QUESTIONS:
3-3 Over the past year, M.D. Tyner & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these changes?
3-5 How might (a) seasonal factors and (b) different growth rates distort a comparative ration analysis?
Give some examples.
How might these problems be alleviated?
3-6 Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
PROBLEMS:
3-1 Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.
Donaldson & Son has a ROA of 10% , a 2% profit margin, and a return on equity equal to 15%. What is the company’s total assets turnover?
What is the firm’s equity multiplier?
3-11 Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data:
Debt ratio: 50%
Quick ration: 0.80
Total assets turnover: 1.5
Days sales outstanding: 36.5 days*
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales =25%
Inventory turnover ratio: 5.0
*Calculation is based on a 365 day year.
Balance Sheet
Cash ________ Accounts payable ________
Accounts receivable ________ Long-term debt 60,000
Inventories _______ Common stock _______
Fixed assets _______ Retained earnings 97,500
Total assets $300,000 Total liabilities and equity _______
Sales ________ Cost of goods sold _______
3-3 Over the past year, M.D. Tyner & Co. has realized an increase in its current ratio and a drop in its total assets turnover ratio. However, the company’s sales, quick ratio, and fixed assets turnover ratio have remained constant. What explains these changes?
3-5 How might (a) seasonal factors and (b) different growth rates distort a comparative ration analysis?
Give some examples.
How might these problems be alleviated?
3-6 Why is it sometimes misleading to compare a company’s financial ratios with those of other firms that operate in the same industry?
PROBLEMS:
3-1 Greene Sisters has a DSO of 20 days. The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.
Donaldson & Son has a ROA of 10% , a 2% profit margin, and a return on equity equal to 15%. What is the company’s total assets turnover?
What is the firm’s equity multiplier?
3-11 Complete the balance sheet and sales information in the table that follows for Hoffmeister Industries using the following financial data:
Debt ratio: 50%
Quick ration: 0.80
Total assets turnover: 1.5
Days sales outstanding: 36.5 days*
Gross profit margin on sales: (Sales – Cost of goods sold)/Sales =25%
Inventory turnover ratio: 5.0
*Calculation is based on a 365 day year.
Balance Sheet
Cash ________ Accounts payable ________
Accounts receivable ________ Long-term debt 60,000
Inventories _______ Common stock _______
Fixed assets _______ Retained earnings 97,500
Total assets $300,000 Total liabilities and equity _______
Sales ________ Cost of goods sold _______
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