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28 Sep 2019
Lloyd Inc. has sales of $ 200,000, a net income of $ 15,000, and the following balance sheet: Cash $ 10,000 Accounts payable $ 30,000 Receivables 50,000 Other current liabilities 20,000 Inventories 150,000 Long- term debt 50,000 Net fixed assets 90,000 Common equity 200,000 Total assets $ 300,000 Total liabilities and equity $ 300,000 The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5X, without affecting sales or net income. If inventories are sold off and not replaced ( thus reducing the current ratio to 2.5X), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? What will be the firm's new quick ratio?
Lloyd Inc. has sales of $ 200,000, a net income of $ 15,000, and the following balance sheet: Cash $ 10,000 Accounts payable $ 30,000 Receivables 50,000 Other current liabilities 20,000 Inventories 150,000 Long- term debt 50,000 Net fixed assets 90,000 Common equity 200,000 Total assets $ 300,000 Total liabilities and equity $ 300,000 The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average, 2.5X, without affecting sales or net income. If inventories are sold off and not replaced ( thus reducing the current ratio to 2.5X), if the funds generated are used to reduce common equity (stock can be repurchased at book value), and if no other changes occur, by how much will the ROE change? What will be the firm's new quick ratio?
Jarrod RobelLv2
28 Sep 2019
Related questions
| Millions of USD (except for per share items) | 2015 | 2014 | |
| Sales | $ 114,826 | $ 114,960 | |
| Cost of Goods Sold | 86,483 | 86,714 | |
| Gross Profit | 28,343 | 28,246 | |
| Selling/General/Admin. Expenses, Total | 22,663 | 22,053 | |
| Operating Income | 5,680 | 6,193 | |
| Interrest and Taxes | 2,336 | 2,600 | |
| Net Income | $ 3,344 | $ 3,593 | |
| Market Price/Share | $ 65.68 | $ 84.26 | |
| Shares Outstanding | 3,210 | 3,210 |
| Millions of USD (except for per share items) | As of 2015 | As of 2014 |
| Cash & Equivalents | $ 7,759 | $ 6,012 |
| Total Receivables, Net | 5,813 | 6,096 |
| Total Inventory | 46,310 | 45,315 |
| Prepaid Expenses | 2,251 | 1,811 |
| Total Current Assets | 62,133 | 59,687 |
| Property/Plant/Equipment, Total - Gross | 138,614 | 142,830 |
| Total Assets | $ 200,747 | $ 202,517 |
| Accounts Payable | 37,224 | 36,347 |
| Accrued Expenses | 18,685 | 17,807 |
| Notes Payable/Short Term Debt | 799 | 3,517 |
| Current Port. of LT Debt/Capital Leases | 6,468 | 3,566 |
| Other Current liabilities, Total | 6,448 | 6,684 |
| Total Current Liabilities | 69,624 | 67,921 |
| Total Long Term Debt | 42,964 | 48,233 |
| Deferred Income Tax | 8,169 | 8,164 |
| Minority Interest | 3,416 | 5,111 |
| Total Liabilities | 124,173 | 129,429 |
| Total Equity | 76,574 | 73,088 |
| Total Liabilities & Shareholders' Equity | 200,747 | 202,517 |
| - | - | |
| Total # Common Shares Outstanding | $ 3,227 | $ 3,230 |
| Category | Two Ratios from Each Category | Ratio | Formula | 2015 | 2014 | |
| Liquidity | Current and Quick Ratio | Current | Current Assests/Current Liabilites | |||
| Quick | (CA - Inventories)/Current Liabilites | |||||
| Asset Management | Total Assets Turnover, Total Fixed Asset Turnover | Total Assets Turnover, | Sales/Total Assets | |||
| Total Fixed Asset Turnover | Sales/Total Fixed Assets | |||||
| Debt Management | Debt to Assets and Debt to Equity | Debt to Assets | Total Liabilities / Total Assests | |||
| Debt to Equity | Total Liabilities / Common Stockholders Equity | |||||
| Profitability Ratio | Return on Assets and Return on Equity | Return on Assets | Net Income/Total Assets | |||
| Return on Equity | Net Income/Common Equity | |||||
| Market Ratio | Earnings Per Share and Price to Earnings Ratio | Earnings Per Share | Net Income / Common Shares Outstanding | |||
| Price to Earnings Ratio | Market Price of Shares/Earning Per Share |
