MGAB01H3 Lecture Notes - Lecture 1: Asset, Profit Margin, Current Liability

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9 Dec 2016

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MGAB01H3 Full Course Notes

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Net earnings + interest expense (net of tax)/ average total assets. = 0. 019 or 1. 9: net profit margin. Use: to measure the ability of the company to pay its short- term obligations with short- term assets. The higher the ratio, the more cushion a company has to pay its current obligation. Though too high, ratio suggests inefficient use of resources. Use: to measure the sales generated per dollar of assets. A high total assets turnover ratio signifies efficient management of assets; a low assets turnover ratio signifies less efficient management. Creditors and security analysts use this ratio to assess a company"s effectiveness at controlling current and noncurrent assets. Roa measures how much the firm earned from the use of its assets. It is the broadest measure of profitability and management effectiveness, independent of financing strategy. Roa allows investors to compare management"s investment performance against alternative investment options.

Related Questions

1. The formula for Accounts Receivable turnover is

Select one:

a. Net Sales / average accounts receivable

b. Cost of goods sold / average accounts receivable

c. Net Sales / average merchandise inventory

d. 360 days / average accounts receivable

2. The category of ratios that determine the economic status ofpublicly-traded companies is

Select one:

a. Profitability ratios

b. Market value ratios

c. Liquidity Ratios

d. Solvency ratios

3. The working capital ratio is

Select one:

a. Quick assets / current liabilities

b. Working capital /current liabilities

c. Current assets minus current liabilities

d. Current assets/current liabilities

4. Earnings per share is calculated by

Select one:

a. Dividing net income by the authorized ordinary shares.

b. Dividing net income less preferred dividends by number ofordinary shares outstanding.

c. None of the above.

d. Dividing net income by the total number of ordinary andpreferred shares issued.

5. Which of the following belong to the profitabilityratios?

Select one:

a. Rate of return on equity

b. Rate of return on assets

c. All of the above

d. Gross Profit Margin

6. The category of ratios that shows the ability of the firm topay its long-term obligations is

Select one:

a. Profitability ratios

b. Solvency ratios

c. Market value ratios

d. Liquidity Ratios

7. Operating profit margin equals

Select one:

a. Income from operations / sales

b. Net income / sales

c. Gross profit / sales

d. Profit from operations / cost of sales

8. The following are quick assets except

Select one:

a. Short-term investments

b. Merchandise Inventory

c. Accounts Receivable

d. Cash

9. The following are liquidity ratios except

Select one:

a. Earnings per share

b. Working capital ratio

c. Quick ratio

d. Receivable turnover

10. Quick assets equals

Select one:

a. All current assets

b. Cash and Accounts receivable only.

c. Total assets less non-current assets

d. Current assets minus inventory

jadebear393

Problem 3-6
Du Pont Analysis

Gardial & Son has an ROA of 9%, a 3% profit margin, and a return on equity equal to 13%.

What is the company's total assets turnover? Round your answer to two decimal places.

What is the firm's equity multiplier? Round your answer to two decimal places.

Current and Quick Ratios

Ace Industries has current assets equal to $7 million. The company's current ratio is 2.5, and its quick ratio is 2.0.

What is the firm's level of current liabilities? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000

What is the firm's level of inventories? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000

Problem 3-8
Profit Margin and Debt Ratio

Assume you are given the following relationships for the Haslam Corporation:

Sales/total assets	1.9
Return on assets (ROA)	3%
Return on equity (ROE)	9%

Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.

Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.

Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.

Problem 3-9
Current and Quick Ratios

The Nelson Company has $1,650,000 in current assets and $550,000 in current liabilities. Its initial inventory level is $330,000, and it will raise funds as additional notes payable and use them to increase inventory.

How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.3? Round your answer to the nearest cent.

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

Problem 3-10
Times-Interest-Earned Ratio

The Morris Corporation has $850,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris's annual sales are $3.4 million, its average tax rate is 40%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 5 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Round intermediate calculations to two decimal places. Round your answer to two decimal places.

yellowdolphin418

Show ALL work

Ratio Analysis. The Williams Corporationâs forecasted 2010 financial statements follow, along with some industry average ratios.

Forecasted Balance Sheet as of December 31, 2010
Cash	$ 72,000
Accounts receivables	$ 439,000	Accounts and notes payable	$ 432,000
Inventories	$ 894,000	Accruals	$ 170,000
Total current assets	$1,405,000	Total current liabilities	$ 602,000
Land and building	$ 238,000	Long-term debt	$ 404,290
Machinery	$ 132,000	Common stock	$ 575,000
Other fixed assets	$ 61,000	Retained earnings	$ 254,710
Total assets	$1,836,000	Total liabilities and equity	$1,836,000

Forecasted Income Statement for 2010
Sales	$4,290,000
Cost of goods sold	$3,580,000	Per-Share Data
Gross operating profit	$ 710,000	EPS	$ 4.71
General admin & selling expenses	$ 236,320	DPS	$ 0.95
Depreciation	$ 159,000	P/E Ratio	5.00
Misc.	$ 134,000	Market price	$ 23.57
Earnings before Taxes	$ 180,680	Number of shares outstanding	23000
Taxes	$ 72,272
Net Income	$ 108,408

Industry Financial Ratios		Williamâs Financial Ratios	Ratio/Comment
Quick Ratio	1x	Quick Ratio
Current Ratio	2.7x	Current Ratio
Inventory Turnover	7x	Inventory Turnover
Days Sales Outstanding	40 days	Days Sales Outstanding
Fixed Asset Turnover	13x	Fixed Asset Turnover
Total Asset Turnover	2.6x	Total Asset Turnover
Return on Assets	9.10%	Return on Assets
Return on Equity	18.20%	Return on Equity
Debt Ratio	55%	Debt Ratio
Profit Margin on Sales	3.50%	Profit Margin on Sales
P/E Ratio	6x	P/E Ratio

Please show all work for the following questions.

a. Calculate the indicated ratios for Williamâs in the appropriate blanks.

b. Outline Williamâs strengths and weaknesses as compared to its industry. Be detailed in your ratio analysis.

c. Recommend at least three areas for correction. Be sure to support your recommendations.

d. Why is being trustworthy essential to success in the business world? Use at least two of the following scriptures to answer this question: Psalm 101:7, Proverbs 4:20-27, Proverbs 13:11, and Proverbs 28:12-13.

pucealpaca800

MGAB01H3 Lecture Notes - Lecture 1: Asset, Profit Margin, Current Liability

MGAB01H3 Full Course Notes

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