CEE 498 - HW3

CEE 498 - HW3 - CEE 498 Fall, 2004 HW 3 1. For the...

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CEE 498 Fall, 2004 HW 3 1. For the financial statement from the lecture handout, calculate the eleven key financial ratios (also found in lecture handout) for the 1988 financial data. Is this company in a sound financial position? Discuss the ratios that fall outside the given range (if any do). What do these eleven ratios indicate the company has to improve? Quick Ratio = Total Current Assets/Current Liabilities = 994,290 / 632,124 = 1.57 Current Ratio = Total Current Assets / Total Current Liabilities = 994,290 / 632,124 = 1.57 Collection Period = (Accounts Receivable x 365) / Annual Sales Revenue = 365(Contract + Account Receivable) / Annual Sales Revenue = ((321,258 + 2439)365) / 1,825,499 = 64.7 days Net Profit / Tangible Net Worth = Net Profit / (Total Assets – Total Liabilities) = 144,067 / (1,022,478 – 632,124) = .3690 x 100 = 36.9% Net Profit / Total Assets = 144,067 / 1,022,478 = .1408 x 100 = 14.1 % Net Sales / Tangible Net Worth = 1,825,449 / (1,022,478-632,124) = 4.67 Net Sales / Working Capital = Net Sales / (Current Assets – Current Liabilities) = 1,825,449 / (994,290 – 632,124) = 5.04 General, Administrative Expenses / Tangible Net Worth = 363,421 / (1,022,478-632,124) = .931 x 100 = 93.1% Fixed Assets / Tangible Net Worth = (Total Property, Plant, & Equipment Assets – Accumulated Depreciation) / Tangible Net Worth = 28,188 / 390,354 = .0722 x 100 = 7.2 %
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Total Liabilities / Tangible Net Worth = 632,124 / 390,354 = 1.62 Hard Debt / Tangible Net Worth = 100,00 / 390,354 = 0.2562 This company is in a poor financial position. This is revealed through 5 of these 11 ratios. The first ratio, which shows its poor position, is the collection period. The collection period for this company is 64.7, which is above the average collection period. Therefore, the collection period must be reduced to help improve the cash flow for this company. The second ratio, which demonstrates poor financial position, is the net sales to tangible net worth ratio. The result of this ratio is 36.9%, which is below the average. The below average result of this ratio reveals that the company is overcapitalizing and has slow growth. Therefore, the company must increase sales and stop investing capital in the company. The third ratio that is notable is the general & administrative Expenses to tangible net worth ratio. The value of this ratio is 93.1%, which is considered high.
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CEE 498 - HW3 - CEE 498 Fall, 2004 HW 3 1. For the...

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