Chapter5_HW_Key[1]

Chapter5_HW_Key[1] - Chapter 5 Financial Ratios Homework...

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1 Chapter 5 Financial Ratios Homework Answer the following the questions based on the consolidated statements of Outback Steakhouse, Inc. and affiliates for the years 2000 and 1999 (expressed in thousands of dollars). Liquidity ratios (1 point) 1. Did the amount of working capital increase or decrease from 1999 to 2000? By how much? The amount of working capital increased from $12,276 (143,211-130,935) in 1999 to $14,002 (182,047- 168,045) in 2000. 2. Compute and explain the current ratio for the years 2000 and 1999 2000 1999 Current assets $182,047 $143,211 Current liabilities $168,045 $130,935 Current ratio 1.08 to 1 1.09 to 1 In 2000, Outback had approximately $1.08 of current assets for each dollar of current liabilities. As shown on its balance sheet for both years, a major portion of Outback’s current assets are in the form of cash and cash equivalent intended as a source of cash for the construction of specific properties ($131.6 million in 2000 and $92.6 million in 1999). An average firm in the hospitality industry would have $1 of current assets for each dollar of current liabilities. Therefore, the current ratios of Outback’s as of December 31, 2000 and 1999 serve as evidence of fairly high liquidity, resulting primarily from the large amounts of cash and cash equivalent. 3. Compute and explain the quick ratio for the years 2000 and 1999 2000 1999 Cash and cash equivalents $131,604 $92,623 Account receivable $5,549 $6,116 Account receivable – franchise $5,100 $6,291 Current liabilities $168,045 $130,935 Quick ratio 2000 = (131,604 + 5,549+5,100)/168,045 = 0.85 Quick ratio 1999 = (92,623 + 6,116 + 6,291)/130,935 = 0.80 The quick ratio increased from .80 to 1 in 1999 to .85 to 1 in the year 2000. The increase in the quick ratio to a level above restaurants’ industry averages is a reflection of an improvement in the company’s short-term debt paying ability. 4. Compute and explain the accounts receivable turnover for the year 2000 2000 1999 Sales $1,906,006 $1,632,720 Account receivable $5,549 $6,116 Account receivable – franchise $5,100 $6,291 Accounts receivable turnover 2000 = 1,906,006 (5,549 5,100 6,116 6,291)/ 2 +++ =82.67
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2 The accounts receivable turnover of 82.67 indicates that the total revenue for 2000 is 82.67 times the average receivables.
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This note was uploaded on 10/08/2011 for the course HTM 458 taught by Professor Bu during the Spring '09 term at S.F. State.

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Chapter5_HW_Key[1] - Chapter 5 Financial Ratios Homework...

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