FIN 300 Lecture Notes - Lecture 2: Gross Margin, Inventory Turnover, Asset Turnover

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orchidmallard81

22 Jul 2018

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Cash flow statement: cash from operating activities, net income, depreciation, accounts receivable. Inventory: accounts payable, accrued liabilities, cash from investing activities, nfa + depreciation, cash from financing activities, dividends, short-term debt (std, long-term debt (ltd, common stock, change in cash account = coa + cia + cfa. For some purpose: short-term loans, liquidity ratios, networking capital. Liquidity rations: current ratio = current assets/current liabilities, quick ratio = (current assets - inventory)/current liabilities. Ltd/assets (std + ltd)/assets: equity multiplier = total assets/total equity. Profitability: return on assets = net income/total assets, return on equity = net income/total equity, net profit margin = net income/sales, gross profit margin = gross profit/sales. Inventory periods: receivable turnover, ar periods, aging receivables, bad debt, total asset turnover ratio = sales/total assets. Common sized financial analysis: tool to help explain changes in ratio, restate income statement, all accounts are percentage of sales, restate balance sheet, all accounts are percentage of total assets.

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

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

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				%

burgundydinosaur227

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

FIN 300 Lecture Notes - Lecture 2: Gross Margin, Inventory Turnover, Asset Turnover

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