fm4 17 - How does Computron compare with the industry with...

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Mini Case: 4 - 17 The firm’s inventory turnover ratio has been steadily declining, while its days sales outstanding has been steadily increasing. While the firm’s fixed assets turnover ratio is below its 2006 level, it is above the 2007 level. The firm’s total assets turnover ratio is below its 2006 level and equal to its 2007 level. The firm’s inventory turnover and total assets turnover are below the industry average. The firm’s days sales outstanding is above the industry average (which is bad); however, the firm’s fixed assets turnover is above the industry average. (This might be due to the fact that Computron is an older firm than most other firms in the industry, in which case, its fixed assets are older and thus have been depreciated more, or that Computron’s cost of fixed assets were lower than most firms in the industry.) d. Calculate the 2008 debt, times-interest-earned, and EBITDA coverage ratios.
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Unformatted text preview: How does Computron compare with the industry with respect to financial leverage? What can you conclude from these ratios? Answer: Debt Ratio 08 = Total Liabilities/Total Assets = ($1,039,800 + $500,000)/$3,516,952 = 43.8%. Tie 08 = EBIT/Interest = $502,640/$80,000 = 6.3 . EBITDA Coverage 08 = + Payments Lease EBITDA / + + Payments Lease Repayments Loan Interest = ($502,640 + $120,000 + $40,000)/($80,000 + $40,000) = 5.5 . The firms debt ratio is much improved from 2007, and is still lower than its 2006 level and the industry average. The firms TIE and EBITDA coverage ratios are much improved from their 2006 and 2007 levels. The firms TIE is better than the industry average, but the EBITDA coverage is lower, reflecting the firms higher lease obligations....
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