BUSI 690 GoPro Case Study: Historical
Financial Analysis Assignment | 2026
Update with complete solutions.
1. GoPro's 2023 10-K reports a $12 million increase in the allowance for sales returns.
Which financial statement effect is most consistent with this change under ASC 606?
A. A decrease in net revenue and an increase in the refund liability.
B. An increase in net revenue and a decrease in cost of goods sold.
C. A decrease in operating expenses and an increase in deferred revenue.
D. An increase in accounts receivable and a decrease in inventory.
Answer: A. A decrease in net revenue and an increase in the refund liability.
Rationale: Under ASC 606, an increase in expected sales returns reduces the transaction
price, lowering net revenue and increasing the refund liability. Option B is incorrect
because returns reduce revenue, not increase it. Option C misclassifies the effect as an
operating expense and confuses deferred revenue with refund liability. Option D
incorrectly links returns to receivables and inventory without recognizing the revenue
reversal.
2. When computing GoPro's free cash flow to the firm (FCFF) for 2022, which item
should be added back to net income?
A. Dividends paid to common shareholders.
B. Interest expense after tax.
C. Repayment of long-term debt.
D. Changes in accounts payable.
Answer: B. Interest expense after tax.
Rationale: FCFF starts with net income and adds back after-tax interest expense to arrive
at unlevered cash flow. Dividends paid (A) are a financing cash flow and not added back.
Debt repayment (C) is also financing. Changes in accounts payable (D) are part of working
capital adjustments but not a direct add-back to net income in the FCFF formula.
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,3. GoPro's inventory turnover ratio declined from 4.2 to 3.1 between 2021 and 2022.
Which conclusion is most defensible?
A. GoPro likely improved its cash conversion cycle.
B. GoPro may be facing weaker demand or obsolescence risk.
C. GoPro's gross margin necessarily increased.
D. GoPro reduced its days sales outstanding.
Answer: B. GoPro may be facing weaker demand or obsolescence risk.
Rationale: A declining inventory turnover suggests slower inventory movement, often due
to weaker sales or obsolescence. Option A is incorrect because slower turnover typically
lengthens, not shortens, the cash conversion cycle. Option C is not directly implied; gross
margin could fall if discounts are needed. Option D relates to receivables, not inventory.
4. In a DuPont decomposition, GoPro's ROE fell despite a stable net profit margin and
asset turnover. Which factor most likely explains this?
A. A decrease in the equity multiplier.
B. An increase in the tax rate.
C. A decrease in interest expense.
D. An increase in dividend payout.
Answer: A. A decrease in the equity multiplier.
Rationale: ROE = Net Profit Margin × Asset Turnover × Equity Multiplier. If margin and
turnover are stable, a lower equity multiplier (less leverage) reduces ROE. An increase in
tax rate (B) would affect net margin, which is stated as stable. Lower interest expense (C)
would increase net income, not decrease ROE. Dividend payout (D) affects retained
earnings but not the DuPont components directly.
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,5. GoPro reports a large deferred tax asset valuation allowance in 2023. What is the
most likely impact on its effective tax rate?
A. It lowers the effective tax rate by reducing tax expense.
B. It raises the effective tax rate by increasing tax expense.
C. It has no effect on the effective tax rate.
D. It increases deferred tax liabilities.
Answer: B. It raises the effective tax rate by increasing tax expense.
Rationale: A valuation allowance increases tax expense because the company does not
expect to realize the deferred tax asset, raising the effective tax rate. Option A is the
opposite. Option C is incorrect because the allowance directly affects tax expense. Option
D confuses the allowance with a liability; it is a contra-asset.
6. In GoPro's historical income statement, the company reports both GAAP and
non-GAAP measures. Which adjustment most commonly explains the largest gap
between GoPro's GAAP and non-GAAP net income during its post-IPO years?
A. Foreign currency translation gains
B. Stock-based compensation expense
C. Restructuring charges
D. Deferred tax valuation allowance releases
Answer: B. Stock-based compensation expense
Rationale: GoPro's non-GAAP reconciliations consistently exclude stock-based
compensation as the single largest recurring adjustment, reflecting its heavy equity-based
pay practices. Foreign currency and restructuring items appear but are smaller or
non-recurring, and deferred tax releases are occasional rather than the dominant driver.
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, 7. GoPro's cash conversion cycle is being analyzed. If days inventory outstanding is 95,
days sales outstanding is 40, and days payable outstanding is 55, what is the cash
conversion cycle, and what does it imply about GoPro's working capital needs?
A. 80 days; the company funds 80 days of operations before collecting cash
B. 190 days; the company has unusually strong supplier financing
C. 10 days; working capital is nearly self-funding
D. 150 days; inventory is the only relevant component
Answer: A. 80 days; the company funds 80 days of operations before collecting cash
Rationale: CCC = DIO + DSO DPO = 95 + 40 55 = 80 days, meaning GoPro must
finance 80 days of operations before converting outlays to cash. The other options
misapply the formula or overstate the role of a single component.
8. When computing GoPro's free cash flow from historical statements, which
treatment is most consistent with standard financial analysis practice?
A. Subtract only maintenance capex and ignore growth capex
B. Add back all depreciation and amortization but subtract capital expenditures
C. Include proceeds from stock issuances as operating cash flow
D. Use net income plus changes in working capital without adjusting for capex
Answer: B. Add back all depreciation and amortization but subtract capital
expenditures
Rationale: FCF is typically CFO minus capital expenditures, with D&A added back within
CFO. Stock issuance is financing, not operating, and omitting capex or distinguishing
maintenance vs. growth capex is not the standard simple FCF definition.
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Financial Analysis Assignment | 2026
Update with complete solutions.
1. GoPro's 2023 10-K reports a $12 million increase in the allowance for sales returns.
Which financial statement effect is most consistent with this change under ASC 606?
A. A decrease in net revenue and an increase in the refund liability.
B. An increase in net revenue and a decrease in cost of goods sold.
C. A decrease in operating expenses and an increase in deferred revenue.
D. An increase in accounts receivable and a decrease in inventory.
Answer: A. A decrease in net revenue and an increase in the refund liability.
Rationale: Under ASC 606, an increase in expected sales returns reduces the transaction
price, lowering net revenue and increasing the refund liability. Option B is incorrect
because returns reduce revenue, not increase it. Option C misclassifies the effect as an
operating expense and confuses deferred revenue with refund liability. Option D
incorrectly links returns to receivables and inventory without recognizing the revenue
reversal.
2. When computing GoPro's free cash flow to the firm (FCFF) for 2022, which item
should be added back to net income?
A. Dividends paid to common shareholders.
B. Interest expense after tax.
C. Repayment of long-term debt.
D. Changes in accounts payable.
Answer: B. Interest expense after tax.
Rationale: FCFF starts with net income and adds back after-tax interest expense to arrive
at unlevered cash flow. Dividends paid (A) are a financing cash flow and not added back.
Debt repayment (C) is also financing. Changes in accounts payable (D) are part of working
capital adjustments but not a direct add-back to net income in the FCFF formula.
Page 1 of 73
,3. GoPro's inventory turnover ratio declined from 4.2 to 3.1 between 2021 and 2022.
Which conclusion is most defensible?
A. GoPro likely improved its cash conversion cycle.
B. GoPro may be facing weaker demand or obsolescence risk.
C. GoPro's gross margin necessarily increased.
D. GoPro reduced its days sales outstanding.
Answer: B. GoPro may be facing weaker demand or obsolescence risk.
Rationale: A declining inventory turnover suggests slower inventory movement, often due
to weaker sales or obsolescence. Option A is incorrect because slower turnover typically
lengthens, not shortens, the cash conversion cycle. Option C is not directly implied; gross
margin could fall if discounts are needed. Option D relates to receivables, not inventory.
4. In a DuPont decomposition, GoPro's ROE fell despite a stable net profit margin and
asset turnover. Which factor most likely explains this?
A. A decrease in the equity multiplier.
B. An increase in the tax rate.
C. A decrease in interest expense.
D. An increase in dividend payout.
Answer: A. A decrease in the equity multiplier.
Rationale: ROE = Net Profit Margin × Asset Turnover × Equity Multiplier. If margin and
turnover are stable, a lower equity multiplier (less leverage) reduces ROE. An increase in
tax rate (B) would affect net margin, which is stated as stable. Lower interest expense (C)
would increase net income, not decrease ROE. Dividend payout (D) affects retained
earnings but not the DuPont components directly.
Page 2 of 73
,5. GoPro reports a large deferred tax asset valuation allowance in 2023. What is the
most likely impact on its effective tax rate?
A. It lowers the effective tax rate by reducing tax expense.
B. It raises the effective tax rate by increasing tax expense.
C. It has no effect on the effective tax rate.
D. It increases deferred tax liabilities.
Answer: B. It raises the effective tax rate by increasing tax expense.
Rationale: A valuation allowance increases tax expense because the company does not
expect to realize the deferred tax asset, raising the effective tax rate. Option A is the
opposite. Option C is incorrect because the allowance directly affects tax expense. Option
D confuses the allowance with a liability; it is a contra-asset.
6. In GoPro's historical income statement, the company reports both GAAP and
non-GAAP measures. Which adjustment most commonly explains the largest gap
between GoPro's GAAP and non-GAAP net income during its post-IPO years?
A. Foreign currency translation gains
B. Stock-based compensation expense
C. Restructuring charges
D. Deferred tax valuation allowance releases
Answer: B. Stock-based compensation expense
Rationale: GoPro's non-GAAP reconciliations consistently exclude stock-based
compensation as the single largest recurring adjustment, reflecting its heavy equity-based
pay practices. Foreign currency and restructuring items appear but are smaller or
non-recurring, and deferred tax releases are occasional rather than the dominant driver.
Page 3 of 73
, 7. GoPro's cash conversion cycle is being analyzed. If days inventory outstanding is 95,
days sales outstanding is 40, and days payable outstanding is 55, what is the cash
conversion cycle, and what does it imply about GoPro's working capital needs?
A. 80 days; the company funds 80 days of operations before collecting cash
B. 190 days; the company has unusually strong supplier financing
C. 10 days; working capital is nearly self-funding
D. 150 days; inventory is the only relevant component
Answer: A. 80 days; the company funds 80 days of operations before collecting cash
Rationale: CCC = DIO + DSO DPO = 95 + 40 55 = 80 days, meaning GoPro must
finance 80 days of operations before converting outlays to cash. The other options
misapply the formula or overstate the role of a single component.
8. When computing GoPro's free cash flow from historical statements, which
treatment is most consistent with standard financial analysis practice?
A. Subtract only maintenance capex and ignore growth capex
B. Add back all depreciation and amortization but subtract capital expenditures
C. Include proceeds from stock issuances as operating cash flow
D. Use net income plus changes in working capital without adjusting for capex
Answer: B. Add back all depreciation and amortization but subtract capital
expenditures
Rationale: FCF is typically CFO minus capital expenditures, with D&A added back within
CFO. Stock issuance is financing, not operating, and omitting capex or distinguishing
maintenance vs. growth capex is not the standard simple FCF definition.
Page 4 of 73
