Ch 4 Homework Text

Ch 4 Homework Text - -No effect on inventory turnover,...

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D) Comparing Terrapin’s Ratios to the Industry’s Current Ratio: Even with industry (2.0 vs. 2.0) Quick Ratio: Slightly weaker than the industry (1.26 vs. 1.3) DSO: Twice as weak as the industry (71.9 days vs. 35 days) Inventory Turnover: Slightly stronger than the industry (7.04 vs. 6.7) Total Assets Turnover: Much weaker than the industry (1.80 vs. 3.0) Net Profit Margin: Much stronger than the industry (2.3% vs. 1.2%) ROA: Stronger than the industry (4.2% vs. 3.6%) ROE: Stronger than the industry (11% vs. 9%) Total Debt/Total Assets: Slightly stronger than the industry (62% vs. 60%) E) -No affect on the Current Ratio -Quick Ratio would decrease because of the increase in inventories -No effect on DSO, since both numerator and denominator are doubling
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Unformatted text preview: -No effect on inventory turnover, since both numerator and denominator are doubling-Total Asset Turnover would increase, but not double, since sales doubles, but total assets are increasing only according to the increasing amount of inventories and receivables-Net Profit Margin would decrease by half since sales, the denominator, is doubling-Return on Assets would decrease because total assets (denominator) is increasing from the doubling of the inventories and account receivables-Return on Equity would decrease by half because of the doubling of the common equity (the denominator)-Total Debt/Total Assets would decrease because of the increase in total assets as a result of doubling the inventories and the accounts receivables...
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This note was uploaded on 09/07/2011 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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