jimmy
2. Net worth of a company is calculated as: NET worth Total assets- total liabilities
3.How would you interpret a current ratio of 1.2? :
The best current ratio is between 1.2 to 2. So the company has enough liquid assets to cover its short-term liabilities.
4.A ratio which measures the ability to pay long-term obligation is: Debt to Assets Ratio(DR)
5. Data extracted form only the income statement can be used to : claculate a firm’s net profits
6. The information below is excerpted from the financial statements of two companies active in the retail industry. Use this information and the proper financial ratio(s) to answer the following questions.
(in $ million) Company A Company B
Net revenues 107958 37296
Net income 3526 1188
Accounts receivables 910 19908
Total current assets 18672 29564
Total assets
Total current liabilities 12708 15370
Total liabilities 26494 32433
Total stockholders’ equity 14000 4500
Note: Approximately 98% of Company B’s account receivables are from unpaid balances carried by customers using the store credit card.
Which company is better positioned to pay its bills in the short-run (i.e., is more liquid and less risky in the short-term)? Justify using appropriate ratio(s).
7. The information below is excerpted from the financial statements of two companies active in the retail industry. Use this information and the proper financial ratio(s) to answer the following questions
(in $ million) Company A Company B
Net revenues 107958 37296
Net income 3526 1188
Accounts receivables 910 19908
Total current assets 18672 29564
Total assets
Total current liabilities 12708 15370
Total liabilities 26494 32433
Total stockholders’ equity 14000 4500
Note: Approximately 98% of Company B’s account receivables are from unpaid balances carried by customers using the store credit card.
Is one company significantly more profitable than the other? Justify using appropriate ratio(s)
8.The information below is excerpted from the financial statements of two companies active in the retail industry. Use this information and the proper financial ratio(s) to answer the following questions.
(in $ million) Company A Company B
Net revenues 107958 37296
Net income 3526 1188
Accounts receivables 910 19908
Total current assets 18672 29564
Total assets
Total current liabilities 12708 15370
Total liabilities 26494 32433
Total stockholders’ equity 14000 4500
Note: Approximately 98% of Company B’s account receivables are from unpaid balances carried by customers using the store credit card.
Which company uses its assets better (i.e., more efficiently)? Justify using appropriate ratio(s).
9.The information below is excerpted from the financial statements of two companies active in the retail industry. Use this information and the proper financial ratio(s) to answer the following questions.
(in $ million) Company A Company B
Net revenues 107958 37296
Net income 3526 1188
Accounts receivables 910 19908
Total current assets 18672 29564
Total assets
Total current liabilities 12708 15370
Total liabilities 26494 32433
Total stockholders’ equity 14000 4500
Note: Approximately 98% of Company B’s account receivables are from unpaid balances carried by customers using the store credit card.
Which company is more leveraged? Justify using appropriate ratio(s).
10.
Use this information for New Tech Company to answer the following question.
Income Statement 2013 2014 2015
Sales 100 110 120
Cost of goods sold 50 51 52
Depreciation 20 20 20
General, sales & admin expenses 70 65 60
Taxes 10 10 10
Net Income -50 -36 -22
Balance Sheet 2013 2014 2015
Current Assets 40 45 40
Property, plant & equipment 60 55 60
Total Assets 100 100 100
Current Liabilities 40 40 35
Long-Term Liabilities 10 10 15
Equity 50 50 50
Total Liabilities & Equity 100 100 100
INDUSTRY AVERAGE RATIOS
2013 2014 2015
CR (Current Ratio) 1.5 1.5 1
DR (Debt Ratio) = TL/TA 60% 60% 60%
TAT (Total Asset Turnover) 2 2.2 2.5
PM (Profit Margin) 4% 5% 6%
Sales Growth 3% 2.50% 3%
Profit Growth 5% 25% 20%
Which of the following items characterize New Tech Company? (It may be more than one option). EXPLAIN (and report your calculations)
Low debt & unprofitable
High debt & unprofitable
Decreasing profit margin
Increasing sales with a decreasing sales growth rate
All the above characterize New Tech Company
From ratio analysis, we can infer the following:
- The company has low debt compared to the industry average but is not profitable
- Increasing sales with a decreasing sales growth rate