Lebo_&_Co_Presentation - due to high advertising...

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Click to edit Master subtitle style 10/5/09 AEM 323 Budget Project
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10/5/09 Introduction
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10/5/09 Sales Return on Sales: $1,700,000/(-$31,868) = -53.345 This shows that that $-53.345 of every sales dollar generated during the current period is profit. This is extremely low and detrimental to the company since sales is actually contributing to a negative profit. Return on Equity: (-$31,868)/$133,132 = -.024 This is how much the firm earned for each dollar of stockholders’ investment. Once again, the negative value shows that the company is in bad shape and discourages investors from investing in the company. There is peak sales in the months of April
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10/5/09 Net Income Contribution Margin: $850,000 Contribution Margin Ratio: $850,000/$1,700,000 = .5 There is an abnormally high accounts receivable balance since 70% of cash collected is done 2 periods after the sale, which causes net income to decrease considerably, resulting in the negative net income. Also, fixed expenses is relatively high
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Unformatted text preview: due to high advertising costs, and in some periods, the contribution margin is not able to cover all fixed costs. 10/5/09 Inventories Inventory Turnover Ratio: COGS/Avg. Accounts Receivable = $680,000/ $326,000 = 2.086 Average Sale Period: 365 days. Inventory Turnover = 365/2.086 = 175 days 10/5/09 Cash & Finance Current Ratio: $413,132/$65,000 = 6.356 A high current ratio suggests inefficient use of resources. This is most likely attributed to the high accounts receivable balance, which ties up resources. Debt to Equity Ratio: $65,000/$1333,132 = .05 This shows that the company does not rely heavily on funds provided by creditors. There is a low risk that the company will not be able to meet financial obligations in the future and enables the company to continue to receive financing. Time Interest Earned Ratio: (-$26,000)/$5,868 = - 4.43 10/5/09 Overall Health of Company 10/5/09 Conclusions...
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Lebo_&_Co_Presentation - due to high advertising...

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