FIN 311 Lecture Notes - Lecture 4: Inventory Turnover, Asset Turnover, Asset Management

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pucemouse259

14 Dec 2019

School

University of Arizona

Department

Finance

Course

FIN 311

Professor

Homi Songur

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Document Summary

Ratio comparisons should be made through time with competitors. The process of comparing a firm with a subset of competitors in the industry. An analysis of a firm"s ratios over time. Used to estimate the probability of improvement/deterioration of the firm"s financial health. Expected to improve but still below the industry average. Which means the company might have old inventory, or its control might. Inventory turnover is below industry average be poor. Firms ability to pay off debts that are maturing in one year. How efficiently the firm is using its assets. How the firm financed its assets and ability to pay long term debt. How profitably the firm is operating its assets. What investors think of firms future prospects. Current assets / current liabilities (current assets - inventories) / current liabilities. Number of days after making a sale before receiving cash. If dso is above industry,, the company collects on sales too slowly and has a poor credit policy.

Related Questions

A variety of interested parties-including existing and prospective creditors (such as lenders and suppliers), employees and managers, shareholders, regulators, security anaysts, and competitors-conduct the analysis of a businesses financial condition and performance. All parties tend to be interested, to some extent, in the same aspects pf cpmpany performance, but their particular emphasis on a specfic facet of the business's condition or performance may vary.

The following parties are either currently affiliated with Global Products Inc. (GPI) or are considering becoming so. Based on the following description, (1) answer the question "Who am I?" and (2) identify the class of financial ratios that they might be interested in.

I work for another organization that is considered with its own profitability and risk exposures. This means that my ratio analysis of GPI should focus on the following.

1. GPI's _(liquidy and profitability, liquidy and debt management, asset management and market value)_ratios are important because they provide insights into its capacity to repay its loans using readily available cash in accordance with the terms of our lending agreements.

2. However, because GPI's capacity to meet this obligation is also a function of (a) its ability to generate earnings and (b) its ability to raise funds in the financial funds in the financial markets,then I must also pay close attention to its _(market value and debt management, asset management and market value, profitability and market value)__ratios, respectively.

3. GPI's ability to raise additional capital in the financial markets is strongly influenced by GPI mangement's ability to operate their organizations assets efficiently and effectively. This implies the need to monitor GPI's _(liquidty, asset management or efficiency)____ ratios.

Who am I?
I am _(an existing shareholder, an existing bank lendor or creditor, an existing supplier, an existing industry regulator)___

sapphireswan911

1.Ellison corporation acquires redstone corporation because redston has unused production facilities that Ellison needs. This is an example of

a.diversification

b. vertical integration

c. Horizontal integration

d. None of the above

2. Synergy may result from which of the following?

a. Enhanced cash flow

b. Diversification

c. Excess cash

d. All of the above

3.Which of the following is not a qualitative factor?

a. Product users

b. Industry maturity

c. Sales of growth

d. Barriers to entry

e. None of the above

4.Present value calculations

a. Can help the creation of value

b. Can provide managers with a means of identifying the best investment choices.

c. Do not help in the creation of value

d. A and b

e. B and c

5. Which of the following ratios makes firm comparisons difficult?

1. EPS

2. Payout

3. Return on assets

4. ROE

5. None of the above

6. Breakeven EBIT analysis leads to

a. Issuance of debt

b. Issuance of stock

c. Both a and b

d. Either a or b

e. None of the above

7. If the bondâs coupon rate is greater than the general interest rates in the market, the bond will set at a

A. premium

b. discount

c. neither a nor b

8. As the interest rate used to discount future cash flows is decreased, present value of the future inflows

a. Increases

b. Decreases

c. Stays the same

9. The ______________ matches revenues with expenses for the entire accounting period

a. Balance sheet

b. Cash flow statement

c. Statement of retained earnings

d. Income statement

e. None of the above

10. What performing sensitivity analysis

a. Statistical methods should not be employed

b. Electronic spreadsheets make the job more manageable

c. Assumptions should be changed one at a time

d. All of the above

e. B and c

11.Jones is saving for a new outboard motor. He needs to have 10,000 4 years from now. How much must he set aside not have 10,000, 4 years from now if money compounds at 12% annually.

a.$6310

b. $6355

c. $6332

d. $6106

e. None of the above

12.A firms dividend policy impacts the firmâs ability to finance through

a. Retained earnings

b.Stock issue

c. Long term debt

d. None of the above

13. Synergy between two companies

a. Is the complimentary situation where value is created in the joining o the firms

b. May result in the improvement of the acquirers bottom line

c. Could be defined by purely qualitative benefits

d. A and c

e. B and c

15. The percentage of net income that a company distribution in dividends is referred to as the

a. EPS

b. Payout ratio

c. ROA

d. ROE

e. None of the above

16. The statement that shows investment is the firms and the distributions to owners is the

a. Income statement

b. Balance sheet

c. Statement of retained earnings

d. None of the above

17. Which of the following methods results in a net present value of zero?

a. IRR

b. Payback

c. Discounted payback

d. None of the above

18. Ivy company acquires Reynolds company. Reynolds is in a totally unrelated business to Ivy. This is an example of

a. Vertical integration

b. Horizontal integration

c. Diversification

d. None of the above

19. Which of the following limits a firmâs ability to raise equity through retained earnings?

a. Set divided policy

b. Low p/e

c. High p/e

d. None of the above

20. Testing the validity of your calculations by subjecting them to change is known as

a. Qualitative testing

b. Horizontal analysis

c. Vertical analysis

d. Sensitivity analysis

e. None of the above

21. Gadsen acquires digital corporation which is upstream in the marketing chain. This is an example of

a. Diversification

b. Vertical integration

c. Horizontal integration

d. None of the above

22. Which of the following methods help to âsizeâ the investment?

a. Payback

b. Present value payback

c. Present value index

d. IRR

e. None of the above

22. Aspect company acquires Penn company which is downstream in the production chain. This is an example of

a. Diversification

b. Vertical integration

c. Hortizontal integration

d. None of the above

23.The âefficient marketâ theory means to be reasonable because

a.There are fewer financial analysts valuing securities

b.There are hundreds of investors trying to make money from improperly valued securities, and the market forces which result in driving stock prices to fair value.

c. A and b

d. None of the above

24. Economic value is the same as

a. Book value/ net asset value

b. Owners equity

c. None of the above

25.When projected assets are more than projected liabilities and owners equity the plug will be

a. Notes payable

b. Notes receivable

c. Cash

d. None of the above

26. In a new issue, the ____ are those funds that remain after the neccessry fees have been deducted

a.Working capital

b.Free cash flow

c.Net proceeds

d.None of the above

27.A discount factor

a.Is the same as compounding future cash flows

b.Performs the reverse function of a compounding interest rate

c.Allows investors to quantify a figure which will assist them in comparing alternative investments

d.B and c

e.A, b, and c

28.Which of the following ratios is not a liquidity ratio?

a.ROE

b.Current

c.Quick

d.Receivable turnover

e.None of the above

29.Adrian Ardeel is saving for a new guitar. How much must Adrian set aside now to receive $4000, 7 years from now using a compound interest rate of 7% annually.

a.$2400

b.$2491

c.$2411

d.$2500

e.None of the above

30.The bondâs yield to maturity calculation is similar to a ______ calculation

a.NPV

b.IRR

c.Payback

d.Discounted payback

e.None of the above

31.Eric sets aside $100. If this money compounds at a 5%annual rate how much will Eric have 6 years from now?

a.$110

b.$121

c.$134

d.$138

e.None of the above

32.Which of the following methods does not consider the time value of money?

a.IRR

b.NPV

c.Payback

d.None of the above

33.Assessing key ratios of the company is an example of

a.Qualitative analysis

b.Quantitative analysis

c.Price level effect

d.Fixed cost

e.None of the above

34.The ratio which may observers use to quantify the stock markets opinion of a firm is the

a.ROE

b.EPS

c.D/E

d.P/E

e.None of the above

35.A bond which is valued at par has a yield to maturity which is _____ to its coupon rate

a.Equal to

b.Greater than

c.Less than

d.None of the above

36.Many coverage ratios include

a.Sinking fund obligations

b.Dividends

c.Both a and b

d.None of the above

37.The cost of capital can be defined as

a.The weighted average cost of attracting investors to the firm

b.The price of obtaining funding for the firm weighed according to target ratios in the capital structure

c.Less than the weighted average that investors in the firm require

d.A and b

e.A, b, and c

38.Most bonds pay interest

a.Monthly

b.Quarterly

c.Semiannually

d.Annually

e.None of the above

39.The quantitative method that often serves as an indicator of a firms ability to meet contractual obligations is

a.Receivables turnover

b.Inventory turnover

c.ROE

d.Coverage ratio

e.None of the above

FIN 311 Lecture Notes - Lecture 4: Inventory Turnover, Asset Turnover, Asset Management

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