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FIN550 Week 5 Discussion Chp 10

# FIN550 Week 5 Discussion Chp 10 - Receivables Turnover...

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Week 5 Discussion Chapter 10, Problem 2 & Problem 3 Problem 2 Three companies have the following reuslts during the recent period K L M Net Profit Margin 0.04 0.06 0.10 Total Assets turnover 2.20 2.00 1.40 Total assets/equity 2.40 2.20 1.50 A Derive for each its return on equity based on the three DuPont components Formula to be used - ROE = Total asset turnover x Total asset/equity Company Return on Equity K 0.21 L 0.26 M 0.21 B Given the following earnings and dividends, compute the estimated sustainable growth ra for each firm Fomula Growth Rate = Retention rate x ROE = (1 - payout rate) x RO K L M Earnings/share 2.75 3.00 4.50 Dividends/share 1.25 1.00 1.00 Company Growth Rate K 0.1152 L 0.1760 M 0.1633 Problem 3 Given the following balance sheet, fill in the ratio values for 2010 and discuss how these re with both the industry average and prior average performance of Sophie Enterprises. Ratios Current Ratio 1.857 2.000 2.200 Quick Ratio 0.914 1.000

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Unformatted text preview: Receivables Turnover 17.949 18.000 18.000 Avg. Collection period 20.336 20.000 20.000 Total Assesr Turnover 1.604 1.500 1.400 Inventory Turnover 7.625 11.000 12.500 Fixed-Asset Turnover 2.393 2.500 2.400 Equity Turnover 3.382 3.200 3.000 Gross Profit Margin 0.390 0.400 0.350 Operating Profit Margin 0.074 8.000 7.500 Return on Captial 0.088 0.107 0.120 Return on Equity 0.109 0.118 0.126 Return on Common Equ. 0.110 0.128 0.135 Debt-Equity Ratio 0.510 0.600 0.500 Debt-total capital ratio 0.338 0.400 0.370 Interest coverage 4.161 4.000 4.500 Sophie 2010 Sophie's Average Industry Average Fixed Charge Coverage 3.045 3.000 4.000 Cash Flow-LT Debt 0.438 0.400 0.450 Cash Flow- Total Debt 0.281 0.250 0.300 Retention Rate 0.649 0.350 0.400 Based on the information contained in the above chart, Sophie ty x Net profit margin ate OE reults compare...
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