{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# fm4 16 - = \$2,680,112/\$1,039,800 = 2.58 × Quick Ratio 08...

This preview shows page 1. Sign up to view the full content.

Mini Case: 4 - 16 a. Why are ratios useful? What are the five major categories of ratios? Answer: Ratios are used by managers to help improve the firm’s performance, by lenders to help evaluate the firm’s likelihood of repaying debts, and by stockholders to help forecast future earnings and dividends. The five major categories of ratios are: liquidity, asset management, debt management, profitability, and market value. b. Calculate the 2008 current and quick ratios based on the projected balance sheet and income statement data. What can you say about the company’s liquidity position in 2006, 2007, and as projected for 2008? We often think of ratios as being useful (1) to managers to help run the business, (2) to bankers for credit analysis, and (3) to stockholders for stock valuation. Would these different types of analysts have an equal interest in the liquidity ratios? Answer: Current Ratio 08 = Current Assets/Current Liabilities
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: = \$2,680,112/\$1,039,800 = 2.58 × . Quick Ratio 08 = (Current Assets – Inventory)/Current Liabilities = (\$2,680,112 - \$1,716,480)/\$1,039,800 = 0.93 × . The company’s current and quick ratios are higher relative to its 2006 current and quick ratios; they have improved from their 2007 levels. Both ratios are below the industry average, however. c. Calculate the 2008 inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Computron’s utilization of assets stack up against other firms in its industry? Answer: Inventory Turnover 08 = Sales/Inventory = \$7,035,600/\$1,716,480 = 4.10 × . DSO 08 = Receivables/(Sales/365) = \$878,000/(\$7,035,600/365) = 45.5 Days. Fixed Assets Turnover 08 = Sales/Net Fixed Assets = \$7,035,600/\$836,840 = 8.41 × . Total Assets Turnover 08 = Sales/Total Assets = \$7,035,600/\$3,516,952 = 2.0 × ....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online