not post the exact questions here (mainly because I don't remember the numbers/questions verbatim), but the general idea was:

1) Is the value of a preferred share undervalued/overvalued and by how much if you are given Cost of Equity, Dividend, and Current Price.

I was expecting this to be an easy DDM question, but I realized that there was no ROE and Payout/Growth Rate! Anybody?


2) There was one question (not sure exactly what) about what happens to certain profitability ratios when shipping is classified as sales and when COGS go to SG&A (Sorry, but I don't know exactly how it was worded). I spent 10 minutes trying to figure out what the heck they meant. I ended up with GP margin being overstated. Please advise.

Thank you and I appreciate your responses in advance!
 
1) Cost of prefered shares = Dividend / %Cost Prefered Equity.
If current price > Sell, if current price < buy!

2) I am not going to comment on the question. Just know the differnences between gross margin and op margin and which one is which ( I screwed that up.)
 
fbc203,
To answer your first question, which I remember.
the company recognizes shipping fees as revenue and does not include SG&A expenses as part of COGS. Therefore, GP is overstated.
 
DanLieb Wrote:
-------------------------------------------------------
> 1) Cost of prefered shares = Dividend / %Cost
> Prefered Equity.
> If current price > Sell, if current price < buy!
>
> 2) I am not going to comment on the question.
> Just know the differnences between gross margin
> and op margin and which one is which ( I screwed
> that up.)

That's how I got the answer too for question 1. For question 2 since the shipping costs were not included in COGS that means they were not included in the gross margin number and thus GPM was overstated.
 
this questions was a bomb.

I think in a typical manufacture setting

Gross Sales - COGS = Gross Profit (GP Margin = GP/Sales, and shipping is considered COGS)
so if Shipping was mistakenly not included in COGS, GP will be overstated so does GPM.

from there GP - SG&A (operating exp) = EBITDA
EBITDA - Depreciation = Operating Income
OI - Interest - Tax = Net Income/Loss

maybe our accounting experts here can confirm this ... i am not much of an acct. person, only a little bit of it at work



Edited 1 time(s). Last edit at Wednesday, December 10, 2008 at 02:29PM by FINDIS07.
 
Thanks to all for the insight! The simple income statement calculations are easy (for problem 2), but I just could not understand what the heck they were saying. (Must've been the afternoon session brain drain)
 
shanao621 Wrote:
-------------------------------------------------------
> DanLieb Wrote:
> --------------------------------------------------
> -----
> > 1) Cost of prefered shares = Dividend / %Cost
> > Prefered Equity.
> > If current price > Sell, if current price <
> buy!
> >
> > 2) I am not going to comment on the question.
> > Just know the differnences between gross margin
> > and op margin and which one is which ( I
> screwed
> > that up.)
>
> That's how I got the answer too for question 1.
> For question 2 since the shipping costs were not
> included in COGS that means they were not included
> in the gross margin number and thus GPM was
> overstated.


I got this one too, HUGE!!!!
 
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