UT Dallas, ACCT 3320
Excerpt: ... note the change) and TA's office hours (Thursday 10-12) if you need help. 5) You may work in groups however everybody will submit separate answers. 6) My written answers to these questions will be posted after the lecture. Questions for the ASICS case (THIS PART WILL BE COLLETED and GRADED) 1) Answer a, b, f, g, h, i, j. You may use the excel file I provided on the Web CT to calculate your answers. Additional Questions related to Financial Ratios (THIS PART WILL NOT BE COLLETED / WE WILL DISCUSS ANSWERS IN THE LECTURE) Question 1. Which of the following types of firms do you expect to have particularly high or low asset turnover ? Explain why. Supermarket- Pharmaceutical Company- Jewelry Retailer- Steel Company- Question 2. Which of the following types of firms do you expect to have high or low sales margins? Why? Supermarket- Pharmaceutical Company- Jewelry Retailer- Software Company- Question 3. James Broker, an analyst with an established brokerage ...
San Diego State, BUS 315
Excerpt: ... Asset Management (Efficiency) Total asset turnover = net sales/average total net assets Inventory turnover = net sales/average inventory or better = Net fixed asset turnover cost of goods sold/average inventory = net sales/average net fixed assets Common equity turnover = net sales/average common equity Note that equity is not an asset. The total asset turnover ratio would be the same as a total liabilities & equity turnover ratio. The common equity turnover ratio would eliminate the liabilities and preferred stock from the ratio. "Turnover" always indicates net sales (sales net of discounts and returns) divided by something else. ...
Kansas State University, AGEC 513
Excerpt: ... AGEC513-Spring 2008 Dr. Hikaru Peterson INCLASS EXERCISE 3 Due 8:30am, April 4 (Friday) Total 15 points Name_ 1. (9 points) Compute the missing values (a) through (h) based on the information provided below. Show all your calculations. Balance Sheet E&S Enterprises December 31, 2007 $4,500 Accounts Payable $19,600 (a) (b) (c) (d) Notes Payable Accruals Total Current Liabilities Long Term Debt Total Liabilities Equity (e) (f) (g) (h) (d) 1,000 Cash Accounts Receivable Inventory Total Current Assets Net Fixed Assets Total Assets Information: $10,000 Sales totaled $110,000. The gross profit margin was 25 percent. Inventory turnover was 3.0. The current ratio was 2.40. The total asset turnover was 1.13. The debt ratio was 53.8 percent. 2 2. (6 points) The following table summarizes average financial ratios for the KFMA (Kansas Farm Management Association) from 20 ...
Fitchburg, BUSINESS 91.202
Excerpt: ... BUSINESS FINANCE SPRING 2008 EXAM 1 FORMULAE SHEET Chapter 2: You may bring manual for your financial calculator. Chapter 3: BALANCE SHEET: Assets = Liabilities + Equity INCOME STATEMENT: Sales Operating expense excluding depreciation Depreciation ...
UCSB, ECON 118
Excerpt: ... inus current Liabilities. ROA measures the profitability of the assets employed without regard to financing Profit Margin the percentage kept of each dollar of revenue (express as a percentage) Asset turnover dollars of revenue generated for each dollar of assets invested (express as a decimal) Explanation: ROA decreases because profit margin and asset turnover decreases The reason why cash flows from operations is consistently much higher than net income is because of depreciation. Depreciation takes away an intangible dollar amount from net income. ROA Level 1 Net income + (1-tax rate) Interest Expense + Minority Interest +/- after and before tax special items Total Year End Assets Level 2 ROA = Profit Margin Numerator from ROA (Operating Profit) Sales * Asset Turnover _Sales _ Total Assets * The Line = Income From Continuing Operations OR net income if no continuing operations* (If special items are above the line, make sure to tax, and if below the line, do not tax) Special items below ...
South Central College, ACC 210
Excerpt: ... the percentage of each dollar of sales that results in net income. The formula is: Profit margin on sales = Net income Net sales 22. Asset turnover measures how efficiently a company uses its assets to generate sales. The formula for this ratio is: 14-7 Asset turnover = Net sales Average total assets 14-8 23. The gross profit rate indicates a company's ability to maintain an adequate selling price above its costs. The gross profit rate is: Gross profit rate = Gross profit Net sales 24. Earnings per share of stock measures the amount of net income earned on each share of common stock. The formula is: Earnings per share = Net income - Preferred stock dividends Average common Stockholders' equity 25. The price-earnings ratio measures the ratio of market price per share of common stock to earnings per share. It is an oft-quoted statistic that reflects investors' assessments of a company's future earnings. The formula for the ratio is: Price-earnings ratio = 26. Stoc ...
UT Dallas, BA 4347
Excerpt: ... anks this sometimes results in placing leans on inventory or assets. Even though their interests are different in these ratio's, they all still have an interest. c. Inventory Turnover Ratio = sales/inventories = 7,036 / 1,716 = 4.10x Days Standing Outstanding (DSO) = Receivables / average sales per day = 878 / (7,037 / 365) = 45.5 days Fixed Asset Turnover = sales / net fixed assets = 7,036 / 878 = 8.41x Total Asset Turnover = Sales / Total Assets = 7,036 / 3,517 = 2.00x The fixed asset turnover ratio exceeds the industry average (7.0) which is good. The total asset turnover ratio is below the industry average (2.5) which is bad. This is likely a result of high A/R and inventory. d. Debt ratio = Total liabilities / Total Assets = (1,040 + 500) / 3,517 = .438 = 43.8% Times Interest Earned Ratio (TIE) = EBIT / Interest Expense = 502.6 / 80 = 6.3x EBITDA = (EBIT + amortization and depreciation + Lease Payments) / (interest expense + lease Payment + Loan Payment) = (502.6 + 120 + 40) / (80 + 40) = 5.5x The ...
Delaware, FINC 200
Excerpt: ... FINC 200 Fundamentals of Finance Univ. of Delaware Fall, 2005 Financial Ratio Problems: 1) ABC Company indicates that it has $ 750,000 in annual sales, and provides the following financial ratio figures: Total Asset Turnover Ratio = 2.5 times Profit Margin = 6.00% Determine ABCs Net income and Return on Assets = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 2) Prepare a Balance Sheet based upon the availability of the following figures: Sales to Total Assets = 3.0 Total Debt to Total Assets = 40% Current Ratio = 2.0 Sales = $ 6,000,000 ASSET Cash _ Inventory _ A/C Receivable _ Fixed Assets _ TOTAL ASSETS _ Inventory Turnover Ratio = 10.0 Avg. Collection Period = 18 days Fixed Asset Turnover Ratio = 7.5 times Long-Term Debt to Short-Term Debt = 3-to-1 LIABILITIES Short Term Debt _ Long Term Debt _ A/C Payable _ Sholders Equity _ TOTA ...
Penn State, H P A 447
Excerpt: ... The Du Pont Identity Presented by: Group 6 Du Pont Identity An expression that breaks return on equity (ROE) down into three parts: profit margin, total asset turnover and financial leverage. Du Pont Identity The Du Pont identity tells us that ROE is affected by three things: 1.) Operating efficiency (measured by profit margin) 2.) Asset use efficiency (measured by total asset turnover ) 3.) Financial leverage (measured by the equity multiplier) Du Pont Identity ROE = Profit Margin x Total Asset Turnover x Equity Multiplier Whereas: Profit Margin = Net Income Sales Total Asset Turnover = Sales Assets Equity Multiplier = Assets Total Equity Du Pont Identity If ROE is unacceptable, the Du Pont identity helps locate the part of the business that is underperforming. ...
Baylor, FIN 100
Excerpt: ... 51,250 Notes payable $ 1,015 Accounts payable 3,545 Accrued taxes 225 Current liabilities 4,785 Long-term debt 18,035 Deferred income taxes 2,840 Total Debt $20,875 Common stock-par 575 Paid in capital 7,945 Retained earnings 17,070 Common equity 25,590 Total liabilities & net worth $51,250 52 Miller Company Income Statement Year Ended December 31, 2008 Net sales (credit) Cost of sales Gross profit General and administrative expense Operating income Interest changes Net income before taxes Income taxes Net income $46,235 33,167 13,068 9,590 3,478 1,120 2,358 1,130 $ 1,228 Industry Ratios Current ratio Acid-test ratio Inventory turnover Average collection period Operating profit margin Total asset turnover Fixed asset turnover Debt ratio Times interest earned Return on equity Required: Evaluate Miller's financial performance, using the "four-question approach" presented in Chapter 3 of the text. Industry 4.02 3.00 7.50 63.1 6.0% 2.0 3.0 38.0% 3.90 4.0% 53 SOLUTION (a) Current ratio Acid-test r ...
Allan Hancock College, BA 930
Excerpt: ... Question 11.6 The reason why Slow Ltd has the same return on investment but a much higher profit margin than Quick Ltd can be found by looking at the rate at which each firm is able to turn over its investment in total assets, that is the asset turnover ratio. The asset turnover ratio shows the relationship between total sales and total assets. It is one of the components of the return on investment ratio. Return on investment For Quick Ltd: ROI = 10% = Thus: Asset turnover = For Slow Ltd: ROI = 10% = Thus: Asset turnover = = Asset turnover x Profit margin Asset turnover x 2% Asset turnover x 2% 5 times Asset turnover x 10% Asset turnover x 10% 1 time This indicates that while the profit margin is only 2 per cent for Quick Ltd, it earns this margin five times more often than Slow Ltd earns its 10 per cent profit margin and therefore still finishes with the same 10 per cent ROI. The reason for the difference in profit margin is probably as a result of the two firms selling different products. A discount reta ...
Oakwood, FIN 301
Excerpt: ... ate sales. Examples of this type of ratio include accounts receivable turnover, inventory turnover, fixed asset turnover , and total asset turnover . Leverage ratios are used to measure the extent to which a firm has financed its assets with outside (non-owner) sources of funds. Example ratios include the debt ratio, long-term debt-to-total-capitalization ratio, and times interest earned ratio. Profitability ratios serve as overall measures of the effectiveness of the firms management relative to sales and/or to investment. Examples of profitability ratios include the net profit margin, return on total assets, operating profit margin, operating return on assets, and return on common equity. Instead, we have chosen to cluster the ratios around important questions that may be addressed to some extent by certain ratios. These questions, along with the related ratios may be stated as follows: 1. How liquid is the firm? Current ratio Quick ratio Accounts receivable turnover (average collection period) Inventory t ...
Virginia Tech, FIN 3104
Excerpt: ... Fin Notes 9-11 I. Objectives of ratio analysis - To evaluate a firm's ongoing success. We are going to do that by: 1) compare with past ratios 2) compare our ratios with those of the competition. Balance Sheet: Assets = "return generating assets" (how you make $) Liabilities How you finance these Return on Investment = is the most popular of all ratios. - Forbes Fortune rank firms by profitability - Target ROI's are used for bonuses - Utility rates are based on them. II. Definition ROI = Profit after taxes Some measure of investment Investment may be measued by a. Assets Profit after tax (PAT) Asset (debt + Equity) PAT Equity b. Stockholders' equity (higher number) III. Analysis- returns on assets or ROA For purposes of analysis ROI is frequently broken down into the product of two ratios: Profit after Taxes Sales Or Profitability * Efficiency * Sales Assets Profit Margin HIGH LOW AVE - * Asset Turnover ratio = ROA LOW HIGH AVE Discuss the reasons: high profit margin indicat ...
UWO, MOS 310
Excerpt: ... nagement of inventory in terms of number of days inventory is held. Ratio tends to vary greatly depending upon the industry you are analyzing Average Age of Inventory = Inventory Daily COGS Where Daily COGS equals the daily value of the Cost of Goods Sold. Average Collection Period Useful for evaluating credit and collections policies of the firm, this ratio is also measured in days. Assumption made by text: All sales are made on a credit basis AKA: DSO Average Collection Period = Accounts Receivable Avg. Sales Per Day Net 30 days is common for most credit terms. Average Payment Period This ratio evaluates the speed of satisfying the Accounts Payable for the firm. Prospective lenders and suppliers are particularly interested in this value Difficulty: Annual purchases is not readily reported. COGS is used in its place Average Payment Period = Accounts Payable Avg. Purchase Per Day Fixed and Total Asset Turnover These ratios evaluate the use of Fixed and Total Assets to generate S ...
Cornell, H ADM 225
Excerpt: ... tries and at different times. 3-11 Categories of Financial Ratios Short-term solvency or liquidity ratios We will ignore these Long-term solvency or financial leverage ratios Focus on D/E and EM Asset management or turnover ratios Focus on Total Asset Turnover Profitability ratios Market value ratios 3-12 Computing Long-term Solvency Ratios (Leverage Ratios) Debt/Equity = TD / TE (5394 2556) / 2556 = 1.11 times Equity Multiplier = TA / TE = 1 + D/E 1 + 1.11 = 2.11 Interpretation depends on whether capital structure is important and what is happening in the industry 3-13 Computing Total Asset Turnover Total Asset Turnover = Sales / Total Assets 5000 / 5394 = .93 It is not unusual for TAT < 1, especially if a firm has a large amount of fixed assets Measures how much a company is getting out of their asset base 3-14 Computing Profitability Measures Profit Margin = Net Income / Sales 689 / 5000 = 13.78% Return on As ...
UT Dallas, ACCT 3320
Excerpt: ... Assignment 2 Solutions - Financial Analysis Question 1. Which of the following types of firms do you expect to have particularly high or low asset turnover ? Explain why. Supermarket-High asset turnover . Supermarkets tend to be high volume businesses. Many of the food products in supermarkets are perishable, and freshness is often used to differentiate products, forcing a certain amount of inventory turnover. The typical consumer buys groceries on a regular basis, guaranteeing grocery stores a certain level of overall business. Apart from inventories, a supermarket's largest assets are its warehouses and stores, all constructed to be relatively inexpensive. Thus, high sales volumes generate a high measured level of asset turnover . Pharmaceutical Company- High asset turnover . Drugs typically have a limited shelflife. Once past their expiration date, drugs cannot be sold and are worthless. Consequently, pharmaceutical companies try to limit production to quantities which can be expected to be sold before t ...
Alabama, AC 210
Excerpt: ... E11-14. Chapter 11: concepts related to intangible assets, including the computation of goodwill. E11-17, E11-18, ALICE Mod 6 #17. Chapter 12: concepts and computations related to operating leverage. E12-4, E12-2. Chapter 12: computation and meaning of financial ratios designed to interpret investing activities: return on equity, return on assets, asset turnover , profit margin. E12-12, E1211, E12-8, E12-10; ALICE Mod 6 #19. Chapter 12: concepts of effectiveness and efficiency. Chapter 13: concepts related to revenue recognition, including recognizing revenue on long-term contracts. Chapter 13; concepts and grid entries related to sales discounts and returns. E13-5. Chapter 13: concepts, computations, and grid entries related to uncollectible accounts. E13-6, E13-8, P3-4; ALICE Mod 7 #6-7. Chapter 13: computation of cost of goods sold and ending inventory under all 3 methods FIFO, LIFO, weighted average under the periodic method only (not perpetual). E1315, E13-19, E13-20, ALICE Mod 7 #12. Chapter 13: ...
Royal Holloway, MN 1041
Excerpt: ... Stock holding period Debtors collection period Creditors period Asset turnover Gearing Gearing ratio 16 ...
Cornell, AEM 221
Excerpt: ... but is not shown on the statements Return on Equity Analysis: A Framework for Evaluating Company Performance Return on equity = net income / average stockholders equity ROE measures how much firm earned for each dollar of stockholders investment Net Profit Margin net income / net sales. Measure how much of every sales dollar is profit. Increase by o Increasing sales volume o Increasing sales price o Decreasing expenses Asset turnover (efficiency) asset turnover is net sales / average total assets. It measure how many sales dollars the company generates with each dollar of assets. It can be increased by: o Increasing sales volume o Disposing of (decreasing) less productive assets Financial Leveraging average total assets / average total stockholders equity. Measure how many dollars of assets are employed for each dollar of stockholder investment. It can be increased by o Increased borrowing o Repurchasing (decreasing) outstanding stock High-value or product-differen ...
Cornell, AEM 221
Excerpt: ... e statements Return on Equity Analysis: A Framework for Evaluating Company Performance Return on equity = net income / average stockholders equity ROE measures how much firm earned for each dollar of stockholders investment Net Profit Margin net income / net sales. Measure how much of every sales dollar is profit. Increase by o Increasing sales volume o Increasing sales price o Decreasing expenses Asset turnover (efficiency) asset turnover is net sales / average total assets. It measure how many sales dollars the company generates with each dollar of assets. It can be increased by: o Increasing sales volume o Disposing of (decreasing) less productive assets Financial Leveraging average total assets / averge total stockholders equity. Measure how many dollars of assets are employed for each dollar of stockholder investment. It can be increased by o Increased borrowing o Repurchasing (decreasing) outstanding stock High-value or product-differentiation strategy re ...
Northeastern, FIN 201
Excerpt: ... O are unchanged means that the company has increased its inventories. Differences in the amounts of assets necessary to generate a dollar of sales cause asset turnover ratios to vary among industries. For example, a steel company needs a greater number of dollars in assets to produce a dollar in sales than does a grocery store chain. Also, profit margins and turnover ratios may vary due to differences in the amount of expenses incurred to produce sales. For example, one would expect a grocery store chain to spend more per dollar of sales than does a steel company. Often, a large turnover will be associated with a low profit margin, and vice versa. Inflation will cause earnings to increase, even if there is no increase in sales volume. Yet, the book value of the assets that produced the sales and the annual depreciation expense remain at historic values and do not reflect the actual cost of replacing those assets. Thus, ratios that compare current flows with historic values become distorted over time. For exam ...