Mgmt 200 Assignment Soln 4-27-11

Mgmt 200 Assignment Soln 4-27-11 - = 0.6 times 5. Return on...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for April 27, 2011 Additional Perspective 12-1 Requirement 1 Risk Ratios Calculations 1. Receivable turnover ratio $661,000 ($45,000 + $35,000) / 2 = 16.5 times 2. Average collection period 365 16.5 = 22.1 days 3. Inventory turnover ratio $70,000 ($17,000 + $14,000) / 2 = 4.5 times 4. Average days in inventory 365 4.5 = 81.1 days 5. Current ratio $397,362 $69,750 = 5.7 to 1 6. Acid-test ratio $322,362 + $45,000 $69,750 = 5.3 to 1 7. Debt to equity ratio $562,112 $1,325,000 = 42.4% 8. Times interest earned ratio $150,000 + $29,724 + $57,000 $29,724 = 8.0 times
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Requirement 2 Profitability Ratios Calculations 1. Gross profit ratio $118,000 − $70,000 $118,000 = 40.7% 2. Return on assets $150,000 ($1,887,112 + $237,750) / 2 = 14.1% 3. Profit margin $150,000 $661,000 = 22.7% 4. Asset turnover $661,000 ($1,887,112 + $237,750) / 2
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Unformatted text preview: = 0.6 times 5. Return on equity $150,000 ($1,325,000 + $160,000) / 2 = 20.2% Requirement 3 Regarding risk, Great Adventures appears to be in great shape. Liquidity is strong based on the receivable turnover ratio, current ratio, and acid-test ratio. They may be able to improve the inventory turnover ratio as the MU watches are in inventory an average of over 80 days. Profitability also looks good. The MU watches have a 40.7% mark-up. The return on assets and the return on equity are both respectable at 14.1% and 20.2%. Asset turnover is rather low, but so far they have been able to make up for it with a rather high profit margin. Exercise 12-14 a. Conservative (lower income, lower assets) b. Aggressive (higher income, higher assets) c. Conservative (lower income, lower assets) d. Aggressive (higher income, lower liabilities)...
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This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt 200 Assignment Soln 4-27-11 - = 0.6 times 5. Return on...

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