ACC585(3)

# ACC585(3) - Module 2 Group Assignment Group MHLWM Matthew...

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Module 2 Group Assignment- Group MHLWM Matthew Brundage, Lynne Gigliotti, Winnie He, Heidi Deppmeyer, and Michael Lisi Chapter 4, Problem 4-5 I believe company C is Amazon. On the balance sheet they have significant amount in cash and marketable securities but no current receivables as you would expect large portion of their customers are not buying items on credit such as a manufacturing company, Alcoa. They also have a small portion in inventory and property, plant, and equipment. This correlates to Amazon because they are an internet based company and you would expect such companies as Wendy’s and Delta to have more fixed assets. Company A’s balance sheet seems to be more in line of a manufacturing company, Alcoa. They have the largest accounts receivables which could indicate selling products on credit. They also have the largest inventory to me manufacturing aluminum needs. Both Company B and D have large property, plant, and equipment balances that could suggest to Delta Airlines or Wendy’s. When looking at both of their liabilities you note that B has a significant amount in long-term liabilities. This could suggest long term debt obligations needed for expensive flight equipment. For that reason, I believe B is Delta Airlines and D is Wendy’s. Chapter 5, Problem 5-16: 1) Calculate the following ratios for Alpine Chemical for 2014 1a. EBIT/Interest Expense EBIT/Interest Expense = EBIT + Interest Expense/ Interest Expense = \$1629 + \$318/ \$318 = \$1947/ \$318 EBIT/Interest Expense = 6.12264 or 6.12 1b. Long-term Debt/Total capitalization Long-term Debt/Total capitalization = Long-term debt/Long-term debt+ Total Net Worth = \$1491/ \$1491 + \$3075 = \$1491/ \$4566

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= 0.3265 OR 33% 1c. Funds from operations/Total Debt Funds from operations/Total Debt= Net income + Depreciation expense/Long-term debt + notes payable = \$1479 + \$511/ \$1491 + \$1900 = \$1990/ \$3391 = 0.5868 OR 59% 1d. Operations Income/Sales Operations income/Sales = Operating income/ Sales = \$2458/ \$19460 = 0.1263 OR 13% 2. Explain the significance of each ratio calculate in requirement1 to the assessment of Alpine Chemical’s credit worthiness 2a. The EBIT/Interest expense ratio is used to measure the ability of a company to make interest payments from pre-tax earnings. For Alpine Chemical, we calculated a ratio in 2014 of 6.12. A ratio of less than 1 is an indicator that the company has to sell their assets in order to finance making necessary interest payments. This ratio indicates that Alpine Chemical has the ability to make necessary payments over the course of the past six years. Their ratio has been consistently 4.00 or better. 2b. Long-term debt to total capitalization is a measure of financial leverage of an organization. An indicator of high leverage demonstrates the company is sensitive toward downturns in business. For Alpine Chemical, their rating has remained relatively stable between 30-40% over the course of the past six years. On an industry level as we will see in question three, this ranks on the lower end of their industry peers.
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