FINC311 Chapter Notes - Chapter 3: Asset Turnover, Reserve Requirement, Asset Management

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harlequinraven529

8 Mar 2018

School

University of Delaware

Department

Finance

Course

FINC311

Professor

Lynch, Christopher

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Document Summary

Standardized financial statement working with percentages instead of dollars. Ways of comparing and investigating the relationships between different pieces of financial information. Long term solvency, or financial leverage, ratios. Current ratio = current assets / current liabilities. Quick (or acid-test) ratio = current assets -- inventory / current liabilities. Inventory is least liquid current asset and book values are least reliable as measures of market value. Cash ratio = cash / current liabilities. Total debt ratio = total assets -- total equity / total assets. Takes into account all debts of all maturities to all creditors. Debt equity ratio = total debt / total equity. Equity multiplier = total assets / total equity. Equity multiplier = total assets / total equity = (total equity + total debt) / total equity. Time interest earned = ebit / interest. Cash coverage ratio = ebit + depreciation / interest. Inventory turnover = cost of goods sold / inventory.

Related Questions

Explain how the ratios help identify the strengths and weaknesses of the facility and the management team.

The students will use Financial Ratios to analyze a potential strategic acquisition.

The student will use the Financial Ratios to evaluate the current management teamâs ablity to make good long term and short term decisions. Should Acme continue to employ the current management team. If Beechtree is acquired, do we keep its management team or do build a new one

Ratio	Formula	Standard	Beechtree
Current Ratio (Liquidity)	Current Assets/Current Liabilities	1.3	1.15
Quick Ratio (liquidity)	(Current Assets-Supplies on hand)/Current Liabilities	1.2	.9
Days Cash on Hand (liquidity)	(Cash on Hand +Market Securities)/((Tot Operating Exp-Depreciation Exp)/365)	50	35
Days in Net Receivable (liquidity)	(Accounts Receivable +Notes Receivable + Other Receivable-allowance for uncollectable)/(Tot Operating Revenue/365)	49	65
Debt Service Coverage Ratio (solvency)	Net Operating Income/(Principal +interest + lease payment	>1	.89
Operating Margin (profitability)	Operating Income/Total Operating Revenue	>.05	-.005
Return on Total Assets (profitability)	Net Operating Income/Total Assets	1.1	.9

Net Operating Income for this financial statement=Decrease in unrestricted net assets + Interest Expense + Depreciation

scarletpug83

Some recent financial statements for Smolira Golf, Inc., follow.

SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016
	2015		2016			2015		2016
Assets					Liabilities and Ownersâ Equity
Current assets					Current liabilities
Cash	$	2,881	$	2,757	Accounts payable	$	2,208	$	2,710
Accounts receivable		4,712		5,671	Notes payable		1,805		2,226
Inventory		12,698		13,672	Other		101		118
Total	$	20,291	$	22,100	Total	$	4,114	$	5,054
					Long-term debt	$	14,400	$	17,160
					Ownersâ equity
					Common stock and paid-in surplus	$	43,500	$	43,500
Fixed assets					Accumulated retained earnings		15,709		39,915
Net plant and equipment	$	57,432	$	83,529	Total	$	59,209	$	83,415
Total assets	$	77,723	$	105,629	Total liabilities and ownersâ equity	$	77,723	$	105,629

SMOLIRA GOLF, INC. 2016 Income Statement
Sales			$	189,570
Cost of goods sold				127,303
Depreciation				5,223
EBIT			$	57,044
Interest paid				1,320
Taxable income			$	55,724
Taxes				19,503
Net income			$	36,221
Dividends	$	12,015
Retained earnings		24,206

Find the following financial ratios for Smolira Golf (use year-end figures rather than average values where appropriate): (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter the profitability ratios as a percent.)

		2015		2016
Short-term solvency ratios
a.	Current ratio		times		times
b.	Quick ratio		times		times
c.	Cash ratio		times		times
Asset utilization ratios
d.	Total asset turnover				times
e.	Inventory turnover				times
f.	Receivables turnover				times
Long-term solvency ratios
g.	Total debt ratio		times		times
h.	Debtâequity ratio		times		times
i.	Equity multiplier		times		times
j.	Times interest earned ratio				times
k.	Cash coverage ratio				times
Profitability ratios
l.	Profit margin				%
m.	Return on assets				%
n.	Return on equity				%

yellowgoat340

Some recent financial statements for Smolira Golf, Inc.,follow.

SMOLIRA GOLF, INC. Balance Sheets as of December 31, 2015 and 2016
	2015		2016			2015		2016
Assets					Liabilities and Ownersâ Equity
Current assets					Current liabilities
Cash	$	3,121	$	3,157	Accounts payable	$	2,168	$	2,630
Accounts receivable		4,752		5,751	Notes payable		1,765		2,146
Inventory		12,538		13,752	Other		93		110
Total	$	20,411	$	22,660	Total	$	4,026	$	4,886
					Long-term debt	$	13,100	$	15,860
					Ownersâ equity
					Common stock and paid-in surplus	$	39,500	$	39,500
Fixed assets					Accumulated retained earnings		15,669		39,331
Net plant and equipment	$	51,884	$	76,917	Total	$	55,169	$	78,831
Total assets	$	72,295	$	99,577	Total liabilities and ownersâ equity	$	72,295	$	99,577

SMOLIRA GOLF, INC. 2016 Income Statement
Sales			$	187,970
Cost of goods sold				126,503
Depreciation				5,303
EBIT			$	56,164
Interest paid				1,400
Taxable income			$	54,764
Taxes				19,167
Net income			$	35,597
Dividends	$	11,935
Retained earnings		23,662

Find the following financial ratios for Smolira Golf (useyear-end figures rather than average values where appropriate):(Do not round intermediate calculations and round youranswers to 2 decimal places, e.g., 32.16. Enter the profitabilityratios as a percent.)

		2015		2016
Short-term solvency ratios
a.	Current ratio		times		times
b.	Quick ratio		times		times
c.	Cash ratio		times		times
Asset utilization ratios
d.	Total asset turnover				times
e.	Inventory turnover				times
f.	Receivables turnover				times
Long-term solvency ratios
g.	Total debt ratio		times		times
h.	Debtâequity ratio		times		times
i.	Equity multiplier		times		times
j.	Times interest earned ratio				times
k.	Cash coverage ratio				times
Profitability ratios
l.	Profit margin				%
m.	Return on assets				%
n.	Return on equity				%

indigospider0

FINC311 Chapter Notes - Chapter 3: Asset Turnover, Reserve Requirement, Asset Management

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